The Fed is unlikely to increase interest rates this year, but policymakers are not rushing to cut them from 5.25%-5.5%. Interests rate shape markets, particularly affecting renewable energy with its high upfront costs and reliance on debt.
A 2% interest rate increase would spike the levelized cost of electricity (LCOE) for renewables by 20%, while natural gas power plants would face an 11% increase under the same conditions, impacting the competitiveness of clean energy.
Large oil and gas companies, with record profits, are less reliant on debt for project financing compared to renewable energy projects. This reliance on debt makes renewable energy vulnerable to interest rate fluctuations for project viability.
Challenges with interest rates and LCOE for renewables have been ongoing but are exacerbated by the possibility of sustained high interest rates post-COVID, impacting billions worth of announced renewable energy projects.
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