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How Interest Rate Comments from Powell Could Impac

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Posted On: 05/17/2024 5:50:38 PM
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Posted By: NetworkNewsWire
How Interest Rate Comments from Powell Could Impact Clean-Energy Investment

Comments from U.S. Federal Reserve chair Jerome Powell during a recent news conference could have an impact on green-energy investment this year. Shortly after a Federal Open Market Committee meeting held in early May, 2024, Powell said that the Federal Reserve was unlikely to raise benchmark interest rates this year but noted that policymakers weren’t in a rush to lower interest rates from 5.25%–5.5% either.

When asked when the Fed might finally cut benchmark interest rates, Powell said he had no idea how long it would take. As it stands, the nascent renewables market’s growth is significantly dependent on interest rates. Green projects tend to have high initial costs, but their low running costs make them sound investments in the long-term. As such, green-energy developers typically acquire debt to launch their projects and take advantage of their limited operation costs to pay back the loans.

High interest rates increase the cost of debt and make borrowing more expensive, which ultimately discourages renewables developers who typically rely on debt capital to launch projects. Additionally, high interest rates impact the operations of renewable projects to a greater degree compared to fossil fuel-powered electricity generation. An April Wood Mackenzie analysis revealed that a two percentage point increase in interest rates can increase the total lifetime cost of generating electricity in renewable projects or levelized cost of electricity (LCOE) by 20%.

In comparison, a similar interest rate increase would raise the LCOE of natural gas-fired power plants by only 11%. Large gas and oil companies have also recorded massive profits over the past few years and have enough capital to finance new projects without relying on debt entirely. This means the past few years of interest rate hikes have had a larger impact on renewables compared to fossil fuels. Although the 2022 Inflation Reduction Act availed billions of dollars in funding for new green-energy projects, many of those projects still require final investment decisions before they can access the promised funding.

Despite the headwinds facing the global green-energy industry, it has experienced admirable growth in many places even as rising interest rates have made it more expensive for project developers to borrow capital. Some European nations have prioritized green-energy targets regardless of the extra costs involved and are pushing to achieve them in pursuit of carbon neutrality, and the U.S. plans to build out a resilient domestic green-energy supply chain.

It remains to be seen how the strategic plans of entities such as FuelPositive Corp. (TSX.V:NHHH) (OTCQB: NHHHF) have been impacted by the current inflationary environment characterized by high interest rates.

NOTE TO INVESTORS: The latest news and updates relating to FuelPositive Corp. (TSX.V: NHHH) (OTCQB: NHHHF) are available in the company’s newsroom at https://ibn.fm/NHHHF

Please see full terms of use and disclaimers on the GreenEnergyStocks website applicable to all content provided by GES, wherever published or re-published: https://www.greennrgstocks.com/Disclaimer





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