What Powell’s Interest Rate Comments Mean for Green Investment

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Interests rate shape markets, and that’s especially true with renewable energy.

U.S. Federal Reserve Chairman Jerome Powell speaks during a news conference after a Federal Open Market Committee meeting on May 1n May 1, Federal Reserve Chair Jerome Powell offered a two-part message to eager interest rate watchers. The Fed is unlikely to increase interest rates this year, but policymakers there are also not rushing to cut them from 5.25%-5.5%. “I don’t know how long it’ll take,” Powell said of when the Fed might cut rates.

Energy experts sometimes refer to what they call the levelized cost of electricity, or LCOE, to compare the cost of generating electricity over the lifetime of different facilities or energy sources. That figure incorporates all of the different costs associated with building and operating a plant from development to decommissioning.

The challenge that interest rates pose to renewable energy isn’t new. Indeed, it’s been a key point of discussion in energy and climate circles since inflation began to rise rapidly post-COVID. But what is new is the prospect of a longer period of sustained high interest rates. Billions in renewable energy projects have been announced in the time since the passage of the Inflation Reduction Act, but many projects still require final investment decisions.

 

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