When the Fed Talks About Solar and Renewables, People Listen
For many, making the choice to go green is an individual decision. Yet it’s important to zoom-out and examine the external forces at play for renewable energy projects. The country’s Federal Reserve is one of the key players in situations such as this, and not only for monetary policy, but also for interest rates.
While interest rates may be one of the last things on your mind when considering the future of solar power adoption and renewable energy, here’s the reality: the national interest rate has a trickle-down effect that impacts the rate of return that investors require on energy projects. Read on to find out why listening to the Fed when it comes to the future of solar is just plain wise.
What’s the State of the Solar Industry?
Solar is not immune to being impacted by Federal Reserve changes. Other industries, such as oil, are likewise affected by the Federal Reserve’s decisions regarding interest rates. But what do Federal Reserve policy changes mean for the solar industry?
If the Federal Reserve opts to increase interest rates (which are currently at an industry-benefitting low), the cost effects ripple throughout the economy. And for solar and renewable energy industries, a Federal Reserve mandated change in interest rates directly impacts the funds that a solar installer or developer is able to contribute towards building solar projects.
Concerns for the Solar Industry
With a new political party in power, interest rates are slated to change. Republican-backed, fiscally conservative policies are likely to result in higher interest rates and tighter monetary policy.
If the Federal Reserve raises interest rates in the near future, which is likely, the renewable energy supply chain will see a substantial decrease in value. For developers seeking to pursue renewable energy projects, this creates a concern that projects will not receive the return on investment as quickly as promised.
Moving Forward With a Fiscally Conservative Federal Reserve
While there are still many factors in play, it’s undeniable that the Federal Reserve’s decisions regarding interest rates will greatly impact the future of solar and renewable energy. Incentives are key in investing in green energy, because the up-front costs are often difficult to swallow.
But here’s what you need to know. A rise in interest rates will impact both suppliers and developers. Developers will seek to reduce up-front costs in the face of increasing rates, and for suppliers, the mounting up-front costs of solar energy projects (as compared to fossil fuel projects that have costs spread out over a longer duration of time) will lead to a reduction in volume of solar projects.
Mitigating Negative Federal Impact on Solar Energy
To combat any potential Federal Reserve-governed interest rate changes, solar and renewable energy industry professionals should stay informed. Don’t underestimate the role of the Federal Reserve in impacting affordability, accessibility, and growth of solar energy.
While the low interest rates of the past decade have favored solar energy implementation, it’s important to know that higher interest rates will impact everything from developer bids to component prices. Stay up to date on the ever-changing rates of this industry, and don’t disregard the role of the Federal Reserve in the future of solar and green energy.
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