Higher interest rates and inflated prices for hardware are pinching financing for clean energy projects, The Wall Street Journal reported.
“The irrational exuberance, all the excitement about clean energy, is clearly getting squeezed out,” David Foley, leader of asset manager Blackstone’s energy group, said in comments at the SuperReturn Energy Conference last week.
In the 12 months ending 31 October, stock indexes tracking clean energy companies have fallen, as have sub-sectors within the category, Foley pointed out, indicating that the market has lost its enthusiasm for funding green energy endeavors.
“It’s a much more challenging capital-raising environment for both public and private companies” in the sector, he added.
Finding funding for wind and solar projects is the hardest in a decade, CEO Himanshu Saxena at Lotus Infrastructure Partners said at the conference. His firm invests in clean and conventional energy development.
There are other hurdles in addition to inflation and interest rates.
Investors in clean energy projects typically figure their returns on the basis of long-term power purchase commitments users make to the project before construction begins.
Some developers have abandoned projects in which the long-term contracts would not support the suddenly higher cost of building and operating the facility, Saxena said, with developers even willing to pay millions of dollars in cancellation fees to escape those agreements.
However, some agreements build in coverage for escalating costs.
Lotus financed a wind power plant in Ohio, with General Motors contracted to buy the power. GM agreed to pay a higher price for the power as construction costs rose.
“There are customers willing to pay substantially more” to reduce carbon emissions, John Moon, a managing director at Morgan Stanley agreed. “The problem is, there are a lot of people who say they are willing; then when you get to the [negotiating] table, they’re unwilling to do it.”
Purchasers of clean energy also include other clean energy projects, such as hydrogen producers distilling the gas using renewables instead of fossil fuels. As weather patterns shift and become less dependable, those purchasers also are less willing to make firm long-term purchasing commitments.
TREND FORECAST: Financial considerations will continue to override the need to clean the world’s energy mix until the global economy stabilizes and interest rates begin to fall. Governments, especially those led by right-wing political parties, will deflect attempts to expand green-energy incentives or revive those that expire.
The shift to a clean energy economy will be delayed by at least two years, bringing closer the time that the climate will heat past the 1.5°C tipping point that scientists have long said will lead to irreversible geoclimatic change.