Central banks emerge as threat to debt-funded green energy boom

Central banks are emerging as a bigger threat to the green-energy revolution than Donald Trump.

While the U.S. president is tinkering with rules to give coal a leg up over wind and solar, it’s higher interest rates that threaten to scale back the flow of cheap financing that helped funnel $2.9 trillion into renewables in the past decade.

The U.S. Federal Reserve, European Central Bank and Bank of England all are shifting towards tighter monetary policies, and investors in renewables are starting to think about how higher borrowing rates will hurt the economics of their projects. Most vulnerable are developers that rely on non-recourse bank loans for most of their project costs, including some U.S. rooftop-solar installers.

“Renewables have benefited greatly from quantitative easing and low cost of capital,” said Anthony Gordon, managing member of Gordon Energy Partners and the former managing director of energy and infrastructure at Och-Ziff Capital Management Group LLC. “The flood of cheap money has helped get enough projects built that the technology has matured. But this very success may have us on the cusp of a correction.”

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Source: Bloomberg

Date: May 2018

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