Renewable energy projects face greater risk under high interest rates than oil and gas development, according to a new white paper from consulting firm Wood Mackenzie.
The paper found that a rise in interest rates could lead to more canceled solar, wind and nuclear projects, which rely on large amounts of debt. Increased interest rates also raise the price of everything from land to construction materials — upfront costs that represent a larger share of total project costs for renewables than for oil and gas, according to the analysis.
“This increased cost of capital has profound implications for the energy and natural resource industries, particularly the cost and pace of the transition to low-carbon technologies,” said Peter Martin, Wood Mackenzie’s head of economics and lead report author, in a press release.
Over the past two years, the Federal Reserve has gradually increased interest rates to a 23-year high to combat high inflation. Wall Street analysts initially expected the Fed to cut interest rates in the first half of this year, but they have pushed back that prediction to September.
