What do rate cuts mean for energy?

Plus: Three Mile Island is back

September 26, 2024

Good morning. It’s a big week in the Big Apple. Between the UN General Assembly’s climate-themed “Summit for the Future” and New York Climate Week, everyone at Energy Central’s NYC bureau is hoping to run into some movers, shakers, and global energy leaders in line for coffee at the corner bodega this week. Here’s to hoping.

— Reagin von Lehe, Energy Central Newsletter Writer

What Do Interest Rate Cuts Mean for Energy?

Federal Reserve Chair Jerome Powell

The Federal Reserve announced its first interest rate cut in over four years on Wednesday, a move that could give a significant boost to large-scale energy projects across the industry—and especially to renewables.

Here’s why: Rising interest rates hit the renewables industry hard—renewables require hefty capital investment before becoming operational and revenue-generating, and they often use debt to cover those costs. That higher debt ratio leaves the sector more at risk to the impacts of increased borrowing costs.

So what do today’s lower rates mean for renewable energy’s biggest players?

Solar: Residential, commercial, and utility-scale solar all struggled in a higher-rate reality (major solar installation company SunPower declared bankruptcy just last month). But now, lower borrowing costs could 1) nudge consumers to consider financing solar and storage installations and 2) expedite the flow of capital from investors, helping a slew of delayed utility-scale installations get back on track for a big finish to the year.

Offshore wind: The US offshore wind industry struggled with higher rates—Ørsted cited interest rates as a reason for calling off two of its eight US offshore wind projects last fall. But industry experts are penciling in a boost for wind as rates decrease. That’s in part because 1) wind is largely considered a long-duration asset for investors and 2) the economics of projects still in development could strengthen with lower rates.

Big picture: Every interest rate increase of 2 percentage points can ratchet the cost of producing energy for utility-scale solar power up 20%, according to Wood Mackenzie. By that math, renewables are looking up as interest rates go down.

Three Mile Island to Reopen, Power Data Centers

Three Mile Island nuclear generating station

Constellation Energy announced Friday that it plans to reopen Three Mile Island, the site of the worst nuclear reactor accident in US history, to power data centers for Microsoft.

The details: Constellation will spend $1.6 billion to restart the Pennsylvania plant by 2028, pending regulatory approval. Microsoft has agreed to buy as much power as it can from the plant for the next two decades. For the record, this would be the first US nuclear plant to come back into service after being decommissioned.

Why nuclear? Data centers have massive power needs—24/7. Wind and solar require pairing with lithium-ion installations, which can lead to safety and environmental concerns. Plus, neither is reliable for around-the-clock generation.

  • Nuclear, on the other hand, can generate a constant and reliable stream as a supplement for other renewable sources.

  • For example, equipment and systems supplier Holtec announced a combined nuclear and solar plant earlier this year to eliminate “the intermittency drawback of solar plants.”

What are Energy Central experts saying? Cost is the biggest eyebrow-raiser, as some of the $1.6 billion required to refurbish Three Mile Island could end up hitting rate and taxpayers.

Long-Duration Storage Solutions Ramp Up

Project development near Alpine, California

The US Department of Energy last week announced a $72.8 million loan to finance the development of a solar-plus-long-duration-energy-storage microgrid on the Tribal lands of the Viejas Band of Kumeyaay Indians near Alpine, California.

Why it matters:

  • The microgrid will include a 15 MW photovoltaic solar generation system and a 70 MWh battery long-duration energy storage system to support the largest single EV charging hub in North America.

  • Long-duration works for tech like microgrids and EV charging because it can ramp up and cool down more quickly than regular battery energy storage systems and account for longer blackout events.

Looking ahead: LDES could grow up to 37 GW by 2045, according to a California Energy Commission report.

This Week on Power Perspectives

What is innovation really worth? ESRI directors Bill Meehan and Pat Hohl explain how new tech in infrastructure management is unlocking the potential of Geographic Information Systems in this info-packed Power Perspectives. Don’t miss this one.

The Energy Central Wire