We’re all aware of how inflation has made a material impact on our day-to-day expenses, from our gas prices to our groceries. A recent New York Times article (linked below) reported that it’s not just our wallets getting thinner; it’s also hitting the renewable energy sector hard. With climate change imminent, we can not afford to ignore this problem.
When inflation goes up, central banks hike interest rates to slow down the economy. For the past decade or so, rates have been at historic lows, so there has been a consorted effort to hike them. The federal funds rate has increased from .25% to 5.5%. The ripple effects are pretty alarming for renewable energy projects, which are already expensive to start. These high interest rates mean their costs go through the roof.
While setting up a coal or gas power plant involves ongoing fuel costs, renewable projects like wind or solar farms need a hefty upfront investment. And with borrowing costs skyrocketing, these green projects are getting hit way harder than their fossil fuel counterparts.
These high interest rates are a double whammy for developing countries. They’re not only struggling with their own budget issues but also dealing with their currencies losing value. And guess what? These are the places where we desperately need renewable energy to grow, to fight climate change and improve living standards.
There’s a striking example in the article: if interest rates rise from 3% to 7%, the cost of a new gas plant only goes up a bit, but the cost for a new wind or solar farm? It shoots up by about a third. That’s huge! And it’s already having real-world impacts – companies are canceling or scaling back renewable projects because they just don’t look profitable anymore.
Now, here’s my take: fighting inflation is important, but are we sacrificing our long-term sustainability for short-term economic stability?On one hand, unchecked inflation can wreak havoc on economies. On the other hand, slowing down the transition to renewable energy could spell disaster for our planet in the long run.
What’s really concerning is that despite these challenges, the growth of renewable energy is crucial. We can’t afford to backslide on our progress towards greener energy sources. We need to find a balance, like more targeted financial support for renewable projects, especially in developing countries.
So, what do you all think? Are we risking too much in this war on inflation? How can we support renewable energy without destabilizing the economy?
https://www.nytimes.com/2023/12/05/climate/renewable-energy-inflation-climate-cop28.html
by cococat1712
1 comment
Absolutely, 100%, we are risking our long-term future for short-term gains. But it’s par for the course in the context of climate change, which itself is caused because we effed our long-term future for short-term material progression. The issue is politics. Fix today’s issues, you get another 4-5 years of job security. Don’t fix today’s issues (or at least be perceived as not fixing today’s issues), you’re booted out and the next idiot who promises to scrap climate policies gets put into power.
The havoc Covid caused on many economies at its onset and now the long-term havoc caused by the fiscal stimulus in response to Covid is just adding another layer of complexity to the whole situation. In Malaysia where I’m from, pre-Covid we had massive reductions in RE deployment costs over the preceding ten or so years, which of course post-Covid (disruptions to supply chains most prominently) and post-monetary tightening is no longer the case. As a result many developers who won contracts for large-scale solar especially are now struggling to make ends meet at those bid prices.