Companies that build wind and solar projects depend heavily on the debt market while oil companies can fund projects out of operating cash.
High interest rates are sinking renewable energy companies, sending some of the biggest players down by double-digit percentages in the past two weeks. Meanwhile, traditional energy companies—which can fund their capital projects out of operating cash instead of having to raise money—are in strong financial shape.
Companies that build wind and solar projects depend heavily on the debt market. They take out large loans to build projects and then pay them off over time with the money that consumers pay for the electricity those turbines and panels produce. When debt is expensive, those projects take longer to pay off, and are likely to offer smaller profits to investors.
High rates are even outweighing the effects of the Inflation Reduction Act that Biden signed last year. Most renewable stocks are below where they were when the law was signed, despite the fact that it will direct hundreds of billions of dollars to clean energy. The same is true of coal stocks, which have also benefited from relatively high commodity prices. Arch Resources made more than three times as much in profits as it spent on capital expenditures in the first half of the year.
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