If Interest Rates Recover. You have to go back to a few months in 2000 and before that 1993 to find interest rates set by the Federal Reserve to be at today’s levels. You can have two views looking forward, rates will lower back to levels closer to those of the past 20 years or they’ll resemble the 70’s and 80’s, i.e. this is the new normal. From a residential solar perspective, rates are putting a big damper on loans and therefore growth rates while utility rates are rising, they’re not rising as quickly as the solar loan rates are competing with. So if you look at the stock levels of the residential solar companies, this could be a buying opportunity if your view is that things will get better if and when rates recover. Utility scale solar represents a different kind of opportunity for investors. PPA rates are rising partially from supply chain inflation but also cost of capital. Nobody wants to invest in a solar farm at 6% return when you can get that from putting cash into the bank at 5%. So PPA rates will increase and projects will be levered at higher interest rates, some 500bps higher than just a few years ago. But the upside could come if rates recover and projects are refinanced at lower rates with the PPA rate having been settled at today’s higher market. So if your view is that demand for solar hasn’t or will not change, but that interest rates could settle down, there’s some real upside in today’s market conditions. Just don’t get caught being too early or too late.
The Chart. In case you want to see the full history of Federal Reserve rates, see it here.
Managing Installer Cash Flow. Interest rates are the highest in 22 years, increasing solar financing costs and softening consumer demand for loan products. Businesses are feeling the pain of strained cash flows, labor costs and profitability pressures. Palmetto, a B2B technology company accelerating the adoption of clean energy, has announced a new partnership offering for solar installers to help stabilize cash flows and grow faster in today’s market. Built on top of Palmetto’s Clean Energy Operating Platform, this is a comprehensive suite of tools and services enabling installers to streamline operations, optimize performance, and increase profitability. Visit https://www.palmetto.com/finance or contact capital@palmetto.com for more.
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Opinion
Best, Yann