Interest Rates Are Rising, But Solar Is Still A Good Investment (For Now)

By Frank Andorka, Senior Correspondent

What Happened:Bloomberg Technology reports that despite rising interest rates, banks are still finding money to invest in solar.

  • According to Bloomberg, “While the cost of borrowing has been increasing since 2016, some banks are taking a smaller cut to win deals from solar developers.
  • How long solar is able to withstand the headwinds of higher costs of capital remains to be seen.
  • interest rates

    Money is still available for solar projects despite rising interest rates – at least for now.

    SolarWakeup’s View:  Interest rates are on the rise after years at being near zero. While normally such increases in capital costs would inhibit investments in solar projects, Bloomberg Technology (BT) reports that is not the case – at least for now.

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    The reason, BT suggests is that banks are now looking at solar as a much safer investment than in the past, which means they are lowering their solar risk factors. In essence, the rise in interest rates is being canceled out because the banks are charging less of a premium because it is considered less risky than in the past.

    BT also notes that fewer projects available this year, thanks in part to last year’s uncertainty engendered by the trade dispute with the rest of the world. Fewere companies were willing to commit to projects this year as a result – meaning for those banks interested in adding solar to their portfolio, there’s more competition to land them. The competition, combined with more comfort with the solar as an investment class, is keeping costs lower.

    But….and you knew there was a “but” coming, right?

    The unanswered question in BT’s piece is how long the atmosphere will remain this solar-friendly. After all, BT predicts more projects will enter the pipeline starting in 2019, meaning the balance of power between projects and available cash will once again shift in the lender’s direction. And while solar is increasingly considered a safer investment than it once was, it is not as safe as, say, U.S. Treasury bonds. If interest rates are 8% on a solar investment with some risk but 4% or 5% on bonds with virtually no risk, will investors still choose solar?

    Those questions, for now, are in the future. For now, money is still flowing into solar as investors have become more comfortable with the investment class – and that’s good news for everyone.

    More:

    Banks Are Sweetening Their Terms for Solar as Confidence Rises