- High interest rates to combat inflation have led to declines in stock performance, particularly affecting the renewable energy sector due to higher borrowing costs.
- Renewable energy projects face financial challenges despite legislative support, with high implementation costs and inflation hindering large-scale project funding and performance.
- Emerging nuclear technologies like small-modular reactors and microreactors show promise due to lower costs and better accessibility, presenting potential investment opportunities.
As of May 20th, 2024, the FED has kept interest rates at high levels to combat inflationary pressures in the United States. As a result of these pressures, various industries have seen significant declines in stock performance as investors worry about the effects of high borrowing rates for business projects. In particular, industries like the renewable energy market have seen slumps in performance, with indices like the S&P Global Clean Energy Index showing negative annual returns.
Despite the climate crisis motivating demand for renewable energy, many investors are concerned that higher borrowing costs will make renewable energy projects more difficult to finance. While legislation such as the Inflation Reduction Act has aimed to improve renewable energy infrastructure projects through tax incentives, they have still proven to be costly to implement. Specifically in the United States, the average cost of a 6-kilowatt solar panel system for a house/business is approximately $17,852. However, depending on the size of the location, it could potentially cost even more money to install. Additionally, the average cost for a home scale wind turbine with an output of 100 kilowatts can range between $3,000 and $8,000.
Considering that large cities like New York use 11,000 megawatt-hours of electricity every day, many solar and wind energy companies need to produce hundreds of thousands of these resources to meet these energy demands. However, since inflationary pressures have kept interest rates at high levels, these companies might not have the necessary capital to fund such large scale energy projects. Additionally, if prices remain high as a result of inflation, Americans might be more reluctant to pay for these renewable energy alternatives, resulting in poor financial performance from these companies
Although the market appears bearish on investments in solar and wind energy as a result of inflation, other sectors of renewable energy have shown promise in the market by focusing on emerging technologies. Specifically within the nuclear energy market, emerging products such as small-modular reactors (SMR) have been able to successfully provide significant energy for various purposes while also providing lower manufacturing costs and accessibility compared to solar and wind alternatives.
While a small-modular reactor (SMR) only produces about 5% (50 MWe) of the energy output of a conventional nuclear reactor (1,000 MWe), its energy output is significant enough to power up to 25,000 homes. Because SMRs use much less resources in comparison to large nuclear energy facilities, they are much cheaper and easier to manufacture, allowing a quicker and easier way for facilities to have access to nuclear energy.
Additionally, microreactors (which are even smaller in size) can still provide a large maximum output of 20MWe for different facilities and can easily be transported for whatever intended purpose. Since microreactors are considered an emerging technology within the nuclear energy market, their applications and benefits in society have not fully been realized. By providing opportunities and accessibility for accessing nuclear energy, companies focusing on developments in microreactors can successfully meet the energy needs of the future. Therefore, investors who take advantage of investments in nuclear companies focusing on developing technologies like microreactors could see significant returns by investing in nuclear energy today.
