Experts warn that the Fed’s decision to finally ease its monetary policy after several months of consecutive interest rate hikes may not be enough to offer a sufficient boost to clean-energy investment. The U.S. Federal Reserve began its easing cycle by cutting benchmark interest rates by 50 basis points last week, a move that was swiftly followed by central banks in Canada and several European nations.
With countries such as Sweden, Switzerland and England, among many others, also easing their monetary policy, and some expected to speed up the pace, the inflationary environment triggered by the coronavirus pandemic is mostly behind us. Inflation levels have generally fallen to target ranges, and interest rates are now projected to fall even further in 2025 as the risk of a global economic slowdown rises.
As renewable energy stocks have been particularly affected by the past few years of high interest rates, the assumption would be that a reversal in interest rate trends would be a boon for green-energy stocks. However, even though it seems as if the green-energy segment won’t have to contend with high interest rates for the foreseeable future, other factors could still affect its performance in the near-term.
One major factor is how the upcoming U.S. presidential elections will play out. A Kamala Harris administration would most likely build on the current administration’s Inflation Reduction Act, but a second Trump presidency could potentially set back the green-energy industry by several years. Former President Donald Trump has denounced President Joe Biden’s green-energy program and has vowed to rescind all funds dedicated to renewable energy if he is elected, making the upcoming ballot a major wild card.
Secondly, the specter of recession still hangs over the world despite the recent fall in inflation levels. Central banks are already reducing their interest rates to avoid an economic slowdown, but the high risk of recession means many investors are unlikely to invest in green-energy companies that are operating in an uncertain political environment and often have unpredictable cash flows.
The clean-energy industry may also struggle to attract investments, due to bottlenecks in connecting renewables to the grid. Several green-energy power plants in the country can provide a sizable amount of green energy, but long connection lines mean many of them still can’t sell their energy into the grid. The United States currently has an interconnection queue of a whopping 2.2TW, or around 1.7 times its current capacity to generate electricity.
For companies that make zero-emissions vehicles, such as Mullen Automotive Inc. (NASDAQ: MULN), it is concerning that clean energies aren’t being connected to the grid fast enough since such delays hold back the multiplier effects that EVs can have in reducing the rate at which damage to the climate happens.
NOTE TO INVESTORS: The latest news and updates relating to Mullen Automotive Inc. (NASDAQ: MULN) are available in the company’s newsroom at https://ibn.fm/MULN
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