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  • Wall Street analysts are warning that the US is teetering on a recession. Some say it’s already here. 
  • No industry is spared, but analysts and investors Business Insider spoke to said that the clean-energy sector may be dealt a softer blow. 
  • “Anyone in the renewable sector is better than most,” one investor said. 
  • The cost of capital is the primary driver of renewable energy projects. That means low interest rates will spur demand. 
  • Utility-scale projects are best-insulated, while residential solar companies may face a greater risk.
  • Visit Business Insider’s homepage for more stories.

The US is teetering on the edge of a recession, Wall Street analysts are warning — with some saying we’re already there

“We are officially declaring that the economy has fallen into a recession,” Bank of America economists led by Michelle Meyer wrote in a note to investors on Thursday. “It is a deep plunge.” 

A recession spares no industries, but four Wall Street analysts and investors that Business Insider talked to said the clean-energy sector — which was the target of more than $360 billion of investment last year, according to the research firm BloombergNEF — might be dealt a relatively soft blow. 

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“Anyone in the renewables sector is better than most,” Jigar Shah, the president and cofounder of the investment firm Generate Capital said. “People like this asset class better than any other.” 

Low interest rates are especially beneficial for renewable energy projects

The price of renewable electricity is largely determined by the upfront cost of construction — what a company charges to build a solar or wind farm, for example.

Once those farms are set up, the input is minimal, unlike a natural gas or coal power plant, which require fuel to operate. 

And that’s especially true for solar facilities, says Colin Rusch, an analyst at Oppenheimer & Co., “because there are no moving parts and limited maintenance.” 

With the cost of energy tied to an initial injection of funds, renewable energy projects — like any construction project — stand to benefit from low interest rates that typically accompany a financial crisis. Now, those rates are close to zero. 

“The cost of capital is the biggest lever in the supply chain for all renewable energy projects,” Rusch said. “As we see the cost of capital come down we see increasingly compelling economics for solar projects.”

Low interest rates make it easier for clean-energy companies to borrow money. And by lowering the upfront cost of power plants, they also lower the cost of the electricity those plants generate. Both forces fuel demand. 

Solar panel

Innovation is what drives down the cost of renewable energy, Sophie Karp, an analyst at KeyBanc, said.

Natalie Behring/Reuters


Other forces will drive down the cost of renewable energy, even within a recession 

The cost of electricity that comes from fossil fuels, such as natural gas or coal, is determined by commodity prices, which are volatile and unpredictable, says Pavel Molchanov, an analyst at Raymond James. 

Meanwhile, the price of renewable electricity has fallen consistently over the last decade in step with innovation, according to Sophie Karp, an analyst at KeyBanc.

Since 2009, for example, the price of solar panels has fallen by 80%; wind turbine costs have seen similar declines. 

“There’s no reason to believe that the longer-term trend will stop,” Karp said.

And that’s true whether or not the price of oil continues to slip, analysts said. In most parts of the world, oil is not an electricity source, so its cost is not a meaningful benchmark. 

The last time the price of oil collapsed, starting in 2014, it “didn’t affect renewable growth at all,” said Angus McCrone, chief editor at BloombergNEF, a clean-energy finance research firm. There’s no reason to suspect a different outcome this time around. 

Utility-scale projects would be better insulated from a recession 

According to Molchanov, large, utility-scale solar and wind projects are “recession resistant” because they’re generally managed by developers that have utility contracts. 

“That has nothing to do with the economy,” he said. “Whether GDP is up or down, it makes no difference for a utility investment decision because utilities are regulated businesses.”

Analysts at JPMorgan also note that utility-scale solar is typically constructed in remote locations, so the spreading coronavirus will be less likely to hamper those projects. 

Utility-scale developments also have “long deployment cycles,” the bank said in a recent research note, which makes them even more resilient to short-term impacts.  

Apple's 14MW solar array, Maien NC

Apple’s 14 megawatt solar array in Maiden, NC

David Greer


Corporations who buy renewable energy may delay projects

Big companies like Google and Facebook are some of the largest buyers of renewable energy in the world. In 2019, they bought a record 19.6 gigawatts of power, which amounted to 10% of the clean energy added, globally, that year. 

In a recession scenario, corporations may be inclined to delay purchasing of renewable energy, Jeff Osborne, an analyst at Cowen, said, though he doesn’t think that’s “lost business.” 

“It’s more of a deferral,” he said. 

The cheap price of oil could also shrink clean-energy spending by oil and gas giants, such as BP or Shell, McCrone said. 

“Oil companies — particularly European ones — have become pretty significant investors in renewables,” McCrone said. “So if they’re feeling under pressure, then it could be that they become not so keen to invest in renewables quickly.” 

Read more: Private investors poured $10.5 billion into clean energy in 2019. This list shows that oil and gas giants are among the most active private investors.

But Molchanov didn’t agree with that idea. He says the oil price shock could actually steer these companies’ strategies towards renewable energy.  

“This shock, showing just how violent the oil market can get, will steer some management teams into looking at wind and solar because they’re not nearly as volatile or difficult to predict,” he said. 

solar rooftop

Companies that sell rooftop solar may take a hit in a recession, analysts said.

REUTERS/Mike Blake


Residential solar is likely to take a hit

The impacts of a pandemic-fueled recession on residential solar are mixed, the analysts said. 

On one hand, cash-poor consumers are not going to be looking to make big purchases, and rooftop solar arrays cost around $20,000, according to Osborne.  

“I just don’t see many couples saying ‘Hey honey, let’s drop $20,000 to put up the solar panels on the roof right now, even though we can save money and might have a five-year payback period,'” he said. 

That said, many companies including Sunrun and Sunnova offer leasing and loan options, which could be attractive deals in a recession. 

“Cash sales will definitely drop,” Mochanov said. “Leasing and loans will be more protected.” 

It’s also possible that more customers will pursue rooftop solar for their homes to ensure a more stable supply of energy in the wake of the pandemic. 

“You couple this with extreme weather events and fires and I think this just increases demand,” Brook Porter, a partner at the venture fund G2VP, said. “Just thinking about what happens when the grid goes down and thinking about resiliency, those thoughts drive capital investment.”

Read more: A global pandemic and fear of power outages could fuel an emerging $50 billion market for rooftop solar companies like Tesla and Sunrun

Karp says residential solar companies may also be more secure in a recession, compared to companies that own large-scale arrays that deliver energy to corporations through power purchase agreements (PPAs).  

If the corporation goes bankrupt, the PPA could be subjected to bankruptcy, she said. But when your panels are distributed across the homes of thousands of customers, “it’s a diversified risk.” 

Policies support renewable energy 

At least 12 states and Puerto Rico have made 100% clean energy commitments. And many more utilities across the country are required to meet what’s called a renewable portfolio standard — meaning a percentage of their electricity must come from clean energy sources by a certain date. 

“The laws about decarbonization and renewable portfolio standards are going to still be enforced,” Molchanov said, though he mentioned that most of them are set 20 or 30 years out in the future. 

There are also tax incentives for installing wind and solar energy called the Production Tax Credit (PTC) that are expiring in the next year or two. If they don’t get extended in the government stimulus package, they could spur short-term growth. 

Utilities that own wind and solar assets have “tens if not hundreds of millions of dollars at stake,” Osborne said. “There’s a clock that you’re up against.”

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