Every few years a period of rising interest rates becomes the coffee-table chit-chat du jour. Much like the weather, or how the local NFL team is playing. 

When I hear someone groan about interest rates, part of me thinks, “that’s what you’re worried about?!” So, I want to put the impact of interest rates in the context of some other exogenous forces on clean energy – not to downplay rising rates, but to provide a sense of scale and proportion to the all-out assault on clean energy. 

A quick inventory of the hits clean energy is absorbing:

• Tariffs
• ITC Sunset
• FEOC/Inverter Bans
• Shortcut Queues for Gas
• Capacity Markets that penalize storage
• Project Assassinations (the DOI/DOW Filter)
• Interest Rates 

Those are just the biggest ones, and they exclude the problem I addressed in last month’s column. 

Quantifying The Pain 

I’m going to express every “hit” the same way: the change in project margin/value at a constant target equity IRR. The reference project is a 75/100 MW (AC/DC) single-axis tracker with 50 MWac of 4-hour batteries. Project assumptions are calibrated to be “down the middle,” and land on a 10% margin ($0.151/w) in the “control” case.  All per-watt values are measured against the hybrid’s 125 MWac (75 PV + 50 storage); PV-only and storage-only hits are converted to that measurement for comparison purposes. Further methodological details are available here.  

Interest Rates 

Interest rates obviously impact project economics, but let’s demystify how much. We kept this simple: two runs of Segue’s model with only two changes: Debt priced 100 bps higher; equity IRR target 100 bps higher. Together, this reduces project value by $0.086/w, a 5.2% change in project enterprise value. On an absolute basis, that’s material; yet it looks almost trivial when stacked against the other headwinds. 

Tariffs 

Starting December, a TOPCon module that lands in Europe at $0.10/w will land here at $0.44/w once the §232 price floor ($0.38/w) and its 15% ad valorem take effect. That’s $0.34Wdc on every module — a third of the array’s capex — or $0.272/Wac on the project - making modules 4.4 times as expensive than everywhere else on earth. 

ITC Sunset 

For a solar or wind project that misses ITC sunset safe harbors, the credit is simply gone. The measured, isolated impact of that loss is $0.264/w for a 30% ITC. (Storage keeps its 48E phase-down; this line isolates solar ITC loss). This isn’t news, of course, but let’s not be acceding about it given all these other headwinds. 

FEOC  

FEOC is hard to isolate, but BNEF, LBNL and WoodMac all published data/reports useful for interpolating. If we meta-source to compile ranges, the FEOC-compliant premium for PV modules ranges from $0.04-0.08/Wdc. Storage is worse: the 2026 threshold is 55%, not 40%, and cells are half the bill of materials, so Chinese cells can’t pass. The percentage range is 20-45% increase to BESS capex, call it $0.10-0.25/Wac for four-hour configurations. That’s just hard costs. The EIA’s own forecasting model now adds a 3% risk premium to the cost of capital – debt and equity – for every wind, solar, and storage project subject to FEOC, which is 3x the rate delta measured in this piece. And then there’s the tax credit transfer market where credits sell for ~two cents less to account for the one recapture risk nobody will insure.  

Capacity Markets 

PJM is our guinea pig because its capacity market dysfunction is a crime-in-progress. The complaint isn’t that PJM currently underpays storage (it doesn’t; four-hour batteries clear at 58% for 2027/28). It’s that the capacity market design causes the number to melt…unpredictably. PJM’s own preliminary class ratings take four-hour storage from 56% in 2026/27 down to 38% in 2034/35 – not because the batteries get worse, rather they are punished for working, with accreditation math wired for severe “cannibalization”. Compare i) status quo, with ii) a predictable, financeable, flat 5-year value (a little below current accreditation factors), and Segue’s model shows a value delta of $0.100/w (about 6%).  A gas plant enjoys an underwritable cashflow stream, batteries don’t. 

Project Assassinations 

Estimating the costs of the federal government’s vandalism campaign is hard. The costs emerge from three primary phenomena: 1. Delays, 2. Cost of capital risk premium, and 3. Amortizing losses from killed projects. The methodology applied (described fully in the appendix) reveals a cumulative impact of $0.085/w. For a project with a federal nexus, the premium on the enterprise of “trying” is itself equal to interest rate impacts. 

Shortcut Queues 

I’ll skip shortcut queues (e.g. SPP & MISO “ERAs”); the harm is real but I can’t put an honest number on it. 

The Scoreboard 

 ¹The “totals” in the table use $0.15/Wac from the FEOC impact range. 

Of course, many firms have taken steps to mitigate some of these costs/risks by safe-harboring or overhauling their procurement strategy. But those strategies themselves had/have costs that must be amortized sometime, somewhere. 

So, the next time someone whinges about rates, by all means, nod along. Then tell them the interest rates are fifth on the list of problems, that the other five are self-inflicted, and that four of them were installed on purpose. Together, we face ~$0.87/w of headwinds vs. a level playing field – interest rates are just salt added to that already open wound. It’s not a market cycle, it’s a policy. Imagine what America could achieve – affordability, energy abundance, speed-to-power – without a ~$0.87/w tax on the primary source of new power. The post-2025 cost increases more than an entire solar array might have cost in 2024. 

Segue has prepared a (very long) policy recommendation package aimed at these – and other – free market inefficiencies. If anyone (especially any staffers in DC) would like it, please request it through segueinfra.com.  

Appendix 

The impact-estimating work above requires methodological choices that bear explaining, for those who are interested in understanding at a deeper level: 

Reference project details. For the PV array, we use a base case cost of $1.06/Wdc, which is Wood Mackenzie utility-scale pricing index as of Q2.  For the battery storage, we use a 4-hour configuration that cost $300/kWh. The assumed ITC basis is $1.57/Wac, which is a ~15% step up to costs, with ~91% of costs ITC eligible. The ITC is modeled at 30% in all cases. The tax equity proceeds assume a straight sale of the tax credit at $0.95 cents on the dollar. The ITC is held flat across scenarios to isolate the variable being tested.  

Other modeling notes. Tariffs and FEOC are stacked sequentially so there’s no double count. The tariff bogey is the post-232 after-tax value. That does not necessarily address FEOC restrictions, however, so FEOC compliance costs are studied incremental to the post-232 after-tax value. The “totals” in the table use $0.15/Wac from the FEOC impact range. 

For the interest rate measurement, we simply add 100 bps to the debt interest rates, and 100 bps to the equity target from NTP forward, and do not attempt to pick up pre-construction cost-of-capital increases. Though very real, the latter are captured in the “Project Assassination” analysis.  

For capacity the same clearing price ($300/MW-day) is held constant to isolate the impact of accreditation values.  The “how it should/could work” case holds 90% of today’s accreditation for storage (~50%) flat for 5 years, with the revenues included in debt sizing; the “how it is now” case uses variable accreditation values at PJM’s published curve and those revenues excluded from debt sizing. 

The “Project Assassination” analysis has three layers. 1. Delay: the NPV cost of a six-month federal stall (added LC costs, equity carry on development expenditures) on the reference project returns $0.019/w; multiply that times the one-third of the early-stage pipeline Wood Mackenzie says is now under heightened federal review: $0.006/w. 2. Risk premium: the extra return a group like Segue requires on development capital when a project carries a federal nexus (using extra 0.5x in MOIC target) converted to value: $0.026/w. 3.  “Hazard rate” (amortizing dead money): ~32 GW of named projects halted, revoked, bought out, or killed by federal action since January 2025, against the ~85–90 GW of solar, wind, and storage that reached commercial operation over the same window – a ~35% hazard rate – applied to the control case development margin of 0.151/Wac = $0.053/Wac. 

Presenting “apples-to-apples”. Some of the hits/impacts are specific to solar, some to storage, and some to both. To preserve a basis for comparison, all impact is expressed in terms of the full system’s AC capacity (125MWac), so $/125MWac. This lands a bit awkwardly in a couple spots (for example you can’t quickly eyeball the ITC delta, because it hits the PV array only, yet the change is expressed in terms of full system), but the alternative is numbers that can’t be properly contextualized or having two separate control projects (one for PV, one for BESS), which would be hard to follow.   

Project “enterprise value” (e.g. interest rate impact being 5.7% of enterprise value) uses control case [costs] + [margin] of ~$208m in the denominator.