04 Dec Explainer: rising interest rates and their impact on solar project economics
Back in October we wrote about China’s energy crisis and supply chain constraints resulting in rising prices for the local solar industry. Now, with inflation and cost of living increasing, banks are starting to raise interest rates.
Your customers may ask about rising interest rates and their impact on commercial solar projects so here are some quick explainers:
What is happening with interest rates?
While interest rates plummeted to help economies rebuild from the impact of COVID, in many cases they’ve now been ‘over-corrected’ resulting in inflation. As a result, interest rates need adjusting and many financial institutions are expecting rates to rise, to control inflation and slow growth.
The Reserve Bank of NZ (RBNZ) has increased interest rates twice already in 2021 but over in Australia the Reserve Bank of Australia (RBA) is not predicted to increase interest rates in the short term.
What impact does this have on businesses wanting to purchase equipment?
For most financial institutions that borrow funds from both local and international markets, rates are already increasing. At Energy Ease, we anticipate that banks will raise their fixed interest rates by around 0.5% in 2022, meaning the cost of funding equipment (like solar panels) will rise.
How will Energy Ease payment plans be affected?
Just as the cost of solar panels has gone up, the price of commercial funding will go up. But in the vast majority of cases, projects that were deemed to be cash flow positive will remain so – even under the revised rates.
Example: On a $30,000 payment plan, the monthly repayments on your customer’s payment plan will increase $8/month (over both 5 and 7 year term periods).
The bottom line
Inflation is inevitable. We are seeing this every day in the cost of petrol, for example, and consumer goods.
So for businesses, while monthly payments may increase slightly, the advantages of reductions in energy bills and the consistency of regular payments (akin to regular car repayments) remain.
At the end of the day, the environmental and commercial benefits of new technologies will continue to outweigh any potential obstacles, and at Energy Ease we are here to help you – and your customers – achieve those.
Want to know more about Energy Ease payment plans and how rising interests rates? Let’s talk.