It is becoming increasingly clear that there is a major effort to accelerate the development of renewable energy. Unfortunately, what was already likely to be expensive, is now facing unexpected cost increases.
For example, there have been recent reports that offshore wind developers are facing financial challenges that may impede several East Coast projects. Supply chain issues, rising interest rates and inflation driven cost increases are making these projects far more expensive than initially expected. If these projects are completed, despite cost increases, consumers will pay through utility rate increases or society as a whole will pay through higher taxes or inflationary subsidies.
Consumers will also face higher prices for a wide range of products as “green protectionism”, while aimed at China, is likely to result in relatively pricier, domestically produced products. Greening the West’s industries is probably a worthwhile goal, but it’s going to be costly.
Investors should seek to understand how higher costs are going to affect demand and margins, and how much can be passed through to customers. It is interesting to note that a recent survey of consumer interest in EVs found that there was considerable interest, but not if there was a price premium to more traditional vehicles.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA