Long-shelved capital-intensive green-energy projects could be dusted off for construction to begin—if everything goes right
3 min
If the Federal Reserve cuts interest rates in the coming weeks, a friendlier borrowing environment could make all the difference for some mothballed renewable-energy projects.
The returns generated by such projects once they are up and running are often predictable and modest, but because they require a large upfront expenditure, frequently funded in part by debt, they are sensitive to interest-rate fluctuations.
With recent economic data suggesting the Fed has plenty of room to cut, some investors say now is the time to get moving on renewable plans.
Thomas Byrne, chief executive at solar investor CleanCapital, said a drop in interest rates would affect a “not inconsequential amount” of solar developments under consideration. “We have had projects on hold that simply don’t make economic sense for us anymore because the borrowing cost was too high. So those projects will immediately unlock,” he said.
Byrne estimates some of these projects could begin construction by the end of the year and start generating energy next summer.
Solar and wind energy in particular stand to gain from lower borrowing costs, said Srinivasan Santhakumar, principal research analyst with the research firm Wood Mackenzie. “Higher interest rates have disproportionately affected the economics of wind and solar projects,” he said.
An interest-rate increase of 2 percentage points could result in a 20% jump in the cost of producing energy for utility-scale solar power over the life cycle of a project, according to a Wood Mackenzie analysis released in April. In comparison, the same increase might boost the cost of producing energy from gas by 10% to 12%.
Some developers may wait to see a steeper drop before making moves. “It’s definitely a phenomenon, particularly for the more sophisticated, more longer-standing developers who’ve had a history of surfing the ups and downs of the interest-rate spectrum and are also aware of the consequences for their own balance sheet of a long-term interest rate rise,” said Katherine Mogg, managing director at the New York Green Bank, a state-sponsored investment fund that focuses on filling gaps in energy transition financing. Mogg said she expects to see a modest uptick in requests for proposals in the coming months.
The Federal Reserve has signalled a rate cut at its next meeting in September, and most futures investors expect a quarter-percentage-point reduction, according to CME FedWatch. More than three quarters of investors expect the Fed to lower its benchmark rate, now in a range between 5.25% and 5.5%, by at least a full percentage point by year-end.
While a cut in interest rates is a positive for renewables financing, a durable boost for green projects may require a Goldilocks economic scenario in which a cut to borrowing costs don’t coincide with rising fears of a global recession, which could in turn drive investors away from the U.S., said Ron Erlichman, partner at the law firm Linklaters.
“There are a lot of different factors, like the old cliché of ‘headwinds,’ that affect transactions,” he said, adding that large-scale projects such as offshore wind, hydrogen and carbon capture frequently rely on foreign investment.
Fears of unchecked inflation and rampant increases in the cost of materials have cooled down somewhat in the past year, he said, but the looming U.S. election brings a fresh element of uncertainty . While many see a low probability of a full rollback of the Inflation Reduction Act, the legislation that provides game-changing tax breaks for renewables, an executive branch hostile to green energy could slow project permitting or otherwise “nibble at the fringes” of the landmark legislation, as Byrne put it.
“Having done this awhile and seen the cycles in the market, I still remain incredibly optimistic about renewables and energy transition in the United States,” Erlichman said.
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Strong family financial planning can help reduce taxes and support younger generations. From intrafamily loans and asset gifts to inheritance disclaimers, strategic cooperation can create meaningful financial benefits—when families have the trust and structure to make it work.
4 min
Happy is the family whose members—parents, grandparents and grown children—trust each other enough to cooperate on shared goals, especially financial ones. When that is truly the case, Uncle Sam’s tax rules can help as well.
This matters especially now that mortgage rates are above 7%, and many families are looking for ways to help younger members. If the elders have resources and are confident younger ones can cooperate, a family loan could make homeownership possible while providing the elders with a useful income stream.
Other strategies can actually lower taxes, such as when funding 529 plans or Roth IRAs, or when someone inherits a traditional IRA with required withdrawals larger than they will need.
Here are three strategies useful for functional families.
It is perfectly legal for families to lend money to a relative for a down payment or even a private mortgage.
But it is important not to cut corners, says Ryan McKeown, a CPA with Modern Wealth Enhancement in Minnesota. If the loan is for a down payment, be honest with the mortgage provider and have a formal agreement. The lender owes tax on the interest payments received.
If the loan is for a private mortgage, both sides should have legal representation with a formal written agreement, including payment terms. The lender owes tax on the interest, and the borrower often can deduct it if he or she itemizes.
To avoid IRS trouble, the interest rate shouldn’t be lower than the agency’s Applicable Federal Rate at the time of the loan. Currently that is about 5% for loans longer than nine years; about 4.5% for loans three to nine years; and about 4% for loans three years or less. Currently, traditional mortgage rates are generally above 7%.
In addition, the lender could use the $19,000 annual gift-tax exemption (described below) to forgive some or all of the interest or principal annually. If both lenders and borrowers are married, that is up to $76,000 a year. There is no tax for the borrower on such forgiveness, because it is from a gift.
If you’re going this route, McKeown advises against having a fixed plan to forgive the debt. Instead, do it in one-off letters specifying the amount—and keep careful records. Otherwise the IRS might try to treat the loan as a taxable gift.
Powerful tax-saving moves for families often use gift-tax provisions. Under current law, anyone can give anyone else up to $19,000 of assets annually, free of gift tax. That means a married couple with three grandchildren could give them a total of $114,000 in 2026.
The gifts can be cash or other assets, like stock. For noncash gifts, the cost basis—which is the starting point for measuring taxable gain after a sale—“carries over” to the recipient. So if someone buys $1,000 of stock and gives it away when it is worth $5,000, the recipient’s cost basis is $1,000. If the recipient later sells the shares for $8,000, the taxable gain is $7,000.
Here’s an example showing how gifts could save a family taxes. Grandma is a widow of modest means, while her child and spouse have prospered. The couple has two children, and they want to contribute $5,000 to a 529 college-savings plan for each—but they need to sell stock to do it. Their tax rate on the sale would be 18.8%, and they would need to sell about $11,000 of stock.
However, Grandma’s federal tax rate on the stock sale is 0%. If the couple gives $10,000 of shares to Grandma, she could sell them, pay no tax, and fund the grandchildren’s 529 plans. This saves about $1,000 of tax.
These moves are legal, and they could be used in other ways, such as to help a young person fund a Roth IRA.
But trust among family members is essential: Under the law, givers can’t put conditions on a gift. Grandma could use her stock proceeds to take a cruise, but she makes 529 contributions instead.
Mark Sellner, a retired tax attorney and CPA living in Sarasota, Fla., uses this strategy. His children sell stock he gives them and fund 529 plans for his grandchildren.
The family’s tax savings aren’t huge, but he likes other benefits. The sales by his children don’t boost his adjusted gross income, which in turn could raise his Medicare Irmaa premiums or his 3.8% surtax on net investment income.
Sellner doesn’t worry about his children using the funds for another purpose.
“There can’t be any strings attached to gifts. Of course, it is up to us to decide whether to make them in the future,” he says.
Two caveats: The “kiddie tax” applies to most children under age 24, and it is levied at the parents’ rate on investment income above $2,700 in 2026. Consider this before making gifts to a young person.
Investors who give away stock also forgo the step-up, an important provision that exempts assets held at death from capital-gains tax.
Sellner knows he’s losing a step-up, but says, “The children could use a little more now. Why should they wait 20 years to get it?”
A disclaimer is a highly useful strategy in which one heir renounces an inheritance in favor of another heir. Assuming family members cooperate, this can save taxes.
Here’s one example. Dad died and had a large traditional IRA that he left to Mom. She has enough assets and income to cover her expenses, and she lives in a state with a stiff estate tax. The inherited IRA would put her estate over the threshold.
Also surviving are three young-adult children. If Mom disclaims all or part of Dad’s IRA within nine months of his death, that amount could go directly to the children. They will have 10 years to empty the account, and the family as a whole will likely save estate and income taxes.
Disclaimers have many key details, especially regarding beneficiary documents. Although heirs have great freedom in choosing what assets to disclaim, the rules about who gets disclaimed property are rigid. It is best if the original owner names tiers of heirs so that if one disclaims, the next recipient is clear.
