Fitch: Fed Support, higher rates remain pivotal for energy projects in 2H’24

Increased federal support against a higher interest rate environment remains pivotal for shaping the direction of North American energy infrastructure in 2024, according to Fitch Ratings’ mid-year outlook report for the sector.

New tax credits and additional federal funding from the U.S. Department of Energy (DOE) is spurring a wave of activity in new clean technology sectors such as blue/green hydrogen and ammonia, carbon capture storage, and biofuels.

Fitch’s mid-year 2024 outlook for the sector remains neutral. A stronger appetite for new energy projects will not be enough to encourage investments in their development, if interest rates and inflation both remain elevated. This would limit the development of new projects and could place more pressure on the performance of existing energy projects.

Operating and construction costs for energy projects have increased due to the high inflationary environment over the past two years. This has created global and regional supply chain bottlenecks and higher competition for key components and equipment.

The surge in AI and development of data centers is leading to higher energy demand. This may cause a slower transition to clean energy in some regions, increase reliance on existing fossil fuels and, in some cases, development of new natural gas-fired power generation to meet the demand. “This trend may extend the reliance on fossil fuel generation,” said Senior Director, Alex Nouvakhov.