On September 21, the Federal Reserve raised interest rates by another three-quarters of a percentage point.
Fed Raises Rates by Another Three-Quarters of a Percentage Point, Pledges More Hikes to Fight Inflation [NBC News]
Though it marked the third such consecutive 0.75-point rate hike this year, it looks like it's only the beginning.
As NBC News reported, the Federal Reserve also "indicated it will keep hiking interest rates well above the current level."
Another 1.25 increase on the way
Last week, the president of the Chicago Federal Reserve, Charles Evans, got a little more specific. Evans told the Illinois Chamber of Commerce that he expects interest rates to climb another 1.25 percentage points just in the next couple of months and to keep climbing thereafter.
As a measure of what all this means in practical terms, the average 30-year fixed mortgage rate just spiked to 6.66%, the highest it's been since 2007.
So, unless you’re planning to pay out of pocket, continuing to delay your transition to solar power will mean decreased savings as the cost of financing rises.
PPAs won't be spared
Nor will those who choose to lease their system through a Power Purchasing Agreement (PPA) be spared.
It's true that when you transition to solar by signing a PPA, you don’t need to borrow or spend anything because the company that installs your solar system maintains ownership. Instead of generating your own power, the installer agrees to charge you a fixed rate for electricity.
That rate will, of course, would have to be lower than what your utility company charges—otherwise who in their right mind would sign a PPA?
But since solar providers have to procure the financing for a PPA themselves, soaring interest rates mean their costs are going to increase. And that, in turn, means that they'll have to charge more for electricity.
Opportunity knocks
The upshot is that many homeowners and small businesses who are now able to substantially decrease their energy costs by going solar will soon find the opportunity has vanished.
For others, switching to solar may already be such a good deal that they’ll still be able to save money even at higher interest rates. But, of course, even they’re going to wind up saving a lot less than they would have had they acted sooner.
And that’s just one end of the equation.
Inflation
The reason the Federal Reserve is hiking interest rates is to curb the current bout of red-hot inflation.
The last time we experienced a serious bout of inflation was in the 1970s. During the previous relatively low inflation of the 1960s, electricity prices remained very stable at around 2 cents per kilowatt-hour.
But the inflation we suffered in the 1970s resulted in electricity prices rising all the way up to 7 cents per kilowatt hour.
That’s a 250% increase.
Soaring electric rates
Unfortunately, we’re already seeing the same effect on energy prices today.
Pennsylvania Light and Power (PPL), which serves over 2.5 million customers in central and western PA, just raised its rate by 38%.
PPL residential customers saw the price of electricity increase from 8.9 cents per kilowatt-hour all the way up to 12.4 cents.
That’s on top of a 26% rate hike PPL had already hit them with in December.
A costly decision
The upshot is that, in just one year, PPL’s residential customers have already seen their electricity costs soar by a jaw-dropping 70%.
Given that both interest rates and the cost of electricity are going to keep climbing, the decision to defer locking in a low electric rate by generating your own clean and renewable solar energy is bound to be costly.