Welcome back. Day by day, it is becoming clearer how President Trump’s hostility towards renewable energy is playing out. Our colleague Amanda Chu wrote this week about the administration’s “fatal blow” for offshore wind projects.

Meanwhile, as I discuss below, major problems are hitting US solar companies selling rooftop panels. Also today, Simon looks at the challenges facing governments trying to weigh the economic costs and benefits of climate action. — Patrick Temple-West

SOLAR ENERGY

Clouds gather for US solar stocks

Back in August, Moral Money covered the demise of SunPower, a one-time darling of the renewable energy sector, which was forced to declare bankruptcy.

Now, the sky is darkening for another major player in the US solar market. Shares of rooftop solar company Sunnova plummeted on Monday, dropping more than 60 per cent.

Houston-based Sunnova partners with solar panel companies and then leases equipment to homeowners, or sells to homeowners in power purchase agreements. It also securitises solar loans and sells them to investors.

Back in 2023, Sunnova chief executive John Berger visited the FT’s office to tout the company’s $3bn loan guarantee from the US energy department. Amid the Federal Reserve’s high interest rates, Sunnova benefited from the Biden administration’s loan support. 

But on Monday, the company reported a “going concern” accounting risk, triggering the massive sell-off. Investor fears have weighed on other companies such as rival Sunrun, whose shares have fallen 20 per cent in the past week.

Sunnova’s problem is that it isn’t generating enough cash to cover its debt coming due in 2026, Wells Fargo said in a note on Tuesday. “Overall, we estimate Sunnova has a funding deficit ranging from $280mn to $700mn,” Wells Fargo said. “Currently, we do not forecast Sunnova to generate sufficient cash flow to address debt maturities, which implies meaningful equity dilution and/or bankruptcy restructuring.”

However, bankruptcy can be avoided, Thomas Meric, an analyst at Janney, told me, noting that Sunnova has assets that are attractive to long-term infrastructure investors. 

“[Sunnova has] contracted cash flows with generally high creditworthy customers,” Meric said, referring to the company’s homeowner customers. “Defaults on those obligations would not be that significant” and would be attractive to investors. The question is what price will investors pay for these assets, including in a deal that could take all of Sunnova private, he said. “That is the question of the day.” 

Tariffs, he said, have not had a significant impact on Sunnova and Sunrun. In recent years, both companies have shifted their supply chains to the US, largely to take advantage of tax incentives included in former president Biden’s Inflation Reduction Act.

Still, all the trouble in the residential solar market is likely to be celebrated by Republicans keen to slam the sector as unworkable. Republicans previously attacked Sunnova’s Energy Department loan in December 2023. 

With President Donald Trump’s campaign rallying cry “drill, baby, drill” now morphing into policy, the future for many solar companies still looks dim. (Patrick Temple-West)

green transition

A first-draft attempt to map the green transition minefield

For governments around the world, climate action can look like an endless maze of economic trade-offs. Closing fossil fuel power stations may reduce urban air pollution, but will it slow down the expansion of electricity access? Will clean energy jobs created outweigh the dirty energy jobs destroyed? Will there be an overall benefit to the economy — and how can this even be assessed?

A new report today aims to help officials navigate this minefield through the Climate Transition Impact Framework (CTIF) — a tool produced by consultancy McKinsey with input from the UN Trade and Development agency and the Network for Greening the Financial System (NGFS). While today’s publication has some weaknesses, it may still provide some useful ideas for global finance ministries on how to approach these dilemmas.

The CTIF groups the impacts of climate transition investments into five major categories: affordable energy access; environment and health; investment requirements; jobs; and economic growth and competitiveness. Key metrics are suggested for assessing them all.

For each metric, it suggests countries should estimate the expected change between 2020 and 2050 under two scenarios previously developed by the NGFS, a climate-focused network of central banks and financial regulators. In the “Current Policies” scenario, countries proceed with business as usual, with no government policies beyond those already announced. The “Net Zero 2050” scenario is what it sounds like.

Critics looking to poke holes in the framework will find plenty of material to work with. One obvious limitation is its approach to the “lived environment and health” category. The framework proposes that governments should focus on the following six metrics:

• Air pollution (in terms of particulate matter)

• Cereal production

• Forest area

• Mean air temperature

• People exposed to heatwaves

• Annual precipitation

All these things are clearly important — yet for many countries, these metrics will give only a very partial indication of the hazards presented by climate change, and the benefits of restraining it. For countries like Ethiopia, threatened by drought in some areas and by flooding in others, estimates of overall annual precipitation are of limited utility. And heatwaves are just one of the many deadly threats posed by climate change, as the people of Los Angeles, Valencia or the northern Philippines, for example, can attest.

On the question of economic growth, meanwhile, there’s a striking divergence between this report, produced using NGFS scenarios, and the NGFS’s own global research. The NGFS has estimated that world GDP in 2050 would be about 5 per cent lower under the Current Policies scenario than under the Net Zero scenario.

In contrast, the new CTIF report predicted that in eight of the 15 countries analysed, 2050 GDP would be lower under the Net Zero scenario than under the business-as-usual case. Essentially, the report found that transition costs in these nations would outweigh the benefits of less severe climate change.

It made this prediction even for Bangladesh — one of the countries most vulnerable to climate impacts as it grapples with deteriorating farmland, flooding, drought and storms, combining to drive forced migration on a massive scale.

In the remaining seven nations that were analysed, the 2050 GDP forecast was the same in both the Net Zero and current scenarios.

McKinsey said this disparity was because it used a different modelling system for its country-level analysis than the NGFS used for its global estimates.

Still, the authors of the new report have stressed that it’s intended merely to demonstrate how the framework can be used. Governments and other analysts are intended to customise the tool for their own needs and priorities. As countries grapple with the formidable tangle of competing risks and priorities presented by the climate crisis, they need all the help they can get. (Simon Mundy)

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