How the Chinese interest rate can affect green energy

China has a habit of pulling random rabbits of out the hat and this week was no different. As a surprise to world economists the populous country raised its interest rate for the first time since 2007 causing the stock markets around the world to shake and keeping economists work overtime. Most economists seemed to agree that the unexpected interest rate-increase is a signal of slowing economic growth and a way to avoid the inflation rate to get out of control.

To the green industry the surprise act from the People’s Bank of China can have several impacts.

First of all, China is on its way to outpace the US in most installed wind capacity by the end of this year, which makes the Chinese market extremely important to wind turbine manufacturers. The increase in interest rate in China makes it more expensive to borrow money, thus making it more expensive to initiate new projects.

Most wind turbines get installed as new projects and this week’s signal of a slowing growth in the prosperous country might have an impact on the wind turbines manufacturers. If China is not supplying the same growth in wind energy some wind power companies will undoubtedly feel the effect on their order book and bottom-line.  Some international companies, like the world’s largest wind turbine manufacturer Vestas, already experience economic trouble and the new line in Chinese economy might just be another bitter pill to swallow.

Furthermore, the higher interest rate has already lowered the price on oil the most in eight months, because of concern that the oil demand in the world’s biggest energy user will decrease. In combination with low gas prices the incentives to switch to sustainable energy sources will get even lower and probably effecting the number of new wind turbines put up.

China still has a great demand for energy, so I’m implying that the change in interest rate is going to bring the growth in wind energy to a halt. But it will be interesting to follow the new economic direction in China in relation to the sustainable energy industry.