The U.S. Federal Reserve raised its benchmark interest rate by 25 basis points on Sept. 16, 2026, bringing the federal funds target range to 3.75-4.00%. This was the Fed’s first rate increase in three years and came as policymakers continued to face persistent inflation pressures. The latest projections also indicate that policymakers anticipate another rate increase in 2026.

The decision is particularly relevant for the alternative energy projects which are highly dependent on financing. Higher interest rates increase the cost of capital, potentially affecting project economics, development timelines and valuations across the sector.

Higher interest rates can create significant headwinds for the Zacks Alternative Energy – Other sector due to its dependence on large upfront investments and external financing. Solar, wind, and other clean-energy projects typically require substantial capital before they begin generating revenues, making developers particularly reliant on debt and long-term financing. As borrowing costs rise, interest expenses increase, project economics become less attractive, and companies may face greater difficulty securing funding for new developments. Consequently, tighter monetary policy can weigh on both the profitability and growth prospects of renewable energy businesses.

Some alternative energy companies appear better positioned to withstand the impact of higher interest rates and continue generating relatively stable returns. Montauk Renewables (MNTK Quick QuoteMNTK - Free Report) , Constellation Energy Corporation (CEG Quick QuoteCEG - Free Report) and TXNM Energy, Inc. (TXNM Quick QuoteTXNM - Free Report) currently carry a VGM Score of either A or B and a Zacks Rank of either #1 (Strong Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Higher Rates Slow the Momentum Behind the Energy Transition

The alternative energy industry is particularly exposed to changes in financing costs because developers must commit substantial capital long before projects begin generating returns. When interest rates rise, the higher cost of financing can weaken project economics and prompt developers to delay, reduce, or reconsider planned investments. This pressure can be especially pronounced for emerging and capital-intensive technologies such as offshore wind, carbon capture, and low-carbon hydrogen, where projects often operate with narrower financial margins and greater execution risks.

The impact also extends to established utility-scale renewable operators, many of which rely on long-term Power Purchase Agreements (PPAs) that lock in electricity prices for years. While these contracts provide predictable revenues, they can also limit a company's ability to pass higher financing costs on to customers. As interest expenses increase while contracted prices remain fixed, profit margins can come under pressure, potentially affecting cash available for distributions and future investments.

Alternative Energy Stocks in Focus

Despite the latest rate hike, three alternative energy stocks stand out based on financial metrics that indicate relatively strong fundamentals and earnings momentum. Our selection focuses on companies with a Times Interest Earned (TIE) ratio above 1, signaling that their operating earnings are sufficient to cover current interest obligations. In addition, each company shows earnings growth in 2026. 

Pittsburgh, PA-based Montauk Renewables is a fully integrated renewable-energy company. It specializes in the management, recovery and conversion of biogas into renewable energy. It projects $20-$25 million in non-development capital spending, primarily for maintenance, wellfield expansion, equipment replacements, facility improvements and IT upgrades. In addition, the company expects to invest $80-$100 million in development projects, including Montauk Ag Renewables, Bowerman RNG, the Rumpke RNG Relocation Project, the Atascocita CO??? project and the Tulsa RNG project.

The times interest earned ratio is currently pegged at 1.7. The Zacks Consensus Estimate for 2026 earnings per share (EPS) indicates year-over-year growth of 1,100%. It carries a Zacks Rank #1 at present and has a VGM Score of A.

Constellation Energy is based in Baltimore, MD. It produces and sells electric power, natural gas and energy management services. It serves customers nationwide through its competitive retail platform. Its strategy is built around the nation’s largest carbon-free nuclear fleet, complemented by natural gas, oil, geothermal, hydro, wind and solar resources. The company expects capital expenditures of about $5.7 billion in 2026 and $4.7 billion in 2027.

The times interest earned ratio is currently pegged at 7.5. The Zacks Consensus Estimate for 2026 EPS indicates year-over-year growth of 29.3%. It carries a Zacks Rank #3 at present and has a VGM Score of B.

TXNM Energy is based in ALBUQUERQUE, NM. It is an energy holding company that delivers energy to homes and businesses across Texas and New Mexico through its regulated utilities, TNMP and PNM. TXNM Energy’s 2025-2029 capital investment plan totals approximately $7.8 billion, reflecting a sustained commitment to expanding and modernizing its utility infrastructure.

The times interest earned ratio is currently pegged at 1.9. The Zacks Consensus Estimate for 2026 EPS indicates year-over-year growth of 31.8%. It carries a Zacks Rank #3 at present and has a VGM Score of B.