How the Silicon Valley Bank Collapse Affects the Energy Landscape 

May 17, 2023

How the Silicon Valley Bank Collapse Affects the Energy Landscape 

Secure Your Energy Procurement Strategy by Working with Professional Consultants 

In March 2023, Silicon Valley Bank became the biggest bank failure since the 2008 recession. While the actual dynamics are complex, a few key things led to the collapse of SVB and Signature Bank shortly after. This collapse highlighted the vulnerability of the energy market to current events. Discover how professional energy procurement consultants can help you navigate economic instability and establish a robust strategy. Our expertise provides resilience and sustainability for your company’s energy needs.

A pattern of risky investments made SVR’s cash reserves precarious, exacerbated by actions from the Federal Reserve and deregulation in the financial sector. In recent years, long-term bonds, which SVB had increasingly purchased, decreased in value as the Federal Reserve raised interest rates to battle inflation. As their cash flow diminished, their clients faced greater liquidity needs. 

The slackening of Dodd-Frank and other regulatory changes related to financial regulations nationwide further affected SVB’s financial situation. Had there been greater oversight, it’s likely SVB’s financial troubles would have been addressed before resulting in a collapse. 

On March 8, Silicon Valley Bank announced extreme measures it had taken to raise enough cash to meet withdrawals, including the sale of over $21 billion in securities and borrowing another $15 billion. Following the announcement, various notable Silicon Valley investors encouraged their peers to remove their money. The result was customers withdrawing up to $42 billion in one day. All accounts were FDIC insured up to $250,000, but that was not enough for small companies to make payroll. To address the situation, the FDIC invoked a “systemic risk exception” and set up a lending program to fund SVB and other affected banks. The bank defaulted when it could not pay out all accounts. 

With over 1,500 climate change companies invested with SVB, there was much concern about how future pricing and sustainability measures would be affected. Below we discuss two major energy concerns and discuss how a professional energy procurement strategy helps you weather economic instability. 

SEE MORE: What is the Best Way to Achieve Your Energy Sustainability Goals?

Solar Project Funding 

SVB was a critical early funder in community solar projects. On its website, the bank claimed to be involved in 62 percent of the country’s community projects. After their collapse, many worried about the status of those projects and future funding. 

The good news is that community solar now has a diverse backing, and projects on the Silicon Valley Bank’s books should face little trouble transferring to new banks. Also, due to SVB’s early involvement, many of their funded projects are already complete and in less need of ongoing financing. Even companies like Sunrun and Sunnova, which were still closely linked to the bank, said there were minimal impacts. 

That said, some projects will see a rise in the cost of debt, which could be passed down to consumers or end up weeding out smaller projects. A general downturn in the financial sector could also reduce tax equity vital to solar financing. A reduction in projects would see a slowdown of solar cost declines seen in recent years. However, a lot of this should be counteracted by billions in funding provided by the Inflation Reduction Act. 

Oil Price Volatility  

After the SVB collapse, oil faced its most significant volatility since the start of Russia’s war with Ukraine: as much as a 5% decrease. However, by the end of the month, oil prices were back on the rise. This was due to the stabilization of the financial sector through the FDIC takeover of SVB and Signature Bank and the USB acquisition of Credit Suisse. An important meeting between Saudi Arabian and Russian diplomats also helped clamp down on volatility within the market. Market stability plays a crucial role in energy procurement decisions as it provides confidence in pricing and ensures long-term supply reliability. Thus enabling organizations to make informed and strategic choices for their energy needs.

Crafting an Energy Procurement Strategy

In a rapidly evolving energy landscape, demonstrated during the collapse of SVB, market stability and reliable procurement strategies are paramount. Our team of expert consultants understands the complexities of the energy market and is dedicated to helping you navigate uncertainty and market volatility. Our meticulous selection process identifies credit-worthy energy suppliers for you, ensuring price stability and sustainability for your company. Trust our thought leadership and industry knowledge to deliver a tailored energy procurement strategy that empowers your organization to make informed decisions, embrace sustainability, and secure a cost-effective future. 

Don’t let the uncertainty of the energy market hold you back from the success, sustainability, and resilience you deserve. Our expert energy consultants are here to guide you through the complexities and help you make informed decisions for a sustainable and cost-effective future, delivering a robust and reliable procurement strategy for your company. Contact us today for a tailored energy procurement strategy by calling or filling out our contact form