September 12, 2012
International Markets Bracing for Clean Tech Bust
Clean tech is stuck at an inflection point. On the one hand, clean energy technologies like wind and solar remain too expensive for power markets to adopt broadly on their own without subsidy. On the other hand, governments have become increasingly sensitive to the weight of clean tech subsidies on public budgets. Deployment is growing faster than costs are dropping.
In April, we offered a solution to the obstacles standing in the way of full clean tech commercialization. In "Beyond Boom and Bust" -- a report we co-authored with Mark Muro at the Brookings Institution and Letha Tawney at the World Resources Institute -- we propose policy reforms that prioritize innovation and cost declines for advanced clean energy technologies. Yesterday, the Washington Post embraced our recommendations, noting specifically that subsidies for the American wind market should be re-oriented to encourage cost improvements.
Already we're seeing signs of a slowdown following years of rapid expansion in clean tech sectors. After setting records in 2011, the world saw the lowest private investment in the first quarter of 2012 since the depths of the recession in 2009. Growth of wind power in particular has slowed in reaction to troubles in Europe and other developed countries, according the Worldwatch Institute.
Without smart reforms, the road ahead for clean tech will be a challenge. At WindPower 2012, the wind industry's annual exposition conference taking place this week in Atlanta, industry representatives are warning of an investment cliff following the expiration of the production tax credit for wind (PTC) later this year.
This cycle of policy-induced boom-and-bust has spread around the world. Last year, Japanese wind power installations dropped 70 percent year-over-year from 2010, following the shut-down of a direct subsidy to wind developers that covered one-third of wind energy project financing. The subsidy will be replaced by a feed-in tariff for renewables, but the government has acted slowly rolling out the new support policies.
In Britain, the Chancellor of the Exchequer is calling for a 25 percent cut in feed-in tariffs for onshore wind power, an abrupt cliff that wind industry representatives say would dangerously slow deployment. The move represents one of many government efforts to save money. This comes amid news that the United Kingdom, while delaying planned cuts to feed-in tariffs for solar power, has cut its cumulative 2020 solar deployment targets in half, from 22 gigawatts to 11.9 gigawatts.
Spanish clean energy industries have suffered a particularly severe round of boom-and-bust. A surge of investments in clean tech that began in 2004 has hit more than a few stumbling blocks, as the national government first made surprise cuts to solar feed-in tariffs and the nation battled through the recession worse than many other developed economies. Solar investments will plummet over 90 percent between 2011 and 2013, according to Bloomberg New Energy Finance, from a high of $1.5 billion to $107 million. Spanish wind investments will drop a similar amount -- from $2 billion in 2012 to $244 million in 2014.
In Italy, after taking a global lead in solar photovoltaic production in 2011, installations are expected to drop following cuts to the nation's solar feed-in tariff. From an impressive high of 9300 megawatts in 2011, the nation expects only 2500 megawatts in 2012. Even these relatively low levels are mostly a product of delaying the feed-in tariff cuts by three months this year.
Germany remains an exception in the global bear market for clean energy. With some of the world's most generous subsidy programs, the largest economy in Europe has experienced impressive growth in clean tech deployment and manufacturing in recent years. Efforts led by Chancellor Angela Merkel to slash solar feed-in tariffs have stalled in the legislature. But even as deployment of technologies like wind and solar continue apace, the nation faces must pioneer through new clean energy challenges, including figuring our how to balance the electric power grid among diverse intermittent generation technologies and how to pay for the desperately needed new transmission infrastructure.
This stream of international turmoil offers a lesson for the United States as we seek to navigate our own clean tech inflection point. Policies must drive both deployment and cost declines for clean tech to continue its steady march towards commercial maturity. Governments that fail to do so will be unable to sustain recent growth rates in higher-cost clean energy technologies, and industries left without government support will be unable to compete on their own against cheaper incumbent fossil energy technologies like coal and natural gas.
America stands firmly at a critical moment in the history of clean tech, a point from which we can either forfeit our position in growing global industries or strengthen our commitments to developing clean, affordable energy technologies.