The World's #1 Renewable Energy Network for News, Information, and Companies.
Untitled Document

The Pending Subsidy Cliff, And the Way Out

It's a daunting reality, yet one that's been years in the making. And it's a scenario that's shaping up from the wind-swept coasts of California to the solar rooftops of New Jersey. The renewables industries — all of them — are not only approaching a subsidy cliff. They already have one foot dangling over the edge.

These cliffs are seen as a part of the renewables landscape, and the hope has been that the perceived drop would be too steep for lawmakers to ignore. In the past, that’s been a successful strategy, but the new state of politics dictates that subsidies will be phased out. Though some may yet be extended for at least the short-term, we’re likely entering a new era of energy policy in the United States.

A new report, “Beyond Boom and Bust,” by policy leaders at the Breakthrough Institute, the Brookings Institution and the World Resources Institute, details the subsidy collapse that has already begun in the U.S., and it lays out a blueprint for a long-term approach that deconstructs the fits and starts that have become the norm.

The report is especially well-timed as the renewables industries head into a period of uncertainty magnified many times by the posturing that comes with presidential elections. The numbers, though, are real and they mostly point one way.

In 2009, backed by ample stimulus funding and solid political support, federal clean tech spending, including everything from energy to electric vehicles, reached $44.3 billion. That spending has dropped steadily to an estimated $16 billion this year. By 2014, the federal government will spend $11 billion, or about a quarter of what it did five years earlier, on clean technologies.

This is a problem, write the report authors, because this drop has not coincided with a comprehensive new energy approach — one that aims to lower costs of energy with clear requirements and predictable policy. And it has not included a phase-out of fossil fuel subsidies that long ago matured past the point where they needed federal support. The other side of reform, the one that gets far fewer headlines, is in the amount of money invested in research and development, an area of the clean energy sector that has been woefully underserved in recent years.

The following is a breakdown of key points and suggestions made by the authors as they envision a blueprint for a new energy strategy.

Policy Reform

Current policy has enabled greater capacity, and that has in turn allowed processes to scale-up. But what do you have when the policies go away? Right now, you’d have technologies that except in rare cases cannot compete dollar for dollar against low-cost options like natural gas.

The problem, the authors say, is that the policy mechanisms haven’t demanded that the technologies bring their costs down to levels that compete with fossil fuels. This is kind of like the current flat production subsidies given to support certain crops. An example of this would be the Production Tax Credit that has fueled explosive growth in the American wind industry. The credit gives 2.2 cents per kWh generated, and that figure has only been readjusted to reflect inflation. A more demanding policy structure that forces a downward trajectory in pricing would better force companies to meet targets — or risk losing that policy support.

“We would favor some kind of extension of the PTC,” said Mark Muro, a policy analysts at the Brookings Institution. “At the same time, some predictable downramp would extend the wind industry’s competitiveness.”

Muro realizes this isn’t an easy time to be having this discussion. The wind industry in particular has a lot of political backing, but dwindling hopes that an extension can get done before the end of the year. The outlook may drive the industry from as much as 9,500 MW installed in 2012 to 500 MW in 2013.

“The wind industry is a sophisticated industry with lots of success and lots of people who understand the value of competing on price, and I think they’d be willing to look at these ideas. There’s a readiness to address some of these issues.”

According to the report, subsidies should be reconfigured to meet stringent, yet consistent new measures. The report makes several specific suggestions in which the authors say new policies should do the following:

  • Create market incentives that demand — and reward — technology performance and cost.
  • Set policies that decline as technologies improve in price and performance. They should be terminated if certain types of technology fail to improve on price and performance, or if they achieve the goal of becoming competitive without support.
  • Open opportunities for technologies at all stages of development. Technologies with a similar level of maturity should be allowed to compete amongst themselves to determine which is best suited to move forward.
  • Ensure that the process is clear, transparent and predictable for many years down the road. The uncertain and short-term nature of current policy does as much to hinder investment as the cost considerations.

Strengthen Innovation

The policy piece that’s been largely missing from American clean energy strategy is research and development. This have been a fundamental element for the growth of military technology, the space program and medical sciences. But it’s been conspicuously absent as a major driving force for renewables.

The lack of research, development and deployment (RD&D) funding really starts in the private sector, where U.S. energy firms reinvest about 1 percent of their revenues. In the information technologies, semiconductor and pharmaceutical industries, these numbers usually run between 15 and 20 percent. The federal government isn’t doing much better in this respect. In 2012, federal RD&D spending will fall below $4 billion. That compares unfavorably with the levels of early funding received by NASA ($19 billion), health research ($33.5 billion) and defense ($80 billion). Even pushing energy related RD&D funding to $15 billion would have profound effects.

This may be an area with political common ground. Republicans who have been against the government “picking winners and losers” are usually quick to respond that federal investment should come in the research phase of new technologies.

Below are some of the recommendations for rethinking RD&D funding for clean energy techologies:

  • Funding in clean energy shouldn’t end once they reach subsidy independence. The emergence of shale gas shows how persistent research can lead to continued breakthroughs.
  • Spanning the “Valley of Death” for both technology and commercialization remains a critical obstacle. This is when funding usually dries up, yet on the other side is when significant breakthroughs can emerge.
  • The DOE loan program should be replaced by the Clean Energy Deployment Administration, which would leverage private finance to support entrepreneurs with innovative technologies.
  • A National Clean Energy Testbed should be established on public lands to give pre-permitted, grid-connected space for emerging technologies to blossom without the hassles typically involved with demonstration projects.
  • Harness advanced manufacturing in the U.S. Innovation suffers when it is divorced from the manufacturing process. So, there’s a natural investment to realign these two industry forces.
  • Invest in education, from grade school through graduate school. And then work to employ the international students who come for an education but leave because of immigration barriers.
Untitled Document

Get All the Renewable Energy World News Delivered to Your Inbox - FREE!

Subscribe to Renewable Energy World Magazine and our award-winning e-Newsletter to stay up to date on current news and industry trends.

 Subscribe Now



A Case Study in Energy-Transition Momentum

Tim King South Australia is clearly at the forefront of the global energy transition as it establishes a fast-moving model oth...

Listen Up: Can I Get Solar if my Roof is Shaded?

The Energy Show on Renewable Energy World Rooftop solar panels only work when they are in direct sunlight. So if you have a partially shaded roof, the output o...

US Senate Democrats Unveil Energy Bill That Restores PTC and Extends ITC

Brian Eckhouse, Bloomberg Senate Democrats unveiled a bill that would provide more tax credits for renewable energy while killing some tax ince...

US, China Solar PV Players Team Up, Invest $100M in Chile, Uruguay and Japan

Andrew Burger Private equity infrastructure specialist Hudson Clean Energy Partners and Hong Kong-based independent power producer ...

PRESS RELEASES Welcomes Jennifer Delony as Associate Editor

PennWell Corporation is pleased to announce that Jennifer Delony has joined the company...

Customized Energy Solutions Executes Agreement with the Massachusetts Clean Energy Center (“MassCEC”) and the Massachusetts Department of Energy Resources (“DOER”) for Important Energy Storage Study

Customized Energy Solutions (CES) has entered into agreements with Massachusetts Clean ...

CleanTX Releases New White Paper on the Future of Texas Solar in Texas

We love this new White Paper from our clean energy partners CleanTX

Sun Xtender® Launches New Website at

The newly designed website for Sun Xtender solar batteries is now live on the World Wid...


energy efficiency

Beyond the Trend: Maximizing the Impact of Your Energy Efficiency Solution

A revolution is happening in the energy sector. From the new regulations pushed out earlier this summer by the EPA’s ...

Northeast States Create Cap-and-Trade Program for Greenhouse Gas Emissions

Northeast states have worked together for several decades to address air quality issues and, more recently, climate c...

Why the Solar PV Industry Should Love Geothermal Heat Pumps Pt 2

It’s a marriage made in heaven: Solar PV and Geothermal Heat Pumps Part 2 of a 6-Part Series Prevailing Heati...

Park District Goes Solar, Saves Big While Preserving Open Space

Not only do community parks provide green space for recreation and leisure, they also increase property values, attra...



Volume 18, Issue 4


To register for our free
e-Newsletters, subscribe today:


Tweet the Editors! @jennrunyon



Successfully Integrating Solar: A Proactive Approach

•      What does the increasing solar penetrati...

Solar Power Northeast

  From the team that produced Solar Power Southeast and the sol...

Solar Power Asset Management and Performance

SEIA and SEPA collaborated with industry leaders to present the first ev...


Saving Vs. Gaining

Whenever I do a national keynote speech or customized coaching session f...

SPI Brings Out The Best In Solar

Phew…...those cross-country flights sure take a lot out of a guy....

Join us at the New Solar Power Northeast

From the team that produced Solar Power Southeast and the sold out P...


Renewable Energy: Subscribe Now

Solar Energy: Subscribe Now

Wind Energy: Subscribe Now

Geothermal Energy: Subscribe Now

Bioenergy: Subscribe Now