“In 2016 the U.S. will learn if renewable energy can survive without government support,” says a recent article from Bloomberg Business, noting, “the most significant tax credit for solar power will expire at the end of 2016, and the biggest one for wind already has.” According to Bloomberg New Energy Finance, “these federal subsidies have provided wind and solar developers with as much as $24 billion from 2008 to 2014,” a move “that’s led to a 12-fold increase in installed capacity over the past decade, helping lower costs (of installation) at least 10 percent each year.”
The looming loss of federal subsidies to the solar industry will cause a rush to build out investments in this space over the next 14-months, followed by three-years of slow to lackluster growth, according to an analysis published in Forbes Magazine. According to Shayle Kann, the senior vice president of GTM Research, 13 GW of solar energy is slated to come online before the solar subsidies expire at the end of 2016. “That 13 GW is the equivalent of half of the solar currently online in the U.S. And it could mean parts shortages, price escalations for some components, maybe interconnection issues as solar companies hustle to install panels before the credit expires,” says Kann in an interview with Forbes.
While the boom time of the solar industry may be rushing to a halt, the lull in growth is only expected to last for three years (2017-2019), as 2020 would likely usher forth new investment and expansion when the EPA’s Clean Power Plan Clean Energy Incentive Program offers “states double credit toward their emission reduction goals when they install solar and wind.”
Whereas the federal subsidies currently provide solar installers a 30% tax credit on their investment, expiration of that subsidy will reduce the credit to just 10 percent.
As Rhone Resch, head of the trade group Solar Energy Industries Association, recently noted, “cutting tax incentives could cost the industry 100,000 jobs and erase $25 billion in economic activity. With subsidies, solar in most parts of the country remains more expensive than natural gas, coal, and nuclear. Without subsidies, solar is 35 percent to 40 percent more expensive,” according to Bloomberg.
Perhaps preparing for forthcoming cuts, SolarCity, the largest solar developer in the U.S. announced last week a strategic shift from growth to subsidy-independent sustainability. As described in a recent article by The Buffalo News, aside from announcing a third-quarter loss that was 10% greater than what analysts predicted, “going forward, instead of growing by 80 percent to 90 percent a year, SolarCity now said it will limit its growth to about 40 percent annually.” Of its new strategy, SolarCity CEO Lyndon Rive said “the reason why we have focused on growth is we need to achieve scale. The only way you can reduce cost is with scale…Now that we’ve achieved scale, we … have decided to focus on cost reduction and being cash-flow positive by the end of 2016.”
Time will tell if other solar developers follow SolarCity’s lead in the coming months.
The U.S. is apparently not alone in its decision to reduce federal subsidies for solar capacity. “In reducing government backing, the U.S. is following Europe’s example,” noted Bloomberg Business. “After years of generous renewable subsidies, Germany, Spain, and the Czech Republic have cut back recently. In January the U.K. plans to slash subsidies for rooftop solar panels by 87 percent.”