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Green Energy
Girds For Dark Times As Subsidies Expire
By Tom Gray
04/27/2012
A red light is flashing for the green energy business.
After a three-year boom, the outlook for wind, solar and other
renewable energy companies has turned sharply negative. The tax
credits, grants, loans and other subsidies that sparked the growth of
these technologies are shrinking fast. It has been called a “subsidy
cliff.” The question now is who will fall and who will fly.
Green power skeptics say most businesses in this sector are not ready
to face the market on their own. “They’re basically going to
disappear,” said economist Benjamin Zycher, a visiting scholar at the
American Enterprise Institute. “They’re woefully uneconomical.”
Even those who see a bright future see near-term trouble. In a recent
study titled “Beyond Boom & Bust,” analysts from the Brookings
Institution, Breakthrough Institute and World Resources Institute warn
of “more bankruptcies, consolidations and market contraction” without
“timely and targeted policy reform.”
Another study this month by McKinsey Consulting sums up the long-term
sunny but short-term grim outlook in its title: “Solar Power: Darkest
Before Dawn.”
Why are things suddenly so dark for an industry that, according to the
“Boom & Bust” report, received $110 billion in federal support from
2009 through 2011?
The short answer is that the money is drying up. The “Boom & Bust”
study estimates that federal support for what it calls “clean tech”
will be just over $40 billion from 2012 through 2014. (The study
includes funding not only for renewable energy but also for nuclear
power, high-speed rail, grid improvements and energy efficiency).
One reason for the drop-off is that spending from the 2009 stimulus
bill has mostly run its course. The bill was very good to green energy,
giving it about $44 billion through last year. From 2012 through 2014,
that support is expected to shrink to about $6.5 billion.
Several tax programs aimed at boosting green power are either set to
end soon or have already done so. According to the Congressional Budget
Office, tax preferences for renewable energy and energy efficiency
totaled about $16 billion in 2011. Several of these, worth about $12
billion in all, expired at the end of 2011. An additional $1.4 billion
came last year from the Production Tax Credit, which supports mainly
wind projects. It will expire for these at the end of 2012.
Financial support is also shrinking overseas. Germany and the U.K. are
both rolling back programs that subsidize solar panels on homes and
commercial buildings.
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