Clean energy boom and bust: What can be done?

New research concludes clean energy is at a "crossroad" in the United States with federal support set to plunge, and recommends a shift from traditional subsidies to greater support of research and development.

The annual average of $4.7 billion spent on clean energy research since 2009 is roughly a half to a third the funding levels recommended by numerous business leaders, researchers, and national science advisers - and far lower than annual investments in space research and exploration ($19 billion), health research ($34 billion), and defense-related research ($81 billion).

So say authors of "Beyond Boom and Bust," a study by The Breakthrough and World Resources institutes, and Brookings Institution. (Here's a link to a Washington Post story)

With the projected cut in investment (although this blog suggests an increase in aspects of solar manufacturing) comes a required shift in philosophy, the authors state. This change from "policy-induced cycle of boom and bust" is essential to producing cost-competitive clean energy that is necessary for economic security, growth, technological exports and better health, the analysts state.

The report begs the question, Why doesn't the United States apply a Space Race attitude toward clean energy. My colleague, Mike Nemeth, elaborates on that thought in this blog:

ARRA stimulus

The American Recovery and Reinvestment Act (ARRA) of 2009 helped fuel growth of clean energy, but many of those programs and coinciding tax credits are expiring, and annual clean-tech spending, according to "Beyond Boom and Bust", is set to decline some $11 billion, or 75 percent, by 2014.

About one third of all federal spending since 2009 has been one-time ARRA money, the analysts concluded. The expectant dip comes despite declining prices of solar, wind and other forms of clean energy - and the addition of more than 70,000 related jobs during the height of the recession.

Wind energy is competitive in many places, but the number of those places is sharply reduced when unsubsidized rates are calculated, "making wind energy competitive with gas fired generation only in the best of wind regimes with ready access to existing transmission capacity," the report states.

Meanwhile, solar rates have dropped dramatically, and rooftop systems in Hawaii, California and other sun-kissed states with relatively high electricity rates are nearly competitive with more traditional forms of energy. Despite that, disappearing subsidies are hampering solar markets.

The end of this policy era provides an opportunity to overhaul or reform many of the 92 federal clean-tech programs, the authors contend, with "smart reforms that not only avoid a potential 'clean tech crash' but also accelerate technological progress and more effectively utilize taxpayer resources. Well-designed policies that successfully drive innovation and industry maturation could provide US clean energy sectors a more stable framework within which to advance towards both subsidy independence and long-term international competitiveness."

Shrinking subsidies is expected to lead to a consolidation of the solar industry, according to this report from Bloomberg, which cites a study by Jeffries Group Inc.

'Beyond Boom and Bust: says perpetual subsidies are not sustainable, and help cause the "boom and bust" cycle of clean energy. They also don't address the key issues: the higher cost of emerging clean technology relative to fossil fuels.

Costs are coming down, but political uncertainty will continue to drag down clean energy until subsidies are no longer needed. To achieve that, the authors recommend:

1/ Use subsidies and incentives to reward technology advances and cost declines until they are no longer needed;
2/ Increase investment in R&D to match other innovation priorities; for example, creating a test bed program that uses federal land;
3/ Harness advanced manufacturing; regional industry clusters; and invest in energy science, math, technology and engineering education.

what now?

Absent legislative action to extend subsidies, America's clean tech policy system will be largely dismantled by 2015, a victim of scheduled elimination of programs.

Those remaining would include the solar industry's 30 percent investment tax credit, which falls to 10% in 2016, and the "nation's underfunded and politically vulnerable energy RD&D programs and a handful of tax credits and grant programs for energy efficiency and conservation," the authors state.

In conclusion, they say:

"The time has come then to craft a new energy policy framework specifically designed to accelerate technology improvements and cost reductions in clean tech sectors, ensure scarce public resources are used wisely to drive technologies towards subsidy independence as soon as possible, and continue the growth and maturation of America’s clean tech industries."