After peaking in 2009 at $44.3 billion, Federal spending to support clean energy will decline precipitously between 2009-2014. The main driver behind this phenomenon will be the expiration of many programs established by the American Re-Investment and Recovery Act (ARRA) of 2009. These programs include: the Treasury 1603 Grant Program, section 1705 of the DOE Loan Guarantee Program, and the Production Tax Credit (PTC) for the wind energy industry in 2012. Coupled with declines of support in Europe, the formerly booming clean tech industry could experience a period of significant bust due to oversupply in both the European and American markets. However, the expiration of such programs need not lead to the stagnation of this critical endeavor to bring clean technologies to cost competitive status.
Several think tanks including: the Breakthrough Institute, the Brookings Institute, and the World Resources Institute recently published policy recommendations that would create sustainable and efficacious alterations to current subsidization practices. The report emphasized the importance of creating targeted and temporary policies. Specifically, Federal support should focus on increasing R&D funding, accelerating advanced energy technology commercialization, strengthening advanced manufacturing capabilities, and supporting regional industry clusters. Other key recommendations include:
- Establishing a Competitive Market – New policies should create market opportunities while fostering competition between technology firms.
- Providing Targeted and Temporary Support for Maturing Technologies – Perpetual subsidies are ultimately unsustainable and do not incentivize the rapid growth of economies of scale they are intended to create. Deployment policies should terminate subsidies for technologies that fail to improve in price and performance or become competitive without a subsidy.
- Reducing Subsidy Levels in Response to Changing Technology Costs – Incentive programs should gradually decline as the technology performance and prices improve. This will save taxpayer resources and motivate firms to keep up with the “curve.”
- Providing Sufficient Business Certainty– While incentives should remain temporary, their structure and content should provide clarity for businesses and investors to make necessary decisions.
- Providing Ready Access to Affordable Private Capital– Incentives should seek to avoid high transactions costs, but also open up clean tech investments to larger private capital markets.
The suggestions by these think tanks advocate the replacement of the DOE Loan Guarantee program with more “flexible, independent, and sophisticated” financial tools designed to draw private investment into cleantech projects. This can be accomplished through a variety of credit, standardization, securitization and investment mechanisms delivered through a Clean Energy Deployment Administration or other entities. They also underscored the power of military procurement to leverage demand in the short term, as many clean energy technology can be used for both civilian and military activities (advanced vehicle technology, aviation biofuels, advanced solar power, storage technology, etc.).
Furthermore, these policies are believed to foster bipartisan traction in the legislative arena. They aim to reduce the impact on the taxpayer by maximizing the impact of public funds through targeted subsidization. They also strive to utilize mainly private sector mechanisms, creating new markets in which private firms can thrive.
Read the full report by the Breakthrough Institute, “Beyond Boom and Bust: Putting Clean Tech on a Path to Subsidy Independence.”
Sol Systems will continue to track any progress of this and any other initiatives supporting the solar industry on the federal level. Please also check out our blog for updates on state legislation as well.
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