What’s next for clean energy

by Michael Moynihan.

This past weekend, I attended the ‘s Clean Energy
Roundtable, an annual gathering of business, political, and policy
leaders working in clean energy. Inspired by the many insights and ideas
presented, here are my thoughts on the state of clean energy today and
what lies ahead.

First, the good news.  Prices of key clean energy technologies are
plummeting, bringing many technologies, such as distributed solar and
energy storage, closer and closer to mass deployment.  The cost of solar
panels today is about 20 percent below that of a year ago.  And it should
continue dropping for the forseeable future. In other words, the
performance/price ratio is improving exponentially, like computer chips,
if not quite as fast, and for different reasons—cost economies for the
most part, as opposed to breakthrough technologies.  The main driver of
the plummeting costs is volume and successful efforts by the Chinese
government to vertically integrate the Chinese solar industry, which
now of the world’s solar panels.  (In advanced thin films, costs per watt
are also coming down.)  Even more dramatic price drops are occurring in
battery storage across a range of chemistries, with prices halving in the
the last year.  Plummeting prices that translate to rising performance
are good news for developers, electric carmakers, and the global
industry at large.

The story is more complicated, however, in the United States, where
we are in what might be described as the best and worst of times.  This
past year saw torrid growth in solar deployment in the U.S., with solar
capacity doubling; wind installations also grew, and wind is now a very
competitive source of power.  Solar—already competitive with
subsidies—will be competitive without them in several years.  That is
the good news.  The bad news is that solar generation still supplies
only 0.2 percent of U.S. electricity, and, what’s more, growth has been
driven by the in the tax law that allows tax credits to
be redeemed for cash.  This provision expires on Dec. 31 this year.
Since the financial crisis, tax credits deals to build everything from
affordable housing to energy have exceeded the relatively thin pool of
capital from investors seeking to shelter profits.  That means tax
credits absent the 1603 provision can be worthless.  With extension of
Section 1603 uncertain, the solar industry may face significant
challenges beginning this winter.

Similarly, on the wind side, the end of the 1603 credit would take a
toll, and the production tax credit for wind itself expires at the end
of next year. While companies are scrambling to start projects before
these deadlines pass, afterwards activity may fall of the proverbial
cliff.  In short, while global fundamentals for clean energy remain
strong, the sector remains quite sensitive to government subsidy.  In
the U.S., with subsidy likely to change, and especially with gas prices
likely to stay low as more shale gas comes onstream, we may see more
clean energy activity shift overseas.  (One potential fix to this
problem: moving clean energy off “subsidies” and giving them equal
access to the master limited partnership tax break that extractive
industries like oil and gas enjoy.)

Indeed, despite intense focus by Silicon Valley and the support of
the U.S. government, the U.S. is not catching up with Europe or China on
clean energy, and in many measures, we are falling further behind.  A few
years ago, Germany adopted an export promotion plan that included
factories as exports.  It exported gas turbine and solar panel factories
to China, which is how China has so rapidly come to dominate many areas
of clean manufacturing.  The Germans have done well selling machine
tools to the Chinese while creating demand (and green power) at home
through an aggressive feed-in tariff. The U.S., however—except for a few
bright spots like , which …

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