US solar market threatened by sharp fall in subsidies by 2014

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The solar sector has two more years before the 30 percent Investment Tax Credit (ITC) buoying solar markets expires at the end of 2016, reverting to a permanent 10 percent credit, according to the report.

Brookings said that substantially reduced U.S. federal support is coming at the wrong time, because the costs of solar are declining. It threatens to end the current boom with an inevitable bust. The authors used the phrase "falling off a cliff" to describe the drop in investment that will come unless U.S. congress takes action intervenes in the meantime.

With the "right innovation and market supply/demand conditions", they further predict that unsubsidized utility-scale photovoltaic costs will decline into the US$90 to $150 per megawatt hour (MWh) range by 2014, and the $40 to 66 per MWh range by 2020. These costs would enable solar to compete with gas-fired power plants.

As it is today, photovoltaic projects still have difficulty competing in wholesale power markets with new gas-fired generation without subsidy or policy support, except in regions with the highest solar resources. The unsubsidized levelized cost of electricity from typical utility scale photovoltaic installations is between $111 and $181 per MWh. But with modest federal and state subsidies solar projects in California, the largest solar market in the United States, have achieved contract bids below $90 per MWh, a historic low-point in the trend towards cost parity in solar markets.

The conditions for rooftop are slightly better. The unsubsidized levelized cost of electricity (LCOE) for a rooftop photovoltaic installation fell to between $178 to $345 per MWh in late 2011. Solar is competitive without subsidy in Hawaii, and it is within "striking distance" of unsubsidized retail grid parity in several sunny states with relatively high electricity rates, including California, Texas, Florida, and Nevada, as well as a set of northeastern states, including Connecticut, New York, New Jersey, and New Hampshire, where residential electricity rates exceed $160 per MWh and solar irradiance is modestly high. There are additional state incentives making markets for rooftop solar "robust" in each of these states

The data gathered for the report about subsidies, along with the description of cost trends and the regions where solar can be competitive is extensive. It includes similar analysis of wind, bio, and nuclear sources. The real purpose of the report, however, was to raise awareness among politicians and members of policy making committees about the need for reform of energy policy to support renewables over the medium term until it becomes competitive.

It is not the only organization drawing attention to the political uncertainty in the U.S. market. A week earlier, Bloomberg New Energy Finance (BNEF) revealed a 28 percent reduction in investment in the first quarter compared to the fourth quarter 2011, and a 22 percent reduction compared to the same the first quarter of last year. BNEF attributed the weak quarter, the lowest since the one following the 2008 financial crisis, to "the destabilising uncertainty over future clean energy support in both the European Union – driven by the financial crisis – and the U.S. – driven by the expiry of stimulus programmes and the electoral cycle."

BNEF stated that politicians in many countries "appear to be ducking" the decisions that would ensure that the sector maintains its growth trajectory. The uncertainty is leaving investors "guessing about their likely future returns", it said.

Tremendous strides

The messages from these organizations is that solar and other alternative energy sources have made tremendous strides in reducing costs, and that now is not the time for governments to be showing lack of commitment.

Opposing voices argue that government should stay out of industry and not provide subsidies due to costs and ideological drivers. Is it likely that such voices will be heard by the right people? Brookings claims on its website that it has influenced many U.S. policies from the formation of the United Nations, to the Marshall Plan, and deregulation, welfare reform and the design of foreign aid programs. Other experts view Brooking as the "most influential" think tank in the world, according to a global survey of 793 expert panelists, 150 journalist and scholars that is compiled annually by the University of Pennsylvania’s Think Tanks and Civil Societies program.

In any event, this particular report contributes to establishing some more facts and figures to used in the debate about whether or not subsidizing solar is in the best of interest of citizens, government, and industry.

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