In 2016 the U.S. will learn if renewable energy can survive without government support. The most significant tax credit for solar power will expire at the end of 2016, and the biggest one for wind already has. These federal subsidies have provided wind and solar developers with as much as $24 billion from 2008 to 2014, according to Bloomberg New Energy Finance. That’s led to a 12-fold increase in installed capacity over the past decade, helping lower costs at least 10 percent each year.
Combined, wind and solar still generate less than 5 percent of electricity in the U.S. The subsidy cuts come as both industries face stiffer competition from ultracheap coal and natural gas. An NYSE Bloomberg global index of solar stocks, including those of big developers SunEdison and First Solar, has fallen about 35 percent since June. A comparable wind index is down 20 percent.
Solar developers are racing to finish projects before the end of 2016. More than 8.5 gigawatts of solar capacity will go online in 2015, followed by at least 11 gigawatts in 2016, BNEF says. Without the tax credit, which reimburses developers 30 percent of a project’s cost, BNEF expects solar installations in 2017 to drop about 70 percent.
Wind is in better shape, partly because it’s been through this before. Installations fell 90 percent in 2013, when its biggest federal subsidy expired. The $23-per-megawatt-hour tax credit was retroactively extended to cover projects under construction in 2014; it remains in limbo. But even without the tax credit, turbines can now compete with fossil fuels in parts of Texas and Oklahoma.
In reducing government backing, the U.S. is following Europe’s example. After years of generous renewable subsidies, Germany, Spain, and the Czech Republic have cut back recently. In January the U.K. plans to slash subsidies for rooftop solar panels by 87 percent. This is all part of an investment cycle that’s moving in phases around the world, says Jigar Shah, the founder of SunEdison. “The incentives created a global industry that can move to the hot markets. First it was Europe, then the Americas, and now it’s in China, India, and Africa.”