Despite recent growth, the US wind industry now fears a sharp slowdown. As the Wall Street Journal reports, domestic demand for wind turbines is falling. With the production tax credit (PTC) set to expire at the end of this year, manufacturers are not receiving many new orders. The CEO of Vestas, the world’s largest producer of wind turbines, forecasts that the US market will decline by 80 percent over the next year. Although the PTC originated during the George H.W Bush administration and originally reflected bipartisan consensus, clean energy policy has become increasingly politicized. A congressional agreement to extend the credit is unlikely during a contentious election year. Even if policymakers renew the tax credit after the election, the market will remain uncertain and investments in the wind energy sector in 2013 are bound to be much lower than the record levels we have seen in the recent past. Unlike previous instances in which the PTC was temporarily withdrawn, the US now has a manufacturing base for wind turbines which will be negatively impacted by a decline in demand, placing several thousand jobs at risk.
The uncertain future of the PTC is characteristic of a US renewable energy (RE) policy that lacks long-term predictability. No national target for RE development exists, and most programs have traditionally only been extended in one- and two-year intervals. Unless Congress can agree to extend some of the expiring initiatives, the only federal clean energy policies left after 2014 will be a 30 percent investment tax credit (ITC) for the solar industry, several underfunded RD&D programs, and a few initiatives for energy efficiency and conservation. Some of the core RE policies passed as part of the 2009 American Recovery and Reinvestment Act expired last year and were not renewed. Examples include the Department of Energy (DOE)’s Section 1705 loan guarantee program, famous for its loans to Solyndra, and Section 1603 treasury grants allowing RE projects to receive an up-front cash grant in lieu of tax credits.
Even with this uncertainty, the RE sector in the US has grown. Without a national target, the main driver of RE deployment in the US has been a combination of these federal financial incentives and a number of state initiatives. For example, 29 US states and the District of Columbia currently employ a mandatory renewable energy portfolio standard (RPS). A total of 8 states have RE goals and 18 offer additional financial incentives such as feed-in tariffs or tradable RE credit schemes. The combined impact of these policies has been rather successful. Renewable energy in the United States is maturing, evolving from a niche market to an increasingly competitive alternative to fossil fuel-based generation. For US sites with the best natural conditions, wind power can already produce power as economically as coal, gas and nuclear generators. Solar photovoltaic (PV) has experienced an unprecedented boom over the past few years and Crystalline silicon PV modules now cost as little as USD 1/watt. The share of total US electricity generation from non-hydropower RE increased from 3.7 percent in 2009 to 4.7 percent in 2011. Last year, nine states generated more than 10 percent of their electricity with non-hydro RE, up from only two states a decade ago.
This dynamic can continue to succeed, but only if the right policy framework is in place. RE technologies are still far from their full potential – and further substantial cost reductions can be expected. However, various RE technologies require different levels and forms of support to further them on their pathway to competitiveness. The federal policy environment remains a key variable in this. Several effective policy tools are available.