New England’s diverse array of clean energy industries has been one of the region’s few sectors to add jobs and expand since the recession. Now, though, the industry is struggling, and Washington is part of the problem. Needed soon is national policy reform and a new federal-state collaboration to make clean energy solutions cheap.
The moment is urgent. Until last year, cleantech clusters in the region had been flourishing. World-class battery, distributed generation, solar, smart grid, and energy services firms were turning in double-digit annual growth rates and significant price declines. The sky seemed the limit for numerous cool New England start-ups for whom straight-up, unsubsidized price competition with conventional energy companies was beginning to become thinkable.
But then problems arose. In the last 18 months, a soft economy, in some cases illegal competition from China, and rock-bottom natural gas prices have plunged the sector into uncertainty.
European demand for Massachusetts exports has ebbed. Margins have narrowed in solar photovoltaics and growth has been slower than hoped for in the battery industry. Several prominent bankruptcies as well as the ambivalence provoked by Chinese investments in Boston Power and Great Point Energy have undermined confidence.
Yet if much of what is happening is inevitable, not all of it is. With most New England cleantech companies still reliant on federal subsidies, policy disarray in Washington is also taking a toll. Most notably, the industry is being affected by gridlock in Congress over how to manage the scheduled expiration of dozens of support programs in the next few years.
The Section 1603 Treasury Grant program for renewable electricity projects expired last year and was not renewed. The production tax credit for wind is slated to sunset at the end of this year. By our count, 63 of 92 federal clean energy finance policies in place in 2009 will have expired by the end of 2014. In dollar terms, that means that annual federal financial support for clean energy sectors is poised to decline by 75 percent from its 2009 high of $44.3 billion to $11 billion. And this year represents the inflection point. Support for cleantech will now plunge from $30.7 billion in 2011 to just $16.1 billion this year.
Walking away from cleantech should not be an option; letting the extension of recent federal support expire with nothing in its place would be doing that. At the same time, a simple extension of the recent generosity of federal support would not fully address the problem. Instead, subsidies and incentives should be redesigned to provide a predictable, continual prod toward innovation and cost reduction. Managed phase-outs should replace abrupt, arbitrary expirations and the politicized “start and stop” dramas of the present regime. Already, the staffs of several Republican members of Congress are discussing this “extend but discipline” approach.
Yet progressive subsidy reform will not by itself be sufficient to avert a potential “cleantech crash.” Also necessary will be steadier federal engagement in technology development combined with enhanced support for state and regional programs that have proven instrumental in building New England’s impressive cleantech clusters. The Massachusetts Clean Energy Center, for example, runs effective technology demonstration and finance programs that Washington should support. Connecticut’s first-in-the-nation “green bank” is an intriguing way to bring together public and private capital to finance renewable energy. And the New England Clean Energy Council emphasizes the need for modest federal support to help expand a network of regional energy innovation “consortia” that will become focal points for regional private sector, university, and investor collaboration.
New England’s cleantech industries have made tremendous progress in the last decade, but policy in Washington is making a challenging time more difficult. Congress must reduce the confusion it has created and put cleantech on a swifter path forward to strength and independence.Mark Muro (@MarkMuro1), a senior fellow at the Brookings Institution, is a co-author with Letha Tawney and Alex Trembath of the recent report “Beyond Boom and Bust: Putting Clean Tech on a Path to Subsidy Independence.” Tawney (@ltawney) is a senior associate at the World Resources Institute, and Trembath (@atrembath) is a policy associate at the Breakthrough Institute.