We recently came across some analysis of future energy trends depicted in the International Energy Outlook 2011 published by the U.S. Energy Information Administration (hat-tip to the folks at Climate Denial Crock of the Week). What struck us was how a simple change in U.S. tax policy will have a potentially devastating impact on the solar industry in this country.
Here is a graph that we have derived from the IEO data which shows the projected growth in installed solar generating capacity based on existing government policies for the US, Europe, Japan and China. (IEO’s total predicted solar capacity worldwide by 2035 is 119 GW.)
The first thing we noticed is that the US – the blue line in the graph – takes off in 2008, stays ahead of both Japan and China until 2017 when China shoots past us, and stays largely flat thereafter. Flat, as in dead, moribund, kaput! Meanwhile, Europe leads everyone, but sees its explosive growth scaled back dramatically in 2013. Even China’s growth is projected to flatten out after 2020. Indeed, only Japan shows significant growth after 2017, tripling its installed capacity from 9 to 27 Gigawatts by 2032.
We will leave it for others to comment on what is happening elsewhere, but here in the U.S. the obvious reason for the enormous reduction in growth after 2016 is the expiration of the 30% federal investment tax credit for solar installations. Indeed, the U.S. growth rate from 2008 to 2017 is just under 27%! But under the existing law’s sunset provision at the end of 2016, the overall projected growth rate from 2005 to 2035 is only 8.8%, with nearly all of that front-loaded.
Which has us wondering, what might happen if the U.S. were to retain its existing tax credit for solar installations indefinitely? After all, federal tax subsidies for the fossil fuel industries have been in place for a very long time so it only seems fair to give the new kid on the block a similar benefit. Here’s the chart again this time showing the U.S. with a long-term tax subsidy in place, but with somewhat moderated growth, declining from the ~27% depicted before to just 20%.
Wow – let’s hear it for compound interest! A stable U.S. tax policy for solar investment, even with a moderated growth rate, could lead to this country more than doubling the EIA’s present-policy prediction for worldwide solar by 2035! Put another way, under such a policy and growth rate, the installed U.S. solar generation capacity would be roughly one-fourth of the present U.S. total capacity of just over 1 TW.
All of which is just another reminder that policies matter and choosing leaders with the vision to support such policies is a very important piece of building a future where solar and other renewables can move us away from polluting energy sources.