Why Renewable Energy Still Needs Subsidies
The Wall Street Journal, September 14, 2015. Image credit: Unsplash
The wind-energy sector won a long-fought battle in mid-July, when the Senate Finance Committee voted to extend the production tax credit, the most commonly-used subsidy for wind project development in the U.S., for another two years. But the road to credit extension wasn’t easy: The tax credit has been on-again, off-again for years, as has the parallel Investment tax credit for solar-project development. Meanwhile, in the U.K., the government has decided to effectively end the country’s “feed-in tariff” system for renewable energy, which requires utilities to buy the renewable power at a set rate, by significantly cutting funding to this program.
These subsidy debates come at a time when renewable energy is available at a historically low cost. A recent analysis from Lazard of the levelized cost of various forms of energy shows wind, solar and biomass already cost-competitive with most fossil fuels. Even battery storage, the most expensive energy on the Lazard chart, is fast coming down in price; the Australian Renewable Energy Agency just predicted a 40-60% price drop for some battery technologies by 2020.
All of which raises the question: If renewable energy is getting so cheap, why do we still need policies and subsidies to support it?
Here’s why. Even if they’re now, finally, cost-competitive at the point of sale, low-carbon technologies are still working with an infrastructure—a utility regulatory system, a power grid, a highway system, a combustion engine-centric fueling system—built for a world powered by fossil fuels. These massive infrastructure projects were built up with public-sector support, including tax credits, low-cost loans, and outright grants from the federal government.