What does Chinese investment in solar mean for the U.S?
Yes, China is investing $144 Billion in its solar industry over the next 3 years. That’s a lot of money. And it’s just a part of a $361 billion package the Chinese government has put together to support renewable energy within its borders.
How much has the U.S. government committed to investing in the solar beyond a tax credit initiated in 2005 and existing loan guarantees to solar companies?
That’s likely going to mean a continuance of China’s dominance in the solar marketplace. They make more panels, install more panels, and are generally a lot better positioned for the kind of explosive growth we will see in the solar sector in the coming decades.
Forgetting climate for a moment, renewable energy is now the cheapest form of new generation, and it’s getting more affordable every day. No matter how much anybody may love coal and natural gas, this economic reality is not changing.
China and the U.S. were largely responsible for the tremendous growth of the solar industry in the past two years. In a post-Paris Climate Agreement world, the demand for new solar is not going away.
However, the amount China has committed to investing in solar in the next few years outstrips what the U.S. has invested by a factor of 10 (more on these numbers below).
If nothing changes on this front, we may very well be importing and purchasing new Chinese solar innovations in addition to Chinese steel, toys, plastics, and almost any other consumer product you can imagine that we’re already buying.
Does direct investment in solar work?
Modern economies subsidize energy production to secure a reliable supply and retain control over consumer prices. New technologies, on the other hand, are subsidized to grow the economy, create jobs and grow the tax base.
The Solar Investment tax Credit
Solar subsidies have long been of the latter type. The most high-profile U.S. solar subsidy is the federal Investment Tax Credit (ITC), which offers 30% of the cost of installing a renewable generation project as an income tax credit. The ITC was initiated in 2005 under former president George W. Bush, then extended or expanded in 2007, ’08, and 2015.
The last two extensions have proved vitally important. Here’s a look at how the solar installations have grown (and the costs of installing solar have fallen) since the 2008 extension and expansion of the ITC:
How we know the ITC works
The clearest indication that the solar tax credit is working is the last bar on that chart: 14.8 GW installed in 2016. Before a last-minute reauthorization of the ITC in December 2015, the credit was set to expire at the end of last year.
The 14.8 GW installed in 2016 was almost all planned and approved before the reauthorization: utilities were so worried about losing the credit that they pushed installations to more than double what they had been the year prior, when there was no threat of losing the credit.
The ITC is currently scheduled not to be as juicy after 2019, with a permanent 10% credit to remain in place for commercial and utility installations after 2022.
While the government doesn’t track total tax credits earned by people and businesses who installed solar panels, our back-of-the-envelope calculations show it’s probably in the range of $30 Billion since 2008.
$30 Billion over 8 years is peanuts in the grand budgetary scheme, and it’s an investment with a pretty clear return. According to one study, the money invested by the government in the ITC will have an internal rate of return of 10% over 30 years.
Other U.S. investments in solar
Of course, the states have their own solar tax credits, rebates, and other incentives, and individuals and businesses who install solar panels often take advantage of more than one of these programs. These state-level incentives bring the total level of government investment up, but they’re so inconsistently applied that it’s hard to evaluate their impact.
The states with the most favorable incentives have created the largest markets for solar in the country. Places like North Carolina and Oregon have robust utility-scale markets whereas sunnier states like Mississippi languish. The great gains in solar installations have been made in the states with the most favorable policies, meaning those states can take the credit for the decreases in installation costs, too.
Federal direct investment in solar
Aside from the ITC and state-level incentives, the United States has about $11 billion currently invested in loan guarantees for solar companies. Despite high profile failures like Solyndra, these investments fail less often than Venture Capital-backed companies, and have already turned a profit.
So how does the U.S. compete with China on renewables?
It’s simple: we compete by investing. Though, we’re gonna have to play some serious catch-up. The amount of solar installed across the world has doubled in the last 2 years, thanks to the U.S. and China. Er, Mostly China:
See on the far right there, the dark blue and yellow lines? Blue is the U.S., where solar saw an explosive increase in installations last year, and yellow is China, where installations not only rocketed upward in the same manner, but more-than-doubled the installations in the U.S.
With $144 Billion in new investment coming directly from the Chinese government, you can be sure the upward trend will continue. If the U.S. wants to be anything but a consumer of Chinese solar products, we’re going to need a lot more than $11 Billion in loan guarantees and a ~$7 billion annual tax break.
Thankfully, prices are so cheap now that it’s feasible for the tax credits to spur on ever-increasing amounts of new solar installations. In fact, there are currently 50 GW of new “major” solar installations already in the pipeline, which would double the nation’s current solar generating capacity (and account for the next $20 billion or so in ITC money).
On a heartening note, the Trump administration is showing signs that it might not be so hasty about ending these programs.
We can only hope the resurgent focus on “Buying American” can include some carrots for domestic companies to keep manufacturing jobs here and start innovating in more disruptive ways that create new sustainable jobs and curb carbon emissions.
The green economy represents the largest opportunity for job and wage growth out of any industry. Exporting knowledge, service, and equipment is much more profitable than importing it. Let’s start by encouraging our representatives to more directly invest in solar industry growth and innovation.
Last modified: May 5, 2017