TODAY’S STUDY: THE POTENTIAL OF U.S. NEW ENERGY

Innovate, Manufacture, Compete: A Clean Energy Action Plan

January 2013 (The Pew Charitable Trusts)

Executive Summary

The clean energy industry is gathering momentum around the world. Innovation and investment are helping to bring down the cost of solar, wind, and other emerging technologies. As a result, markets for clean energy goods and services are growing, and a new global competition is developing among companies and countries alike.

In the United States, however, the outlook is less positive. The country that helped to pioneer a wide variety of advanced energy technologies finds itself in a precarious competitive position heading into 2013. America is no longer the clean energy superpower, and its position in innovation, manufacturing, and deployment is being challenged by competitors in Europe and Asia. Although initiatives in recent years have helped to stimulate clean energy progress in the United States, the future of government policy is now uncertain and weighs heavily on U.S. industry and its competitive prospects.

The Pew Charitable Trusts explored clean energy market trends, international competitive conditions, and industry perspectives on strategies for enhancing the prospects of U.S. industry in the clean energy sector. Our analysis included new economic research presented in this report that projects current and future market trends in the sector. In addition, we gathered opinions of industry leaders by convening a series of roundtable discussions in various regions of the country to discuss issues related to innovation, manufacturing, and deployment of clean energy technologies and strategies for strengthening U.S. competitiveness in the sector.

Our research shows that clean energy investment has undergone a decade-long rally, increasing by 600 percent from 2004 to 2011 and rising 6.5 percent to a record $263 billion.

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National governments, businesses, and consumers are turning to clean energy for a variety of reasons, including falling prices; growing demand for power, especially in emerging economies; the desire to create jobs and economic opportunities; and the need to reduce local and global air pollutants.

Analysis undertaken in conjunction with this report demonstrates that the positive attributes associated with the clean energy sector will propel rapid market growth in the coming years. From 2012 to 2018, global revenue associated with clean energy installations is projected to grow at a compound annual rate of 8 percent, increasing from $200 billion in 2012 to $327 billion in 2018. Cumulative revenue resulting from installation of these resources over the 2012-18 period is projected to total $1.9 trillion.

In the United States, cumulative clean energy installations from 2012 to 2018 are projected to reach 126 gigawatts (GW), which would more than double non-hydroelectric generating capacity. The $269 billion in projected revenue associated with installations in the United States during the 2012-18 period represents 14.5 percent of the global total. Revenue in the U.S. market is expected to grow during the period at a compound annual rate of 14 percent.

Whether the U.S. industry can capitalize on these economic opportunities remains an open question. Once a world leader in innovation and manufacturing of clean energy technologies, the United States now faces considerable competitive challenges. It lags other nations on a variety of measures, including clean energy deployment and manufacturing. Even its long-standing lead in innovation is at risk.

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To gather expert viewpoints on the status and prospects of U.S. competitiveness in the sector, Pew organized a series of roundtables across the country with industry, academic, and other experts. During these discussions, key themes emerged on the challenges and opportunities for the U.S. clean energy industry.

Participants cited a lack of policy certainty as the overriding impediment to investment and success. The expiration at the end of 2013 of the production tax credit is the most obvious but is not the only illustration of the policy uncertainties surrounding the sector. Likewise, recent research has demonstrated that expiration of American Recovery and Reinvestment Act (ARRA) programs will create a “fiscal cliff” for the industry, with public-sector support declining 75 percent in 2014 from 2009 levels.

Although policy is uncertain in the United States, businesses are taking advantage of strong national goals and policies in other countries where markets are growing more rapidly. Internationally, there has been a rush of investment in clean energy manufacturing capacity in recent years, resulting in significant excess production of wind and solar equipment. China’s government and industry are at the forefront of these efforts and are having a profound impact in the marketplace, gaining market share and driving down prices globally. China’s activities in the sector have spurred trade complaints in the United States and Europe. While acknowledging difficulties, roundtable participants concluded that the U.S.-China trade relationship is complex and that the United States must be careful to avoid a trade war in the sector.

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The speed and scale at which production capacity is expanding have spurred dramatic reductions in the market prices for solar and wind technologies, which is good news for consumers and certain players within the industry. However, these steep cost declines have been detrimental to technology producers. Consequently, manufacturers are making more products but at less profit. The reality of today’s marketplace is that many companies will not survive, and a period of consolidation is anticipated. Over the long term, competitive pressures should strengthen the industry for the future.

Access to credit and the capital needed to develop businesses and technologies is a major challenge to the clean energy industry. Greater policy certainty would help alleviate this obstacle. The private sector is developing innovative models for mobilizing capital, but public-sector incentives will still be needed through this decade. Beyond 2020, experts envision an industry that is fully cost-competitive and free from the need for federal incentives.

Finally, roundtable participants noted the inequities within the energy arena. Subsidies have long been employed there, with conventional technologies benefiting from public-sector incentives and payments for almost a century. There is a widespread sentiment in the clean energy industry that the current system tilts heavily in favor of conventional fossil fuels in terms of rules, regulations, subsidies, and health and environmental costs that are not accounted for. If these costs, ultimately borne by society, were fully quantified in the price of various energy options, clean energy sources would be cost competitive immediately.

To compete effectively for a substantial share of the growing clean energy marketplace, the United States must overcome a series of challenges and harness opportunities identified by industry leaders. If there is one overarching message from Pew’s clean energy researc7h in recent years, it is that policy matters.

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In 2013, elected leaders will have an opportunity to consider and enact long-term energy policies that help industry and consumers harness the nation’s abundant energy resources — conventional and emerging, above and below ground — in a manner that is consistent with long-term economic, security, and environmental interests.

Although numerous ideas have been offered for improving U.S. competitive success in the clean energy sector, the consensus of stakeholders participating in our nationwide series of roundtables is that a relatively narrow, straightforward, and mutually reinforcing policy agenda should be pursued. Based on expert guidance and research, this report recommends that policymakers work to:

• Establish a clean energy standard to guide deployment and investment for the long term.

• Significantly increase investment in energy research and development.

• Enact a multiyear but time-limited extension of tax credits for clean energy sources.

• Level the playing field across the energy sector by evaluating barriers to competition.

• Enhance clean energy manufacturing in the United States.

• Expand markets for U.S. goods and services.

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Discussions with industry and other experts across the United States reveal deep-seated frustration about the inability of American interests to capitalize more fully on the clean energy moment. Having invented and brought to market many of the prevailing technologies, U.S. scientists and entrepreneurs now find themselves buffeted by weak national policies and strong international competitors.

The United States has a proud history of public private partnership in advancing national competitiveness in key sectors, from railroads and automobiles to telecommunications and conventional energy sources. In view of current and projected investment trends, U.S. interests in clean energy warrant similar priority and partnership.

Industry leaders are highly confident of the ability of American industry to succeed as the clean energy marketplace expands at home and around the world, provided there is consistency and consensus in policy…

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Conclusion

After several decades in laboratories and niche applications, clean energy technologies are primed for accelerated and widespread expansion in the world’s power sector. In the United States and around the world, solar, wind, and other renewable energy sources will represent a significant share of the new generating capacity deployed in the coming years and decades.

The advent of the emerging clean energy economy is driven by economic, environmental, and security imperatives. Almost $2 trillion is projected to be invested worldwide from 2012 to 2018, and companies and countries are elbowing for market share in an industry with a projected compound annual growth rate of 8 percent. The need to reduce pollution at the local and global level will also help to accelerate demand for energy technologies that can power economic growth without harming human health or exacerbating global warming.

In addition, wind, solar, and other renewable resources bolster national interests by enhancing energy independence.

The future of clean energy is bright, but the forecast for the U.S. competitive position in his fast-growing marketplace is less certain. On a variety of key measures—from innovation to manufacturing to deployment—the United States is struggling to maintain a position of leadership in the global economic and technological race.

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Discussions with industry and other experts across the country reveal tremendous frustration about the inability of American interests to capitalize more fully on the emerging clean energy moment. Having invented and brought to market many of the prevailing technologies, U.S. scientists and entrepreneurs now are buffeted by disparate national and international forces.

The consensus is that a significant international competition has opened up. Countries in Asia and Europe are placing a priority on development and deployment of clean energy technologies and competitive enterprises. This means a robust international trade in clean energy goods and services, with expanding markets opening up opportunities for a variety of U.S. interests. But it also means that the United States must increase its pace to compete in the international race for economic leadership.

The U.S. and global recessions have created both constraints and opportunities for expansion of the clean energy sector. Renewable energy was a priority in a variety of stimulus and recovery programs launched over the past five years, including that in the United States. But those initiatives are coming to an end, and access to low-cost capital remains a major concern in the clean energy sector, as in other parts of the economy. Still, the creativity of the private sector in developing innovative financing models is encouraging and should be supported.

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Innovation in clean energy is a foundation for continued progress on prices, technology integration, and commercial development. The public sector has a special role to play in R&D, given the cost of energy technology innovation and the private sector’s lack of sufficient discretionary resources in the midst of intense international competition.

The United States has a proud history of public private partnership in advancing national competitiveness in key sectors, from railroads and automobiles to telecommunications and conventional energy sources. In view of current and projected investment trends, U.S. competitiveness in clean energy warrants similar priority and partnership.

Above all else, industry and other practitioners in the clean energy field desire some degree of long-term policy certainty. These leaders are highly confident of the ability of American industry to succeed as the clean energy marketplace expands at home and around the world, provided there is consistency in policy.

Although myriad initiatives are worthy of consideration for the policy agenda, an extensive series of roundtable discussions with industry indicates that a distinct set of policies should be at the top of the list:

• Establishment of a clean energy standard.

• Increased investment in clean energy R&D and commitment to STEM education and training.

• Extension of incentives that encourage investment in clean energy projects.

• Level the playing field across the energy sector by evaluating barriers to competition.

• Manufacturing incentives.

• Expansion of trade promotion initiatives.

Policies that encourage the deployment, innovation, manufacturing, and trade of clean energy technologies will help bolster the competitive prospects of American industry. In the process, these initiatives will enhance the nation’s economic, environmental, and national security prospects. The Pew Charitable Trusts is committed to working with public- and private-sector leaders to achieve these goals.

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