27.08.2014
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Policy

No boom and bust without boom

What can we do to prevent the kind of boom-and-bust cycles that we saw from feed-in tariffs in Spain and the Czech Republic? That seems to be the question behind the call for reverse auctions as a way of “reforming” renewables policy. The concerns are unfounded.

As I pointed out yesterday, all of these examples of boom and bust pertain to photovoltaics. I know of no instance of, say, a wind or biomass market growing and collapsing because feed-in tariffs were especially high and then revoked.

As policy researcher David Jacobs has explained, the Spanish PV collapse – the first one worldwide – had specific causes. PV was still a new technology for policymakers when the market reached its ceiling in 2007, triggering a one-year grace period for new projects for feed-in tariff eligibility. What the policymakers in Spain did not properly understand when they designed the policy a few years earlier was how much PV can be built within 12 months.

Given that Spain was the first country with this experience, the whole thing could be excused as an honest mistake (though some of us in Germany saw this bust coming). More importantly, we now know that such deadlines cause a rush, so we have a chance to anticipate the problem – such as when Germany approaches its 52 GW limit on PV for feed-in tariffs. At current installation rates, this level is now expected to be reached at the beginning of the next decade.

No wind boom and bust in the Czech Republic

The example of the Czech Republic is perhaps even more illustrative. This year, I sat with a delegation from Prague in Berlin, including the government official who originally designed the feed-in tariffs now in disrepute (he cried into his beer glass as everyone told me the story). It turns out that Czech government officials themselves anticipated the end of the feed-in tariff policy by gobbling up land and launching projects – a case of abuse of insider information at the very least.

But my main question was why, if the rates for wind had also been lucrative, the bust only happened with PV. “If you want to build solar,” one of the delegates told me, “you just need an open field, and you need to know what direction is south. But if you want to build a wind turbine, you need the expertise to measure wind velocities hundred meters up.”

In other words, solar has no brakes. Unless officials move in and try to artificially slow down installations of PV (as is happening in North America and Europe right now), people will build solar more quickly than anything else can be put up – and more quickly than power providers and the grid can respond.

The problem with PV until recently was primarily that prices were plummeting. That phase seems to be over, however, so finding the right price for PV should not be that difficult going forward.

Risk of boom and bust greater without FITs

Ironically, the largest market with a boom and bust cycle is the US, which has no feed-in tariffs aside from small pilot projects. Americans apparently like to hide the roller coaster ride, so most of the graphics showing installed capacity show cumulative capacity (see the Wikipedia site, for instance).

The roller coaster ride in the US is so severe for wind power that the only chart I could find was embedded in an article on the detrimental impact of repeated US tax credit expirations on installations (see below).

 - Click to enlarge
Click to enlarge
Union of Concerned Scientists

When you see this, it is hard to talk about anything else but the roller coaster ride – look at the drop from 2012 to 2013!

Below, for the sake of completeness, is the chart for annual capacity additions in Germany going back to 2000 (there is a build up in the 1990s).

 - 2013 saw the market to grow back to around 2.5 GW, and it is expected to grow even further this year.
2013 saw the market to grow back to around 2.5 GW, and it is expected to grow even further this year.
energytransition.de

Auctions will only solve the boom and bust the problem if the government is committed to regular annual additions. The boom and bust in the US is not the result of the focus on tax credits, but the government’s willingness to repeatedly have policy support expire. If the US switches from tax credits to auctions without becoming committed to preventing boom and bust, the policy change will have no impact in this respect.

Overall, I see no indications of boom and bust from feed-in tariffs aside from solar, but lots of examples of boom and bust without feed-in tariffs in other areas. And if PV has yet to go bust outside of a feed-in tariff policy, then it’s because no country has seen PV boom without feed-in tariffs yet either.

(Craig Morris)

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1 Comment on "No boom and bust without boom "

  1. James Wimberley - 27.08.2014, 19:22 Uhr (Report comment)

    "That phase seems to be over, however, so finding the right price for PV should not be that difficult going forward."
    Wanna bet? The last global cycle was driven by demand in Germany and supply in China. We can be pretty sure that the former won't repeat itself, as Germany is no longer the lead consumer and policy has gone from forward into neutral. But you have to wonder about the sustainability of policy in Japan. On the supply side, the basic structure of the industry that gave us the 2011-2012 glut is still there. Capital and labour are cheap in China, and capitalists are optimists. They are quite capable of overinvesting yet again. Boom-and-bust cycles are an enduring feature of capitalism, and don't need government subsidies - sorry, incentives - to repeat themselves in any industry.
    An investment boom in solar is gathering strength, 2015 will be a profitable year with strong demand and flat prices, but sometime between 2016 and 2018 there will be another glut and price crash. Fine-tuning in this environment does not work.

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