The PV boom and bust cycle

This report titled “Beyond Boom and Bust” , was published in April 2012 and I commented on it in this blog post. It was the work of several bodies and individuals, including the Brookings Institute.

It argued that US clean energy policy was producing boom and bust cycles, but making no progress in reducing atmospheric CO2. They advocated a more results driven “technology led” policy.

The recent EPIA report on PV market outlook for 2014 to 2018 had an interesting section that described the recent behavior of the PV market in Europe as a series of unsynchronized national boom and busts that were hidden by looking at the overall European market statistics.  To quote from page 31:

PV seems to have always and everywhere followed a path of governments introducing subsidies, investors responding enthusiastically producing a rapid growth boom.  Governments then belatedly see the costs mount and reduce subsidies, causing a market bust. Then investor confidence is broken and difficult to restore. Europe has few countries that have not gone through this cycle. Europe has gone from being the biggest PV market to number three or four, with little sign of a likely recovery.

The recent US rapid PV growth is driven by US subsidies enabling profitable investment in PV. The expiration of the Investment Tax Credit in 2016 will burst this bubble, just like all the rest.  The governments in Japan and China are early in the subsidy cycle so the boom phase is only building up. In a year or two the costs will be un-sustainable and the bust will inevitably follow.

All of this makes it virtually impossible for PV to reduce in cost.  Low and unpredictable PV market growth will not encourage investment in newer plant and equipment that can reduce costs. At current cost levels PV market cannot grow without more subsidies. As the boom and bust cycles clearly illustrate, more subsidy is unlikely to be forthcoming.

As the “Beyond Boom and Bust” report argued, current US clean energy subsidy policies are not succeeding. They only considered the US, but as we can see, the problem is worldwide. Perhaps it is time to consider the “technology led” policy reforms they advocated.

By  Edmund Kelly