This piece originally appeared on Oilprice.com.
The oil price rout has caused a lot of headaches in the renewable industry, especially in the heavily subsidized U.S. Solar sector, which is suffering some setbacks even as solar installations are growing rapidly.
Solar power suppliers are scaling back operations as demand is growing slower than expected, and the sector is wondering where to go from here.
Investors have, of course, sensed the uncertainty. An industry that showed so much promise—particularly against the background of international efforts to curb the effects of climate change—is now in the doldrums. So what went wrong?
The drop in oil and especially gas prices is one reason for this decline. When natural gas is a less costly alternative to pollution-intensive coal, investment in solar power becomes much less appealing. Cheap oil, for its part, means cheap gasoline, and cheap gasoline encourages greater demand, however elegant and fast Tesla (TSLA) EVs become.
But it’s the disproportional tax incentives granted the solar power sector that have repeatedly proved that they are not doing sector players any favors. SunEdison (SUNE) filed for Chapter 11 protection last month, after growing too big too fast, ultimately unable to handle the pressure when demand waned.
SolarCity (SCTY) just reported a first-quarter loss that was bigger than expected, and more disappointing earnings are anticipated by investors later this month from other sector players. SolarCity, interestingly, blamed regulatory hurdles for its negative performance, praising states that have taken it upon themselves to make solar panel installation smoother.
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A one-time top solar panel maker, Yingli Green Energy Holding Co. (YGE), is also facing potential default.
An index of 20 major solar companies put out by Bloomberg has slid over 30% this year alone. Stocks are down across the board.
Solar energy is being subsidized heavily everywhere. Fossil fuel production is also the object of state subsidies, including some implicit ones, in the form of not factoring in the cost of public health and environmental damage. However, the level of subsidies is higher for solar, pretty much everywhere there is a solar industry.
Times may be tough for some solar developers, but even the dirtiest and most loved-to-be-hated oil companies are currently diversifying into renewables. They simply have no other viable choice for the long-term because they can feel which way the wind is blowing.
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Solar companies, on the other hand, appear to have trouble making this wind work for them—and it’s not the government’s fault. The problem, rather, seems to be the impatience, the rush to switch to solar as soon as possible. Reality is proving that things don’t work well this way; they take time and long-term planning, as well as planning for contingencies.