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U.S. government support for renewable energy may plunge from record levels, setting back the use of wind and solar power before they can compete on their own with oil, gas and coal.

Direct spending, tax breaks and research funding pushed federal renewable-energy subsidies to $14.7 billion in 2010, according to Alan Beamon, director of the Energy Information Administration’s Office of Electric, Coal, Nuclear and Renewables Analysis. Project developers are lining up for subsidies approved in the 2009 stimulus bill as incentives expire and the deficit-reduction deal dims prospects for future backing of solar panels and wind farms.

“The debt agreement, which is focused on cuts only and not revenue increases, makes it more likely that this infant sector gets strangled before it matures,” Daniel J. Weiss, a senior fellow at the Center for American Progress, a Washington policy group that advises Democrats, said in an interview with Bloomberg Government.

The deal on a debt-limit increase that Congress and President Barack Obama struck to avert a U.S. default would result in at least $2.1 trillion in spending cuts, according to the Congressional Budget Office. Additional savings of at least $1.2 trillion would come from enactment of a deficit-reduction bill or from automatic spending cuts if Congress fails to accept a package framed by a 12-member panel.

Direct Pressure

“The potential lapse of key subsidies at the end of 2011 puts the pressure all the more directly on the clean-energy sector to drive down costs and become more competitive between now and then,” according to a Dec. 13 report by Bloomberg New Energy Finance.

The Treasury Department has paid out $7.78 billion in grants to developers of wind, solar, biomass and geothermal energy under an incentive that was created in the stimulus bill and lapses at the end of the year. Tax credits for wind, solar and geothermal projects end in 2012 and 2016.

“I will be working hard to preserve renewable energy incentives, but it will be more difficult to do so going forward, and that is one reason I opposed the deficit deal,” Senator Robert Menendez, a New Jersey Democrat, said in an e- mail. “Oil company incentives do not sunset, but renewable incentives do.”

Government aid for renewable energy is up from $5.12 billion in 2007, according to the EIA. Subsidies are expected to decline beginning this year, and will fall 77 percent by 2016 from the record in 2010, according to the White House Office of Management and Budget.

Tax Credits

The expiring grants from the Treasury filled a void in project financing that followed the collapse of Lehman Brothers Holdings Inc. three years ago. The grants were offered after the recession sapped demand in the tax equity market, where tax credits earned by solar and wind project developers could be sold to companies seeking to reduce their tax burden.

The tax credits also will expire unless Congress approves an extension. The production tax credit, used mainly by wind- farm developers, runs out at the end of 2012. The investment tax credit, which goes primarily to solar and geothermal projects, ends in 2016.

“The truth is that paying equity subsidies for green energy is expensive,” Kevin Book, managing director at ClearView Energy Partners LLC, a Washington-based policy analysis firm, said in an interview. “Who will be the strong voice to defend credits, and which credits get defended?”

Other subsidies for energy, which go both to renewable sources and oil and gas, may also be targeted by the congressional debt-reduction panel.

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