Government subsidies for renewable energy rebounded strongly last year, registering a solid 17% increase after two years of declines. Major expansion of solar installations in China and Japan and government=backed investments in offshore wind projects in Europe helped propel green energy spending to $270 billion.

It was the first annual increase in dollars for renewables (excluding large hydro-electric projects) in three years, a total just 3% below the all-time record of $279 billion set in 2011. The 103 Gw of generating capacity added around the world made 2014 the best year ever for newly installed capacity, according to the UNEP's 9th annual "Global Trends in Renewable Energy Investments" report, prepared by the Frankfurt School-UNEP Collaborating Centre, and Bloomberg New Energy Finance. A continuing sharp decline in technology costs in solar but also in wind means that every dollar invested in renewable energy bought significantly more generating capacity in 2014. The 103GW of capacity added by new renewable energy sources last year compares to 86GW in 2013, 89GW in 2012 and 81GW in 2011.

Combined wind, solar, biomass and waste-to-power, geothermal, small hydro and marine power contributed an estimated 9.1% of world electricity generation in 2014, up from 8.5% in 2013. The world electricity system emitted 1.3 gigatons of CO2, less than it would have if that 9.1% had been produced by the same fossil-dominated mix generating the other 90.9% of world power, though the difference was light and $279 would have been far better spent on making old buildings more energy efficient than on corporate subsidies.

Still, government bodies are excited that subsidies have continued to go up even as big players have begun to exit the market due to lack of viability without the subsidies

China spent the most by far - a record $83.3 billion, up 39% from 2013. Western nations are outsourcing their economies to China, which is simultaneously the world's largest polluter by far but also uses some of that money to subsidize solar. The U.S. continues to heavily subsidize solar and wind with another $38.3 billion, and Japan was in third at $35.7 billion. As in previous years, the market in 2014 was dominated by record government subsidies for solar and wind, which accounted for 92% of overall investment in renewable power and fuels. Solar jumped 25% to $149.6 billion, the second highest figure ever, while wind increased 11% to a record $99.5 billion. In 2014, some 49 GW of wind capacity and 46 GW of solar PV capacity were added worldwide.

Despite turnaround, challenges remain

Although 2014 was a turnaround year for renewable subsidies after two years of shrinkage, multiple challenges remain in the form of policy uncertainty - governments had sold the subsidies on the argument that they were kick-starting a green economy and that has not happened - and structural issues in the electricity system, which is now having to overspend by billions of dollars on the 'spot' market to normalize the inconsistency of breeze and sunlight.

And oil is cheaper. It is necessary for oil to be really expensive for green subsidies to make any sense. With cheap oil, consumers will call for using taxpayer money to make existing old buildings and homes more energy efficient rather than keeping solar corporations afloat. Investors had been sold on the government claim that subsidies would keep coming, and now they are less convinced.

"Europe was the first mover in clean energy, but it is still in a process of restructuring those early support mechanisms," notes Michael Liebreich, Chairman of the Advisory Board for Bloomberg New Energy Finance. "In the UK and Germany we are seeing a move away from feed-in tariffs and green certificates, towards reverse auctions and subsidy caps, aimed at capping the cost of the transition to consumers. Southern Europe is still almost a no-go area for investors because of retroactive policy changes, most recently those affecting solar farms in Italy. In the US there is uncertainty over the future of the Production Tax Credit for wind, but costs are now so low that the sector is more insulated than in the past. Meanwhile the rooftop solar sector is becoming unstoppable."

But that is also due to subsidies and fees on existing systems. Solar customers are being promised free energy, with the further promise than they can 'sell' excess energy back to utilities. When a company is forced to buy energy for the same price it sells it, but still incur employee and infrastructure costs, that cost is borne by everyone else. California energy customers currently pay 50 percent higher utility rates than the rest of the United States because of green subsidies and costs.

There are also structural challenges in the electricity system as grids and utilities in many countries struggle to cope with the increasing penetration of wind and solar in the generation mix. Coping with 25% or more variable generation is more difficult for grids and utilities than managing a 5% proportion.