Recession-battered Portugal has been a bad-news factory since the 2008 financial crisis. But it can boast at least one accomplishment: Its burgeoning renewable power market is setting records.

In the first quarter of this year, renewable energy supplied 70 per cent of all Portuguese consumption, according to the country’s electricity network operator. Hydro power and wind turbines were the biggest sources of the clean energy, with some contribution from solar energy.

While Portugal stands out, it is not alone. Renewable energy is supplying a rising share of total energy used in Europe. That, however, is where the good news ends. The phaseout of renewable energy incentives, government austerity programs and plunging prices for wind and solar equipment are putting the brakes on a two-decade-long growth story in one of the few industrial sectors that was adding jobs.

“We were always going to have a peak [renewable energy] installation rate,” said Ian Temperton, advisory head at London’s Climate Change Capital, an investment manager that buys into clean-energy projects. “That peak has happened.”

In an effort to protect struggling European solar-equipment manufacturers, the European Commission last week slapped punitive duties on solar panels imported from China. The panels are about 45-per-cent cheaper than those produced in Europe, industry executives say, allowing China to capture 80 per cent of the European market, up from zero a few years ago.

Last week , the European Photovoltaic Industry Association revealed that new European solar-power installations are falling for the first time in more than a decade, and falling sharply. New solar installations reached 17 gigawatts in 2012, down from 22.4 GW in the previous year, a fall of 24 per cent. (One gigawatt is equivalent to one billion watts, enough to provide electricity for about 200,000 houses.)

Wind-power installations climbed last year, though they are expected to level off because 2012’s growth came largely from orders placed before the European debt crisis turned critical in 2010 and 2011. The capital costs of any big wind-vane project, especially offshore, are enormous.

The biggest losers in the market downturn are the manufacturers of equipment – the photovoltaic modules and the wind turbines. The pressure on photovoltaics makers has been especially vicious in the last couple of years as priced dropped, thanks in good part to the surge in Chinese exports.

An early casualty was Canada’s premier photovoltaics company, Arise Technologies, which was delisted from the Toronto Stock Exchange in 2011 after its German factory was shuttered. Dozens of solar-power companies have gone bankrupt or undergone painful restructurings since then, including Solyndra of the United States, which sucked up $527-million (U.S.) in loans guaranteed by the U.S. Energy Department before it went down, and China’s Suntech Power.

The wind-power industry has had its casualties, too. Denmark’s Vestas, one of the world’s largest makers of wind turbines, reported a net loss of €963-million ($1.26-billion) last year and went through a shrinking exercise that will eliminate almost 6,000 employees by the end of this year. Rival Gamesa of Spain is going through a similar restructuring and BP, the British oil giant whose motto was once “Beyond Petroleum,” is puffed out. It announced in April that it is selling its eight American wind farms, collectively valued at $2-billion (U.S.) to $3-billion.

The equipment makers are known as the “upstream” end of the renewable energy business. The “downstream” side – the installers that plant wind turbines in farmers’ fields and cover rooftops with photovoltaic systems, then plug them into electricity grids – are suffering a downturn, too, if one that is less extreme. While equipment prices have plunged, government renewable energy incentives have also fallen. The result is a slowing installation market.

“Many of the incentives were designed to fall over time, but the reduction [has been deeper] because of austerity,” said Michael Barker, senior analyst at Solarbuzz, an American solar-market research firm.

Thanks to subsidies such as tax breaks and feed-in tariffs – above-market prices for electricity generated by solar and wind power – the renewable energy market experienced explosive growth. The United Nations Environment Programme says that, since 1990, annual growth in the global solar and wind markets have averaged 42 per cent and 25 per cent, respectively.

Europe – notably Germany, Spain and Italy – has been the biggest market for renewable energy, though China, India, the United States and Japan are coming on strong. Their rise will accelerate as European incentives decline or disappear. Spain halted subsidies for new energy projects more than a year ago, as its economy went into deep recession, triggering massive government spending cuts. It also reduced the feed-in tariff and introduced a 7-per-cent energy tax.

Even Germany is getting into the subsidy cutting game as taxpayers realize that incentives for clean energy raise overall electricity prices. Earlier this year, German Environment Minister Peter Altmaier said he would try to cap subsidies. All the incentive reductions have spooked clean-energy investors, whose returns can rise or fall radically at the whim of politicians.

Another threat looms: Shale gas.

Shale gas has yet to come into production in most of Europe, but that day is not far off. Britain is predicting a shale-gas boom. The vast gas reserves will bring down the prices of hydrocarbon-based electricity generation. But Mr. Temperton, of Climate Change Capital, is convinced the need to move to a low-carbon economy will keep renewable energy alive. “There is only so much C02 we can put in the atmosphere and have a stable climate,” he said.

Portugal, bailed out and in recession, can at least brag it’s ahead of the pack in the transition to a low-carbon economy. In that sense, the expense of embracing renewable energy is paying off.