Recently articles from both the TUC and CBI have bemoaned the burden of increasing energy costs on energy intensive businesses. Both organisations make the rather obvious error in thinking that a carbon price will inevitably drive the cost of energy upwards. In fact, the opposite is true. The stronger the price signal, the faster the market works to balance supply with demand.
The supply of fossil fuels is finite. Conventional oil has already peaked its supply (as admitted by the chief economist of the IEA) and tar sands and fracking are far too damaging to the environment to continue as more and more countries consider bans. Fossil fuel extraction, meanwhile, is being attacked from every side, with the UK banning new coal power without CCS and a rising tide of civil disobedience in the US following Tim De Christopher‘s brilliant example.
What’s left is nuclear and renewables. Nuclear has been scheduled for phase out by Japan and Germany, while France, the UK, US, India and China all push towards expansion. Everyone, however, is investing heavily in renewable energy. The US now has more renewable generating capacity than it does nuclear.
According to Clean Edge research, the global market for solar photovoltaics has expanded from just 1.7 billion euros in 2000 to 49.5 billion euros in 2010. Biofuels and wind power are following a similar trend. They project these three technologies will grow to 243.2 billion euros in the next decade.
The consequence? The costs of renewable energy are tumbling. Expert analysts are predicting that renewable energy will be cheaper than coal by 2015.
Michael Liebreich quotes the International Energy Agency as saying
fossil fuels are subsidised to the tune of more than $300bn per annum, and that doesn’t even include the cost of security – which we pay through our taxes, not at the pump – or the health costs from particulates and other forms of pollution — which we pay through our health bills.
All this price signal is having results – individual investments are getting bigger and more ambitous. There is no longer any need to protect businesses from high energy prices, because it is rising fossil fuel prices, happening without any help from governments, combined with falling renewable energy prices, that is prompting people to make sound business decisions.
But the government does have a role to play. The stronger the price signal, the faster the market turns, and the faster it turns, the sooner businesses start to benefit from the long term stability and economic certainty of permanently low energy prices.
Technology is driven faster as well. Engines, turbines and batteries that don’t need rare earth metals, making them significantly cheaper to mass-produce, are on the horizon. Electric cars can be used to balance out supply and demand over smart grids and even store the power generated by your rooftop power station. Innovation is going so fast in these areas it’s hard to keep up, and every advance points to cheaper energy generation, and more convenient forms of storage.
The UN has predicted that it will be technically and economically feasible for the entire world to be run on renewables by 2030 as well as being extremely desirable to avoid the twin threats of climate change and peak oil.
So bring on the carbon pricing – Push the market as hard as you can, Mr Huhne. We need it.
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25 Comments
More market mechanism bibble babble. Yeah, I can see how the market has helped the poor, the homeless and the unemployed, how its moved in with dynamic expertise to actively reduce avoidable suffering … oh wait …
The market does not exist to enhance quality of life or to advance the cause of civilisation – its merely a framework for trade and financial transactions, with the overriding rule of maximise profit/minimise loss. To imagine that market mechanisms are going to magically (cos thats what this thinking is) bring about the new energy sources and new technology that we need NOW is on the same level of believing in the tooth fairy.
If you had read to the end of the article, Mike, you’ll see that it’s about controlling the market by eliminating the externalities involved in burning fossil fuels. A regulated and constrained market will serve society. A free market will destroy it.
Simon
i agree with the general tone, but one problem that needs tackling is that after the initial competitive phase energy providers tend to, as with other seemingly competitive businesses, start price fixing. I don’t think that relatively small fines can tackle this and there needs to be some sort of mechanism to ensure that this doesn’t continue to happen. Maybe something to ensure companies don’t get complacent, perhaps some sot of limited timescale contract?.
Good point Glenn
however, the big benefit of a renewables energy infrastructure is that it is not dependant on resources that anyone can control or limit access to. If someone tries to price-gouge from a wind farm, then someone can make a profit from putting up a wind farm somewhere nearby and charging less. At the same time, a large proportion of the supply will be distributed in the homes of the consumers, or with small producers.
When anyone with a back garden can pick up a CSP dish from any one of a dozen manufacturers and be their own power company, cartels will find it impossible to form or survive.
If renewables will be cheaper than coal in 2015, why not wait until then before installing them?
Tim
It’s about the lifetime profits of an installation, not the amount you need to charge to make a profit – if a windfarm lasts 20 years, then selling at a small loss for a couple of years after it comes online, to be competitive with the rest of the market, makes sense in the longrun. Also, coal is currently the cheapest form of electricity (something that the requirement to install CCS will change, although ) so cheaper than coal means cheapest – in some cases renewable energy is already cheaper than gas and nuclear.
I should also add that as a customer of Ecotricity, I am helping to drive the current market for renewables and paying a slight premium for my electricity as a result. I plan to switch to their biogas offering soon as well, to make my domestic energy 100% non-fossil fuel (well, sort of, I’m on the tarrif that creates a profit to invest in renewable electricity rather than the one that is 100% renewably sourced).
This must be one of the least convincing posts I have ever read on LDV. The author’s arguement is basically as follows:
Non renewable energy is getting more expensive
Renewable energy is getting cheaper
therefore we should increase energy prices even more. And this nonsense is supporting by a completely random collection of links most of which either don’t say what they are claimed to or are about possible technological breakthroughs that may never happen. Just to take a couple of the links:
” Expert analysts are predicting that renewable energy will be cheaper than coal by 2015.”
This takes you to an Indian website which claims that coal prices have gone up 12 times since 1980 and if they continue to increase at this level by 2030 then electicity will be 3 times the cost it is now. Leaving aside all the asumptions, the coal prices are very different from those given by the IEA which give an increase of about 2.5 times since 1983.
Or the link on ‘fracking’ which simply takes you to a report about the French banning it. No link to any evidence it is actually dangerous.
What the piece also misses is that firms may not hang around waiting to see if renewable energy does get cheaper when they can simply move their heavy manufacturing and chemical plants now to countries without high carbon taxes.
It beggars belief that in today’s economic circumstances we are deliberately increasing prices to one of our more succesful industries, and one which is mainly based in the already hard hit North of England.
Thank you Simon, and as I said to you before in our previous discussion on the matter, if you want a professional thesis on the subject, you’ll need to come up with the money to pay for the time and expertise to produce it.
I’ll remember to be thankful to “the markets” when I am unable to afford heating this winter. Thanks, markets!
@ Tim
If renewables will be cheaper than coal in 2015, why not wait until then before installing them?
Germany didn’t wait. They introduced “Feed in Tariffs” (FiTs) which guaranteed producers of renewable energy a generous revenue for each kW generated – generous that is compared to open market fossil fuel based electricity. Typically (I’m not sure of the exact form the German FiTs took) this involves guaranteeing a market for any power produced at XEuros/kWh. This revenue is also guaranteed for 20 years for each installation but the govt reserves the right to reduce the rate for new installations as technologies advance and costs fall.
The result was that German companies large and small set out to develop ways to get a share of that pot of revenue and then worked hard to improve their their technology and reduce their costs. And then, with a secure base of technology and revenue, they went looking for export opportunities. Germany’s export miracle is based on good commercial strategy, not an unsubstantiated faith in the infallability of markets.
And that leads to a nasty little secret the govt here doesn’t say much about. For all it’s vaunted ambition to develop a green manufacturing renaissance the UK has missed the boat in most renewable technologies. For while the Germans introduced FiTs our govt decided to go with a more “free market” solution, Renewable Obligation Certificates (ROCs) which, apart from being mind-numbingly complex provide no actual guarantee and hence little R&D and little new industrial capability.
The result is that German (and Chinese who did much the same as the Germans) now have an uncatchable lead and much of what passes for the green sector here is actually just assembling and installing foreign owned technology.
So yes, it’s may be marginally more expensive in the short run but in the long run provides quality jobs and a vibrant economy.
I forgot to say that belatedly the Labour govt switched to FiTs for certain small installations just before the last election and this is already stimulating more activity.
@Simon oliver “Thank you Simon, and as I said to you before in our previous discussion on the matter, if you want a professional thesis on the subject, you’ll need to come up with the money to pay for the time and expertise to produce it.”
I don’t really need a professional thesis. Just for you to defend what you have written
@Liberal Eye
Interesting you talk about Germany. their solar power subsidies will be costing them €53bn over 10 years. I wonder if there is really nothing better to be done in the world with €53bn?
http://www.guardian.co.uk/environment/georgemonbiot/2010/mar/11/solar-power-germany-feed-in-tariff
Here’s my defence against your attacks, Simon
can someone fix the closing blockquote tags on that please (why isn’t there a delete or edit facility on this blog – there is elsewhere?)
seriously, there’s not even a preview option – I thought WordPress was more advanced than this.
I confess I was thinking wind and some of the component bits. PV solar makes no sense in northern Europe, even in southern Germany where almost all theirs is located.
Only last week I met someone who was involved in starting a tech menufacturing company around 20 years ago. All went well and the company grew fast until it was big enough to come up against a German competitor started at the same time. The difference is that the German one had backing from Govt and so had been able to grow faster and basically just blew him out of the water. He had to retreat into a tiny specialised niche. The German firm has gone on to become a big multinational player, albeit in a specialised field.
@Simon McGrath “is there really not something better you can do with Euros53bn?”. Well, Simon, we let the banks ruin our economy with their casino economics and then had to pay a bigger sum just to bail them out – with nothing to show for it. While the City of London was making a lot of money for a small number of people, and providing low-paid insecure jobs for cleaners, waiters and car valets, the Germans were making a lot of THINGS which people around the world wanted to buy and providing well-paid secure employment for a lot of people.
It started as, so many bad things did, with Margaret Thatcher who squandered the legacy of North Sea Oil on unsustainable tax cuts financed by ‘giveaway’ privatisations and created a ‘rentier’ economy which substituted financial speculation and property booms for real economic growth based on manufacturing and infrastructure investment. New Labour simply continued the disaster, and now, sadly, some parts of the Coalition (mostly, but not exclusively, Tory ones) still believe in this tripe.
Compare and contrast with Norway.
Monbiot has never been much cop at economics. I always find is curious when people talk about the government spending large sums of money on things and wondering if there isn’t something better to spend it on. It’s as if they think the money just disappears after it’s spent.
The €53Bn net costs over ten years that the German government spent on renewable energy has not simply disappeared – it is being paid to householders and industries who are investing much more than that in the fledgling industries, currently running at over €26Bn per year. It basically boot-strapped an entire industry from nothing – an industry that is providing them with a very healthy return in terms of tax revenues and an even healthier return in terms of deaths avoided once the rest of the world follows suit and we manage to avoid dangerous climate change. Both of these benefits are completely ignored by the paper George pins his article to.
They have the largest PV industry in the world, the largest wind energy industry in europe (despite having a lower resource compared to the UK, Netherlands, Denmark and Norway) and the largest solar thermal industry in Europe. They are in pole position to lead the world in all these technologies and we are trailing somewhere in the middle of the pack.
Germany is Many years ahead of us in this field and if we are to compete with them at all we must do something very similar. 100% renewables by 2030 is THEIR target – why isn’t it ours?
More data on renewable energy from Germany (in English).
@simon Oliver – I’m afraid you continue to confuse me. Fossil fuel prices have been going up and may continue to do so (or may not ). There are new technologies (such as fracking) which are greatly expanding the supply of fossil fuels so prices may stabilise.
Renewable costs may drop – probably will. But noone knows by how much and on what time scale. Given that for example solar energy is many times as expensive as coal renewable costs will have to drop an awful lot to be competivive.
Even if both of these assumptions were true why would it make sense to increase prices now rather than use the (cheaper) renewable sources when they are available. Why for example put up the energy prices now of our chemical industry when they will move production to other countries?
I take your point about the cost of coal (actually I do say it source is the IEA) but here is a link to their annual statistical report ( Page 41) where you will see the graph of coal prices http://www.iea.org/textbase/nppdf/free/2010/key_stats_2010.pdf
This is highly relevant because this report is your ONLY evidence for the key assertion that renewable energy will be cheaper than coal by 2015.
@Peter Chivall ” New Labour simply continued the disaster, and now, sadly, some parts of the Coalition (mostly, but not exclusively, Tory ones) still believe in this tripe.
Compare and contrast with Norway.”
Norway has a population of 5 million people , less than a tenth of our with around the same size of oil and gas reserves. Not a great comparsion really.
Simon McGrath
The report you cite only gives the cost of importing coal into Europe and Japan and does not reflect the cost of generating electricity from coal, oil and gas, which is what is under discussion.
You claim to be confused about why it would make sense to boost renewable investments with a carbon price now, instead of waiting for them to become competitive. This confuses me, since the article answers that question.
I disagree that my assertion about the date when renewable energy will be cost-competitive with coal-derived electrticity is ‘key’. There are numerous sources and analysts available who are saying it is going to happen, and there are some that say in certain circumstances it has already happened (onshore wind vs coal with CCS, for example)
The Sierra Club say:
Google have set themselves the goal:
Mark M. Little, the global research director for General Electric Co. (GE):
Cold Energy offer a product that claims costs at a fifth or less of coal (at 4 to 5.5c/kWh):
Suncube solar are claiming a generation cost for solar that is approaching parity with coal:
(NB A$1 = 1.035 US$, so 6c = 6.2USc)
Yet another source for energy costs and their trends. Note that onshore wind is already cheaper than dirty old coal, new coal, new nuclear and new gas.
BBC article
@Simon M: You ask “Why put up energy prices now?”
On the purely cost grounds it’s quite simple really: because, as happened with Road Fuel Duty, it stimulates innovation and behaviour change now, which insulates us against prices that are heading ever higher.
The other reason: because we can’t afford not to. We have committed to an 80% reduction in our CO2 emissions by 2050, with interim reduction targets along the way. Waiting for things to become cheaper than coal just isn’t an option. The biggest block to investment in renewables in the last decade has been uncertainty. Without a floor price on CO2 emissions, electricity generators have postponed decisions and sweated CO2-belching assets.
If we’re faster to transition, it will not be a case of British business moving elsewhere, but instead us having a competitive advantage.
as a follow up on this:
http://www.grist.org/list/2011-11-03-solar-cheaper-than-fossil-fuels-in-a-decade-says-steven-chu
Solar power will be cheaper than fossil fuels at some point between the end of this decade and 2026*, said U.S. Secretary of Energy Steven Chu at the Washington Post’s Smart Energy conference this morning.