I was surprised by The Economist’s recent headline piece (‘Clean energy’s dirty secret’, February 25th). Not because it didn’t jibe with my worldview – that I could’ve guessed from the title – but rather by the omission of significant facts and perspectives in the story and the lack of a clear argument to reach its conclusion. I have come to expect and respect level-headed analysis from this newspaper, even on matters over which we disagree. Pro-stability and neoliberal though it leans, it is usually at least thorough and logical. Not so this time.
What’s missing? First of all, any mention of fossil fuel subsidies. This is very strange because this newspaper generally opposes all subsidies, true to its free-market ideology. Without a single mention of fossil fuel subsidies, it cannot credibly criticise the effect of renewable energy subsidies on the market. Therefore, most of its argument falls apart. It is one thing to state that “government-supported renewable energy has been imposed on a market designed in a different era.” That’s true – the market is old and needs to be updated. But it is disingenous to claim that “the splurge of public subsidy [for renewable energy], of about $800bn since 2008, has distorted the market.” On the contrary, it has tried to balance the market against the trillions of dollars of fossil fuel subsidies that saturated the market in the first place. The recent “glut of power-generating capacity” refers to a surplus brought about by a market distortion. That distortion is caused first and foremost, in both chronological development and size, by fossil fuel subsidies.
Second of all, the article is written exclusively from the point of view of producers and investors, ignoring consumers altogether. This is uncharacteristic, too: while The Economist is staunchly pro-business, it also supports consumers when it comes to choice and competitive pricing. Not only are benefits to consumers through smaller electricity bills that presumably result from increased production completely ignored in the article, potential change in consumer behaviour – switching from fossil fuels to renewable energy, whether or not due to renewable energy subsidies – doesn’t garner a mention, either. I get that the article wants to focus on investment, but it ignores the most basic tenet of economics: that production and consumption go hand in hand.
Moreover, the article inexplicably takes the side of producers of fossil fuels in particular, counter to the newspaper’s usual may-the-best-competitor-win approach. It writes:
In a market that prefers energy produced at the lowest short-term cost, wind and solar take business from providers that are more expensive to run, such as coal plants, depressing power prices, and hence revenues for all. The higher the penetration of renewables, the worse these problems get – especially in saturated markets.
The fact that “renewable energy has negligible or zero marginal running costs – because the wind and the sun are free” is something to celebrate, when viewed from a benevolent dictator/Rawlsian sort of position. Cheaply produced energy is a boon to both producers and consumers: prices can be lowered while maintaining profit margins. Revenues are only depressed if prices decrease without a corresponding drop in costs, which applies to coal plants. Dear coal plants: if you can’t take the heat, get out of the kitchen (or the market, in this case). They are apparently doing just that. The article bemoans this move because government in response is raising financial incentives to keep them in the market in order to smooth out the intermittency of renewable energy, for example when the sun isn’t shining or the wind isn’t blowing. But there are alternative solutions to intermittency that don’t involve coal plants, including supply-side solutions like increasing storage capacity and demand-side solutions like smart pricing to manage energy use.
The article claims that this will be expensive. Yes, it will be, but so is the status quo – even without accounting for environmental costs.