AMERICAN energy policy is currently locked in a fierce battle between people who say renewables will make electricity less expensive and people who say they won’t.
You’d think there would be a reasonably clear answer to this question, but this a case where both sides have it wrong.
Environmentalists, citing the falling costs of wind turbines and photovoltaic panels, tend to agree with Bill McKibben that “power from the sun and wind is now the cheapest power in the world.”
Meanwhile, Energy Secretary Chris Wright says that renewables “raise the system cost of electricity” because they are only intermittently available, and President Donald Trump’s administration is doing everything in its power to block their deployment.
In fact, the best answer to the question of how renewables affect retail electricity prices is unsatisfying: It depends.
As a new report from the Lawrence Berkeley National Laboratory makes clear, the extremely varied geography of the United States means that the cost per megawatt of generation is extremely variable.
In addition, the economic value of a given increment of renewable energy depends on what else is going on.
The adminstration’s argument that wind and solar power are essentially useless because they’re not dispatchable on demand is wrong.
For starters, batteries – which turn any source of electricity into a dispatchable one – are getting better all the time.
But beyond that, non-dispatchable power is useful because it complements other sources of power.
A renewables-heavy electricity grid might function better, for example, with gas-fired plants that ramp up and down according to how hard the wind is blowing.
The presence of wind turbines would still dramatically reduce gas consumption and therefore generation costs.
At the same time, environmentalists like to use metrics like the “levelised cost of energy,” which make renewables look cheaper than they really are.
It’s fine to look at how many megawatts a given solar array generates over the course of a year and calculate that this adds up to a low cost per megawatt.
But you still have to consider the cost of keeping the system up and running when the sun isn’t shining.
Value deflation
The big problem here is the concept of “value deflation.” When you start adding renewables to a previous all-fossil grid, they are extremely valuable.
You can use every electron your new solar panels generate, and save money by burning less coal, oil and gas.
As you add more, the price of daytime electricity falls. But that means that adding even more solar panels becomes less attractive.
If you keep doing it anyway, the only way to make use of your extra solar power is to add batteries, which add costs.
And while gently ramping your fossil fuel usage up and down to save fuel during times of high renewable generation is cost-effective, at a certain point you find yourself bearing high costs to maintain extensive amounts of backup infrastructure.
This is where a critical distinction drawn by the Lawrence report comes in.
In many states, mostly red ones like South Dakota and Texas, there are no policies in place to encourage renewable adoption, but the falling cost of wind and solar infrastructure has led to large investments that have lowered costs.
But other states, mostly blue ones, have adopted “renewable portfolio standard” policies designed to force utilities to increase their reliance on renewables regardless of whether it makes economic sense.
These policies raise costs.
It’s an awkward quirk of political fate that most of the states with the best geographic fundamentals for wind and solar growth happen to be politically conservative states on the Great Plains.
Conversely, the Northeast is politically progressive but not especially windy or sunny.
What’s more, renewables take up a lot of space, and northeastern voters tend to be reluctant to cut down forests or take up green space to build utility-scale renewable projects.
Misguided policies
The result is some very misguided policies, such as Maine’s now-eliminated programe to subsidise rooftop solar generation.
Because roofs are small and rooftop solar installations are labour-intensive, they are not very cost-effective compared to larger renewable projects.
Maine is also just not a very good place for solar power, as it’s not very sunny and is so far north that there is huge seasonal variation in the hours of daylight.
But geography isn’t everything. California has plenty of sunshine, and a non-coerced market would lead to plenty of renewable use.
But that wasn’t good enough for California policymakers, who’ve insisted on pushing the envelope on regulatory mandates, which have contributed to rising costs.
On some level, this debate is both unsurprising and inevitable.
Renewables emit less pollution than oil and gas, so environmentalists are willing to pay some economic cost to accelerate their adoption.
This is a tough sell for voters, though, so proponents of renewable energy are left with two discordant arguments: On the one hand, they say, renewables will reduce costs. On the other, they say that they are worth adopting even when they aren’t cost-effective.
None of this, however, comes close to justifying the Trump administration’s anti-renewable zeal.
In many places that neither mandate nor discourage renewable growth, renewables are growing rapidly in ways that reduce costs.
The price of batteries is steadily falling, meaning the amount of renewables the grid can efficiently absorb is growing. What’s more, electricity demand is now rising after a generation of stagnation, which means concerns about value deflation are much less pressing.
Environmentalists should admit that their preferred agenda of maximum feasible decarbonisation costs money compared to just letting markets and technology work.
And the administration should drop its fossil-fuel identity politics and let the private sector keep building wind and solar facilities. — Bloomberg
Matthew Yglesias is a columnist for Bloomberg Opinion. The views expressed here are the writer’s own.
