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Economics of renewable energy (not)

StephenWilson's picture

It's not for nothing that they call economics the "dismal science".  It seems to me that the world's attention to macro economics is what stops renewable energy.  I don't know if the following analysis is really new or not, but if it's accurate, then as things stand, no renewable energy scheme stands a chance, regardless of the greenhouse effect.

When you procure and install a renewable energy source, like a wind turbine or hot rocks plant, the financial transactions are simple, limited and rather local: 

- build the power plant

- operate the plant (pay a few staff, buy some occasional maintenance).

But our globally favorite energy schemes -- coal, gas, nuclear -- all involve mining and massive ongoing exchanges of finance and resources, both human and physical:

- build a mine (which usually includes major new transport infrastructure too) 

- build a powerstation

- in some cases build a new refinery

- operate the mine  

- transport the ore to the refinery (including operating the transport infrastructure)

- refine the ore to fuel 

- transport the fuel to the powerstation 

- operate the powerstation 

- in some cases, transport and dispose of the ash (which in the case of nuclear is another huge supply chain). 

All of these supply chain steps are music to the ears of a macro-economist.  They create jobs, they generate profits and taxes, they create whole secondary industries (like railways, ports and shipping). 

This is surely why the Howard government prefers nuclear to all the more accessible options, like solar, wind, hot rocks, and tidal.  

What sort of really fundamental changes would be required to the economy -- including the very way people think about the economy, especially jobs -- to make renewable energy as attractive as mined energy? 

Comments

Nonsense

The writer's ignorance of economics is quite breathtaking, it's almost surreal. The quote with which the piece begins is apposite however, Thomas Carlisle didn't think that the interaction of supply and demand should set prices either.

The fact is that it's much cheaper to generate a set level of energy using coal, for instance, than to use wind or wave power. It has absolutely nothing to do with how many people the process employs or some huge conspiracy amongst economists. A company wants to minimise its costs, rather than maximise them - although executives are notoriously paid according to the size of the company they work for, rather than its profitability, and so tend to emphasise size rather than the bottom line.

Renewable energy is simply much less efficient than fossil fuels in generating electricity. If oil continues at such high prices, although its 100 dollars a barrel cost is due more to the weakness of the dollar at the moment, then renewable sources will become more attractive. The free market, which the writer clearly doesn't understand, will start falling over itself to come up with alternative sources of energy. If the writer knows of a method to generate solar power at a fraction of the cost of a coal powered electricity station he should start marketing the idea quick, especially to the Chinese who are opening one such plant every week. He would also make himself the richest man in the world, which makes me think that the reason this hasn't happened yet is because it's not possible.

The writer, however, blames the 'Howard Government' for this. I'm not aware that other countries are generally more successful in generating renewable energy despite being spared the evil of the Howard Junta. France, for example, generates eighty percent of its energy from nuclear plants.

Iceland, of course, has lots of geothermal energy so generates its electricity that way. Electricity is the only cheap thing in Iceland. It's an accident of geography, that's all. Australia has a third world economy based on primary production - agriculture and mining. If you stopped mining then you wouldn't have to worry about carbon generation because nobody would have enough money to turn the lights on.

If you want to rethink the economy then rethink the great prosperity the free market has brought. Rethink the shiny hospitals, rethink the welfare, rethink your nice house full of shiny Korean fridges and Japanese TVs. Governments cannot dictate economics. Economics may be dismal but it's the reason you're eating steak and the North Koreans eat grass.

Making money

Hidden amongst Nick Mallory's shrill nonsequiteurs and bad manners is a remark that reflects the economic thinking that I was questioning: "If you stopped mining then you wouldn't have to worry about carbon generation because nobody would have enough money to turn the lights on".

Exactly. Mining makes lots of money. Mined energy makes more money than renewable energy. My point is that renewable energy is rendered unattractive by the economic perspective. I don't think it's all about the direct cost of generating electricity; I think it's more about the vast sums of money that can be made from the mined energy supply chain, and the fact that our country and many others have become dependent on that way of making money. So we're merrily eating steak in the lucky country while the world goes to hell in a handbasket, unable to switch to renewables basically because they don't generate competitive profits.

Stephen Wilson.

Play the ball, Stephen.

I was taught to play the ball, not the man Stephen but given the strength of your argument I can see why you'd opt for the latter.

Your argument seems to be that the realities of economics can simply be ignored or wished away because they don't suit your own agenda and I'm having the shocking temerity to disagree with you. I'm not apologising for observing that your piece showed a fundamental misunderstanding of how an economy works. Of course I could be wrong, I did an economics degree at the London School of Economics so that's quite possible. Where did you study your economics again?

Once again, jobs are not created by 'macro economists', firms employ people to do productive tasks because it will make them money. Firms seek to minimise their costs, not maximise them. When renewable energy can generate electricity as cheaply per kilowatt hour as coal then it will be adopted by the same economic system you seem to despise, if not actually understand, and the mining companies will either go out of business or start manufacturing lots of shiny glass panels. The higher the price of oil the more likely that is to happen of course but the realities of supply and demand cannot simply be abolished by dictat, even one as well meaing as yours. If you could generate electricity more cheaply using solar power than coal then go ahead and become a millionaire. The person who invents a way to store hydrogen for fuel cells in cars will make a billion for sure but right now there's no good way to do it. Yes Australia has a lot of sunshine, but it has a lot of coal and coal is essentially sunshine stored in a much more efficient medium if you want to turn it into electricity. You seem to be under the impression that coal 'ore' has to be 'refined' before it is burned in a power station and that large numbers of people are employed in this task which is certainly news to me. The number of people actually employed in the huge open cast mines of Australia is also tiny compared to the vast quantities of coal they produced, but we'll let that pass as well. Australia has virtually no usable tides, being in the middle of the pacific and has less volcanic activity than pretty much anywhere on earth but let's not let the mere brute facts of geography stand in the way of a politically correct argument anymore than the laws of economics.

The fundamental changes you seem to want to see in the economy to work around the reality of the situation are what exactly? Obviously the abandonment of capitalism and the free market, but as even the Communist Party of China has accepted that capitalism works and other systems don't, this would leave us following the shining examples of which countries? North Korea? Zimbabwe? Nobody's driving expensive sports cars or watching plasma TVs there, except the ruling elite of course, so maybe you have a point after all.

I'm sorry if you find my defence of the realities of the free market 'shrill' but I think you'll find your beef is with the rest of the world, rather than me. The economy is a product of millions of people making, buying and selling things, it's not something dreamed up by some evil cabal of cigar smoking top hatted capitalist conspirators. If you want draconian laws, huge tax increases or massive subsidies for renewable energy then say so because merely 'thinking about the economy' in new ways isn't going to change anything. Try standing in an election advocating your point of view and see how many seats you win. Actually, you don't have to, we've just had an election and last time I looked the Greens weren't forming the Government here or anywhere else in the world for that matter.

To sum up, you admit yourself that renewable energy is currently uneconomic but then lament the fact that t's not adopted in the economy so want the economic system used by virtually the entire world to change in a fundamental way which you cannot articulate. You seem to think the reason renewable energy is not widely used is that it's currently too efficient in terms of the resources it uses while the real reason is that it's currently not efficient or productive enough compared with other methods of power generation. This may change in the future as technology develops but it'll change because of supply and demand, not despite it. Any firm would love nothing better than to develop a power generation method which was cheap to set up, required no fuel and was easy to maintain with hardly any staff. They'd love that because it would make them incredibly large profits. The reason this doesn't exist is because such solutions are currently avaliable only in people's wildest imaginings.

 

Stick to the point, Nick

 

Nick Mallory is so busy imputing my politics and defending capitalism against imagined attack that for the third time running he has missed the point. I look forward to an economist calmly setting me right on my original question: Doesn’t the money making opportunities of the long and involved supply chain of mined energy sources make them more attractive to governments than renewable energy? Is the cost per kilowatt hour really the only issue, or are there other collateral economic benefits of mined energy – like taxing the miners, and the refiners, and the multiple transportation carriers – that render it more attractive than renewable energy?

Stephen Wilson

Renewable energy

To the many proponents of Coal and Nuclear energy, you've missed the point. Unless you are prepared to mine with pick and shovel, the extraction of both will cease when Peak Oil begins to bite harder, and the oil runs out.

The sun will continue to rise each day and produce more energy on an area smaller than Tasmania than the total earths current energy consumption for a year. All we have to do is collect and store it. Both are proven and improving sciences. As regards Hydrogen technology, water has 2 parts Hydrogen and one part Oxygen and is easily stripped using Solar Energy. The waste from burning it is Oxygen and water. What's scary about that.

Interested parties are invited to contact:

rdbdwelsh@iprimus.com.au

Renewable Energy

Our previous government prefered free markets over regulated markets. Bringing competition into the market place, which attracted increased investment. There are many factors that affect the success of any investment. Although there is one underlying factor that can be utilised if it is manipulated properly by regulation. That is the ingenuity of greed.

There are plans to build our first solar furnace powerstation in South Australia in the upper Eyre Peninsula, somewhere near Whyalla or Port Augusta. Port Augusta will probably be the logical choice. Link this in with the geothermal power from the Cooper Basin, which is looking very promising, and we are in the beginings of producing more than enough energy for our countries current and future demands. Use some of this energy to produce Hydrogen, and we are well on our way to dramatically reducing, if not reversing, Carbon emissions.

Now getting back to the economics. Faced with the opportunity of a dramatic change in market direction, those greedy buggers that extract obscene renumeration packages, will find ingenious ways to make these new markets profitable., and therefore work.

Sure, whatever changes we make need to keep the economy moving so that people can earn a living, hopefully a comfortable living, but this shouldn't stop our GDP being taken down new paths. The cost of doing business with our current energy resources, of coal, gas and fossil fuel, is going to eventually price us out of the market. The current, she'll be right mate, reliance on our recources boom is going to catch us out. In much the same way that the skills shortages has. Therefore, wouldn't it be prudent to develope new technologies that we can lease if not sell to other countries, which will generate income from new markets. Allow me to explain my reasoning using the car industry as an example. A company manufactures a car, then sells it. This car needs periodic maintenance, which generates ongoing income through labour costs and spare parts.

I'll conclude by saying. With the use of imagination and igenuity, I have no doubt that our country can move away from its current reliance on fossil fuels, and at the same time generate profitable and successful new markets.