Something for nothing. It never loses its charm. From the boardroom to the kitchen table, people seem convinced that one can get energy for free from the sun and wind. A corporate chief might justify his enthusiasm by citing Lazard’s claim that renewables are the cheapest form of energy. In similar fashion, our person sitting at the kitchen table points to the testimony of a neighbor who swears by the solar panels that he installed. In both cases, their understanding of the situation is sketchy to non-existent. The CEO has no idea how Lazard came to its conclusion, and our person sitting in the kitchen has no idea about the economics of his neighbor’s solar power system, let alone residential solar in general, but it’s still touching to see how they both believe that one can get something for nothing. I almost feel bad about bursting their bubble. If they want to believe something that is patently false, who am I to convince them otherwise? Unfortunately, I have a form of Tourette’s syndrome where I can’t help myself in responding to energy falsehoods. Don’t ask me why.
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Besides the obvious observation that most people have never crunched the numbers, they also make the mistake of not casting the net wide enough when assessing the economics. What I mean by that is what is good for an individual may not benefit the economy as a whole. It is what economists refer to as the free rider problem. An individual may personally benefit from installing solar panels, but he is only shifting the cost to others in the system. He taxes other consumers of electricity by:
- Flooding the grid with his rooftop solar generation at inauspicious times when the grid has little demand for it. Seeing that it is “must-take” renewable energy, solar panel owners are guaranteed a fixed, feed-in tariff regardless of market prices, and the gap between market price and the guaranteed remuneration must be covered by subsidies.
- Making it difficult to balance the power grid. Unlike dispatchable thermal power plants, which can be throttled more easily, the fluctuating nature of solar requires complex interventions to prevent grid overloads.
- Tapping into the grid when he needs it at night and only paying the going rate. This one is a little harder to understand but here is how it goes—the capital cost of the thermal power plant should be shared equally by all parties on the grid. So, even if one only uses electricity at night, he still needs to pay the capital cost of the thermal power capacity that sits underutilized or idle until he requires it. However, that is not how the utility charges him. It only bills him for his kWh usage, i.e. the energy that he uses at night. Therefore, other electricity consumers on the grid pick up his share of the capital cost.
We get to listen to him brag about getting free solar energy, when, in reality, he is getting over on his fellow consumers.
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This might explain the ignorance of the residential solar panel owner, but what explains the ignorance of Lazard and others in stating that renewables are the cheapest form of power? It stems from their refusal to use the empirical data that exists from grids with mixed power sources. The power capacity (GW) and annual generation (TWh) of different sources, i.e. wind, solar, thermal, across different regions are known. The capital cost ($/GW) estimates of power capacity for different sources are published by EIA. The fuel cost is known. The weighted average cost of capital (WACC) and useful plant lifespans are known. Nothing else is needed to compute the cost of generation ($/kWh) in a mixed system and compare it with the cost of generation in a thermal only system. In Texas and California, it is a factor of two. The calculations are here.
I should just accept that there are certain people in this world who believe that they can get something for nothing. The confidence with which they assert it is a marvel to behold. Something for nothing never loses its charm.
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