Politicians
everywhere are repeating the mantra that renewable energy is cheap, and we need to use it instead of gas (currently expensive in and near Europe) to bring down energy costs for households.
As US President Joe Biden said of clean energy before signing the poetically named Executive Actions on Tackling Climate Change, Creating Jobs, and Restoring Scientific Integrity “it’s affordable; because it’s clean; because, in many cases, it’s cheaper… [clean technologies] will ultimately become cheaper than any other kind of energy, helping us dramatically expand our economy and create more jobs with a cleaner, cleaner environment”.
The Inflation Reduction Act has been designed to make this a reality. Lots of investment in lovely green energy and green jobs. This sounds wonderful.
Unfortunately, renewables are not cheap.
To demonstrate, let’s carry out a thought experiment…
Imagine you build a machine. It’s very expensive to build, but once it’s done, it makes Things. These Things are identical in every way to Things made by other people. Making Things is very cheap: the machine runs on wind/sun/water and has no fuel costs, and no raw materials are required. Making Things is essentially free once you have built the machine. What will you charge to sell your Things?
Normally you would want to recover the cost of building the machine and make some profit. Ten years is reasonable to recover capital costs, so you work out how many Things you will make over ten years and spread the cost plus some profit between them. After ten years, you’re happy to more or less give the Things away, selling them for a minimal amount.
But here’s the rub. Down the road is another Thing factory that was built eleven years ago, whose upfront costs have already been recovered. Those Things are being sold for next to nothing. Who is going to buy your Things now unless you also charge next to nothing? But if you do that, you can’t pay back the money invested in building your machine. That means that unless you can earn money from something other than selling Things, you will never build your factory in the first place.
MORE EAT BUGS AND BE POOR:
https://12ft.io/proxy?q=https%3A%2F%2Fwww.telegraph.co.uk%2Fnews%2F2023%2F08%2F25%2Frenewables-wind-solar-energy-cheap%2F