Tag Archives: economics
Energy Companies Are Paying A Heavy Price For Shunning Renewables
The argument for green solutions is not just about climate change – traditional sources of power will soon cost more Wind turbines, along with other types of renewable energy technology, are being produced in greater numbers at lower unit cost. Photograph: Thomas Trutschel/Photothek via Getty Images No wonder the big energy companies are spooked by the green dream. Have you seen their share prices lately? Witness npower last week , which warned that green policies will drive a 20% rise in energy bills by 2020. Npower is owned by the German utility RWE. In 2008, RWE’s shares traded at a whopping €100 each. Today they are worth less than €20. EDF and E.ON, which have 5.5 million and 4.8 million UK customers respectively, have seen a similar drop. It’s a precipitous 80% fall triggered by investors alarmed at the prospect of losing an effective oligopoly of supply and with it a healthy stream of profits. These are the companies that want to supply us with natural gas from Norway, liquid petroleum gas from Qatar and electricity from imported coal and oil. Some want to build a new generation of nuclear reactors, though given the parlous state of their share prices, they want massive subsidies and cast-iron guarantees from any government willing to commission them. Their argument is that big power generation keeps the lights on. Everything else is a bit flaky and without economies of scale, more costly. Of course, this is not their official stance. They are all sponsoring green events like crazy and pushing their green credentials. But the message from the big energy suppliers is that imported gas, piped to households or burnt by its latest power stations, should remain a major element of any energy strategy. Arguments against going green tend to focus on particular technologies. Solar fails to heat our homes on winter evenings. Wind turbines leave us in the dark when the breeze drops. Tidal, which creates its own environmental problems, has yet to make the kind of breakthrough hydro has managed. Biofuels deny people perfectly good food. Nuclear gets lots of votes from green tech supporters, but is bedevilled by technological hiccups, is frighteningly expensive to build and suffers from even more nimbyism than onshore wind turbines. Then there is the supposedly high cost of renewables set against the economies of scale that flow from big power stations pumping megawatts of energy across a massive grid. Npower also assumes in its calculation that the government initiatives promoting energy saving, by companies and households, will fail. Sam Fankhauser, co-director of the Grantham Research Institute at the London School of Economics, says it is hard to believe that consumption will not be limited to some extent by efforts to save energy. “Npower is taking an extreme view in this respect,” he says. The argument that renewables chain the economy to high-cost energy is ebbing away. For instance, solar panel costs have fallen so far and so quickly that many companies that borrowed heavily to enter the market have gone bust. Research aimed at improving the efficiency of the silicon at the heart of each panel is becoming redundant as the cost of panels plummets. Combined heat and power units, wind turbines and other renewable energy sources are also being produced in greater numbers at lower unit cost. In the US, biofuel plants only use the waste products from maize rather than burn the whole plant. In the UK, power generators are planting trees to burn much as the now dying newspaper industry encouraged fields of pine to supply the industry with pulp. In addition, Fankhauser, who helped the Committee on Climate Change’s analysis of the government’s energy bill, points out that carbon-burning sources will be forced to charge for cleaning up after themselves using carbon capture and storage, much as water companies pass on the cost of their sewage works. Under this scenario, traditional sources of energy will soon become more expensive than renewables. It would be laudable if the share prices of all the big energy suppliers were down 80% because all politicians understood this trend and renewables prospered under a cast-iron guarantee. While that is the case in Germany, uncertainty plays a big role in the UK after the failure of successive governments to give a clear signal of their intentions by putting the necessary infrastructure in place. There are targets and some initiatives, but the green grid is still embryonic. The Public Accounts Committee recently criticised the Treasury’s infrastructure plan as “a list of projects, not a real plan with a strategic vision and clear priorities”. The business community is also confused, with 67% of companies not confident that the energy infrastructure will improve in the next five years. The CBI poll found 69% have doubts about water infrastructure. A couple of weeks ago when George Osborne was outlining his effective freeze on infrastructure spending at £50bn a year into the next parliament, the lobby group Green Alliance highlighted a list of growth-generating green infrastructure projects worth £205bn that should add 0.7% GDP by 2015 or knock GDP by 2.2% if they are abandoned. The charity’s chief economist, Julian Morgan, said while most are funded by the private sector, they are subject to being scaled back unless the Treasury backs the move to low carbon. Missing from the plans are rules for using the national grid that encourage local generation as much as they do large corporates. Fankhauser says it would be impossible to move to a situation where all energy is generated and used locally, bypassing the national grid, but he agrees the government should encourage municipal authorities to co-ordinate projects that allow local businesses, households and amenities such as schools to generate their own energy. Much of our electricity is lost in the grid, making local production potentially more efficient. So shifting the balance to local production has many benefits. Yet organisations set up to co-ordinate investment in local projects complain that weaknesses in the grid, such as the need for a substation upgrade, must be paid for by local providers. A mix of renewables and a backstop of gas can supply all our needs without breaking the bank. At least no more than oil and gas will, whatever the shale miners will have us believe. Contractors who currently install gas boilers will learn to install different kinds of kit. What was once a big industry will morph into a different beast that happen to install machines that generate power differently. Of course there are still the climate change deniers, who can be allied with the almost nihilistic argument that flows from Stephen Emmott’s docu-play, 10 Billion. The scientist, who heads the Microsoft Labs in Cambridge, has just turned his stage hit into a book. The play allies the already rapid rise in carbon and the prospect of another 3 billion people on the planet (hence the 10 billion title) to concoct an ecological nightmare of monsoons, droughts, extinctions and widespread starvation. On finishing the last chapter, many people will conclude that the only sensible option is to break out the champagne and party while burning the world’s resources with reckless abandon. The renewables debate is underpinned by the need to avoid the worst temperature rises, if possible, but is also about energy security, localism and lower costs over the next 30 years, which are all achievable. Continue reading
Free Market Is Best Way to Combat Climate Change, Study Suggests
July 15, 2013 — The best way to reduce carbon emissions and combat climate change is through the use of market forces, according to a new study. Researchers who monitored the effectiveness of the European Climate Exchange (ECX) — the world’s biggest carbon trading platform — found it to be as efficient as Europe’s two biggest exchanges, the London Stock Exchange and the Euronext Paris. Using free market platforms like the ECX to combat climate change could provide the basis for the introduction of a mandatory emissions cap and trade scheme worldwide. The report found that the value of the trades on the ECX were higher after the market closed, a sign of growing sophistication within platforms. It means that trades were made with greater confidence based upon increasingly detailed information. Researchers said there are also signs of maturity based on increased liquidity — the immediate availability of a party to trade with — and price efficiency, which means all available information is incorporated into prices so they are traded in a relatively transparent manner. The ECX was created by the EU Emissions Trading Scheme (EU-ETS) in 2005 to help the European Union (EU) achieve its obligations under the Kyoto Protocol to reduce carbon emissions. The EU set limits and issued permits for how much carbon firms could emit into the atmosphere. If companies exceed their limit, they incur regulatory penalties. To avoid this, the EU-ETS allows firms with high emissions to buy the permits of other companies on platforms such as the ECX. By creating a market, it gave firms a financial incentive to reduce their carbon emissions. Researchers said that changes are needed to ensure the EU-ETS survives Europe’s economic downturn. Since the study appears to confirm the ECX’s effectiveness, researchers say the EU-ETS should be allowed to self-adjust emission caps in reaction to changes in the Eurozone’s fortunes and industrial production. Gbenga Ibikunle, from the University of Edinburgh Business School, said: “While individual responsibility for combating climate change is important, much needs to be done to incentivise companies — especially those who emit most of the world’s carbon — to cut back too. This study shows that free market mechanisms such as the EU-ETS can be effective in doing that. Several other schemes around the world are already learning from this and adopting it as a model.” The paper is published in the International Journal of the Economics of Business . Continue reading
Burn The Forests, Save The Planet?
Good news for the American logging industry: Timber is back, with an assist from Europe’s anti-carbon crusade. Across the forests of East Texas and deep in the Florida swamps, trees are in rising demand as “biomass” to help utility companies in Europe meet their targets for so-called “renewable energy.” That basically includes everything except nuclear and fossil fuels—even wood pellets, made from compressed sawdust or trees run through a chipper. Last year, Europe imported more than 1.7 million tons of these pellets from America, for a market that the U.S. International Trade Commission describes as having been “virtually nonexistent” in 2000. Back then, Europeans still hoped they could meet much of their 2020 carbon-cutting and “renewable” goals with wind, solar and other more fashionable fuels. That hope proved unrealistic, even before austerity budgets started shaving subsidies from these perpetually emerging industries. In a 2003 directive, the EU put biomass on a list of fuels to subsidize and exempted it from carbon capping and taxing. Never mind that burning compressed wood—a leading source of “biomass”—usually produces less energy per kilo of CO2 than does coal. The EU’s emissions accounting follows the logic that in the long run we’re all biomass: Forests can regrow and reabsorb CO2, so their combustion is not only renewable but “carbon neutral.” European utilities generating wood-fired electricity have since 2005 been eligible for credits, which they can sell to companies overrunning their CO2 quotas. The only hitch is that land-use and conservation rules in most European countries make it either illegal or prohibitively expensive to clear-cut trees for industrial processing. Solution? Use wood from America. U.S. lumber consumption is still recovering from the housing crash. The Internet has also reduced demand for paper pulp and disrupted the economics of logging. Europe’s anti-carbon regime has reversed these trends by creating a whole new market for timber products. Europeans imported wood waste, scrap and pellets at $140 per metric ton in 2011, the Trade Commission reports, up from $52 in 2001. Producers are still ramping up capacity to meet European demand, which could easily double in the next decade if governments stay the regulatory course. Last week, Maryland-based Enviva, whose clients include German utility giant E.ON , EOAN.XE -0.15% announced that its new 500,000 metric-ton pellet plant near the Roanoke River is in full operation. Supposed conservationists in the Obama Administration have been following Europe’s lead. The Environmental Protection Agency has so far exempted biomass emissions from CO2 tallies, and since 2009 the Department of Agriculture has doled out millions in small loans and grants for wood pellets and other “advanced biofuels.” Some advance. The industrial revolution was fueled by a shift to higher-energy fuels like coal and, later, petroleum. Modern power plants and pellets mean wood can be burned more efficiently than 200 years ago, but it will still take an awful lot of forests to make this great leap backward. Remember when logging was bad for the environment? This Europe-driven wood-pellet boom is another reminder that the obsession with CO2 creates indifference to other environmental considerations. Continue reading
