Clean energy’s dirty secret
The renewables revolution is wrecking the world’s electricity markets.
Here’s what to do
- ALMOST 150 years after photovoltaic cells and wind turbines
were invented, they still generate only 7% of the world’s
electricity. Yet something remarkable is happening. From being
peripheral to the energy system just over a decade ago, they are
now growing faster than any other energy source and their falling
costs are making them competitive with fossil fuels. BP, an oil
firm, expects renewables to account for half of the growth in global
energy supply over the next 20 years. It is no longer far-fetched
to think that the world is entering an era of clean, unlimited and
cheap power. About time, too.
being peripheral to: not as important as other things or people in
a particular activity, idea, or situation
e.g. The romance is peripheral to the main plot of the movie.
competitive: as good as or better than others
far-fetched: extremely unlikely to be true or to happen
e.g. The whole story sounds very far-fetched.
- There is a 20trn dollars hitch, though. To get from here to
there requires huge amounts of investment over the next few decades,
to replace old smog-belching power plants and to upgrade the
pylons and wires that bring electricity to consumers. Normally
investors like putting their money into electricity because it
offers reliable returns. Yet green energy has a dirty secret. The
more it is deployed, the more it lowers the price of power from any
source. That makes it hard to manage the transition to a carbon-free
future, during which many generating technologies, clean and dirty,
need to remain profitable if the lights are to stay on. Unless the
market is fixed, subsidies to the industry will only grow.
hitch: a small problem that makes something difficult or delays it
for a short time
e.g. In spite of some technical hitches, the first program was a
e.g. The whole show went without a hitch .
- Policymakers are already seeing this inconvenient truth as a
reason to put the brakes on renewable energy. In parts of Europe
and China, investment in renewables is slowing as subsidies are
cut back. However, the solution is not less wind and solar. It
is to rethink how the world prices clean energy in order to make
better use of it.
put the brakes on sth: to stop something that is happening
cut back: If you cut back something such as expenditure or cut
back on it, you reduce it.
e.g. The Government has cut back on defence spending.
Shock to the system
At its heart, the problem is that government-supported renewable
energy has been imposed on a market designed in a different era.
For much of the 20th century, electricity was made and moved by
vertically integrated, state-controlled monopolies. From the 1980s
onwards, many of these were broken up, privatised and liberalised,
so that market forces could determine where best to invest. Today
only about 6% of electricity users get their power from monopolies.
Yet everywhere the pressure to decarbonise power supply has
brought the state creeping back into markets. This is disruptive
for three reasons. The first is the subsidy system itself. The other
two are inherent to the nature of wind and solar: their
intermittency and their very low running costs. All three help
explain why power prices are low and public subsidies are
First, the splurge of public subsidy, of about 800bn dollars
since 2008, has distorted the market. It came about for noble
reasons—to counter climate change and prime the pump for new,
costly technologies, including wind turbines and solar panels. But
subsidies hit just as electricity consumption in the rich world
was stagnating because of growing energy efficiency and the
financial crisis. The result was a glut of power-generating
capacity that has slashed the revenues utilities earn from
wholesale power markets and hence deterred investment.
prime the pump: to encourage a business, industry, or activity to
develop by putting money or effort into it
slash: to greatly reduce an amount, price etc = cut
e.g. The workforce has been slashed by 50%.
- Second, green power is intermittent. The vagaries of wind and
sun—especially in countries without favourable weather—mean that
turbines and solar panels generate electricity only part of the
time. To keep power flowing, the system relies on conventional power
plants, such as coal, gas or nuclear, to kick in when renewables
falter. But because they are idle for long periods, they
find it harder to attract private investors. So, to keep the lights
on, they require public funds.
kick in: If something kicks in, it begins to take effect.
e.g. As discounts kicked in, bookings for immediate travel rose by
falter: to become weaker and unable to continue in an effective
e.g. The economy is showing signs of faltering.
idle: not working or producing anything ≠ busy
e.g. The workers have been idle for the last six months.
- Everyone is affected by a third factor: renewable energy has
negligible or zero marginal running costs—because the wind and
the sun are free. In a market that prefers energy produced at the
lowest short-term cost, wind and solar take business from providers
that are more expensive to run, such as coal plants, depressing
power prices, and hence revenues for all.
- The higher the penetration of renewables, the worse these
problems get—especially in saturated markets. In Europe, which
was first to feel the effects, utilities have suffered a “lost
decade” of falling returns, stranded assets and corporate
disruption. Last year, Germany’s two biggest electricity providers,
E.ON and RWE, both split in two. In renewable-rich parts of America
power providers struggle to find investors for new plants. Places
with an abundance of wind, such as China, are curtailing wind
farms to keep coal plants in business.
- The corollary is that the electricity system is being
re-regulated as investment goes chiefly to areas that benefit from
public support. Paradoxically, that means the more states support
renewables, the more they pay for conventional power plants, too,
using “capacity payments” to alleviate intermittency. In effect,
politicians rather than markets are once again deciding how to avoid
blackouts. They often make mistakes: Germany’s support for
cheap, dirty lignite caused emissions to rise, notwithstanding
huge subsidies for renewables. Without a new approach the renewables
revolution will stall.
- The good news is that new technology can help fix the problem.
Digitalisation, smart meters and batteries are enabling companies
and households to smooth out their demand—by doing some
energy-intensive work at night, for example. This helps to cope with
intermittent supply. Small, modular power plants, which are easy to
flex up or down, are becoming more popular, as are high-voltage
grids that can move excess power around the network more
smooth out: If you smooth out a problem or difficulty, you solve
it, especially by talking to the people concerned.
e.g. It’s O.K. I smoothed things out.
- The bigger task is to redesign power markets to reflect the new need
for flexible supply and demand. They should adjust prices more
frequently, to reflect the fluctuations of the weather. At times of
extreme scarcity, a high fixed price could kick in to prevent
blackouts. Markets should reward those willing to use less
electricity to balance the grid, just as they reward those who
generate more of it. Bills could be structured to be higher or lower
depending how strongly a customer wanted guaranteed power all the
time—a bit like an insurance policy. In short, policymakers should
be clear they have a problem and that the cause is not renewable
energy, but the out-of-date system of electricity pricing. Then they
should fix it.