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While it's nice to believe that through the magic of the market, everything just evens out, a simple thought experiment easily shows this isn't the case. Take

While it's nice to believe that through the magic of the market, everything just evens out, a simple thought experiment easily shows this isn't the case. Take the simplest case and ignore CO2 and carbon tax for now. The base power stations have to be sufficient to supply the whole power grid when the wind doesn't blow, and the sun doesn't shine. Ok, so now imagine what happens if we simply remove all the solar panels and all the wind turbines. What happens? Nothing happens. The grid still works normally. In other words the cost of all those windmills, solar panels, their construction, their maintenance, etc, it is all extra cost that the consumer has to pay somehow. So isn't the magic market supposed to fix all this? Why doesn't market dynamics take care of this? Because government regulation doesn't allow fixed power plants to charge a fixed yearly fee. If the government did allow this then the market would indeed price everything correctly. Now if you add a carbon tax, having a number of windmills on the side does eventually become advantageous, but never compared to non-intermittent sources of renewable power like hydro or nuclear which could also charge this fixed yearly fee.

ghouse 5y ago
> Because government regulation doesn't allow fixed power plants to charge a fixed yearly fee. If the government did allow this then the market would indeed price everything correctly. In the US, in most markets (except ERCOT/TX), it's the opposite of what you say. Government regulation _requires_ either the market operator or load serving entity to contract for capacity (as opposed to energy). PJM, which operates the largest market in the US, runs an annual auction for capacity. Incredibly, due in part to subsidies offered to the natural gas industry, existing nuclear power plants have not cleared in the auction. [0, 1] [0] https://insidelines.pjm.com/pjm-successfully-clears-capacity-auction-to-ensure-reliable-electricity-supplies/ https://insidelines.pjm.com/pjm-successfully-clears-capacity... [1] https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/3-exelon-nuclear-plants-fail-to-clear-pjm-capacity-auction-64835071 https://www.spglobal.com/marketintelligence/en/news-insights...
- mrjangles 5y ago
  The fact that wind and solar are included in this purchase 3 years ahead of time, should make it clear this isn't what you think it is. Solar and wind can't know even a day or two in advance whether they will be able to deliver the power. In fact, this auction, which allows intermittent power to compete on the exact same footing as base power, is exactly what I mean by a market distortion in their favor.
7952 5y ago
You seem to be fixating on the word "market". I don't mean that in a liberal economic way. Electricity markets are natural monopolies and need intervention. That is what subsidies are. The energy markets let you bundle up different issues into a single price per kwh. But that doesn't always work. For example in the UK there are capacity markets that give fixed payments for reliable capacity. Most of which are fossil fuel power stations. You are trying to simplify things too much. Unpicking a few factoids to make an argument. The advantage of this kind of energy market is that individual companies don't have to do that. Small developers don't need to worry about building backup for their solar panels. And nuclear power stations can take on a big risk. All bundles into the price. But all this is specific to particular markets. No idea what is going on in the USA and as a European I assume it is probably a mess.

ghouse 5y ago

> Because government regulation doesn't allow fixed power plants to charge a fixed yearly fee. If the government did allow this then the market would indeed price everything correctly. In the US, in most markets (except ERCOT/TX), it's the opposite of what you say. Government regulation _requires_ either the market operator or load serving entity to contract for capacity (as opposed to energy). PJM, which operates the largest market in the US, runs an annual auction for capacity. Incredibly, due in part to subsidies offered to the natural gas industry, existing nuclear power plants have not cleared in the auction. [0, 1] [0] https://insidelines.pjm.com/pjm-successfully-clears-capacity-auction-to-ensure-reliable-electricity-supplies/ https://insidelines.pjm.com/pjm-successfully-clears-capacity... [1] https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/3-exelon-nuclear-plants-fail-to-clear-pjm-capacity-auction-64835071 https://www.spglobal.com/marketintelligence/en/news-insights...

mrjangles 5y ago
The fact that wind and solar are included in this purchase 3 years ahead of time, should make it clear this isn't what you think it is. Solar and wind can't know even a day or two in advance whether they will be able to deliver the power. In fact, this auction, which allows intermittent power to compete on the exact same footing as base power, is exactly what I mean by a market distortion in their favor.

7952 5y ago

You seem to be fixating on the word "market". I don't mean that in a liberal economic way. Electricity markets are natural monopolies and need intervention. That is what subsidies are. The energy markets let you bundle up different issues into a single price per kwh. But that doesn't always work. For example in the UK there are capacity markets that give fixed payments for reliable capacity. Most of which are fossil fuel power stations. You are trying to simplify things too much. Unpicking a few factoids to make an argument. The advantage of this kind of energy market is that individual companies don't have to do that. Small developers don't need to worry about building backup for their solar panels. And nuclear power stations can take on a big risk. All bundles into the price. But all this is specific to particular markets. No idea what is going on in the USA and as a European I assume it is probably a mess.