Market always wins IRINA SLAV
MY FAVORITE ENERGY JESTER: “Stop me if you’ve heard this but one of the biggest wind and solar developers in Europe recently announced it would be building less wind and solar in the coming years…”
Market always wins
JUL 8
∙
PAID
Stop me if you’ve heard this but one of the biggest wind and solar developers in Europe recently announced it would be building less wind and solar in the coming years for reasons that have to do with costs and electricity prices.
Oh, wait. It was actually the biggest developer of wind and solar in Europe, Norway-based Statkraft, which said last month that electricity prices in Europe have gone too low and production costs have gone too high, so it’s planning fewer projects for the immediate future.
“The transition from fossil to renewable energy is happening at an increasing pace in Europe and the rest of the world. However, the market conditions for the entire renewable energy industry have become more challenging,” Statkraft’s chief executive told the Financial Times.
Obviously, she was being modest and if she was being honest instead, the quote would have gone as follows: “The attempted transition to renewable energy is happening at an increasing pace, so market forces are kicking in more noticeably than before, making conditions for the industry more challenging.”
Now, my only academic experience of market forces comes from a single semester of studying economics and business administration, which were the most boring six months of my life because I was young and stupid but some basics stuck with me, and when I say basics I mean the most basic of the basics: supply and demand.
It has been my experience and observation that in free markets (as free as they can be in the presence of so many massively huge corporations) supply and demand play equal roles as fuel for the growth engine. When supply for a product goes too high, demand lags behind, supply declines and, unless demand remains low and the product is replaced by another, demand begins to exceed supply and causes a supply rebound.
Of course this is as basic an explanation as is possible to produce but it serves my purpose, which is a comparison with planned economies. In planned economies, demand is a secondary concern. In planned economies, you buy what’s in front of you and don’t ask for a choice because there is none.
The planned economy has plans, not market forces, however illusory they often are — and how increasingly illusory the leaders of the Great Climate Crusade (GCC) are trying to make them. Because there is no way the transition can work on an even moderately free market and we just got a bunch of fresh proof to add to the “We Told You So” file.
After Statkraft complained about low electricity prices (resulting from a surge in wind and solar generation during low-demand periods of the day) and high production costs (resulting from insane government plans to go “renewable” in a few years), the news broke that Germany is changing its subsidy mechanism for transition businesses.
You’d think it was going to pour even more billions down their hungry throats, right? Wrong. The overhaul aims to reduce the amount of money poured down said throats and reduce the period of the commitment. Germany, in other words, is going from marriage to a one-night stand.
As reported by Reuters, “Germany's coalition government is set to overhaul the way renewable energy is subsidised so that power producers would get one-off support for their investment costs instead of a guaranteed price for power they produce.”
Currently, wind and solar developers enjoy a guaranteed price for their electricity for a period of 20 cushy years but this appears to have become, how should I put it, well, unsustainable, so Scholz and co are switching to a one-off lump sum for the developers to do what they want with.
The subsidy regime reform, per that Reuters report, is “part of a government goal to expand renewable energy in the future without subsidies, and to fully integrate renewables into the market.”
So, German governments have subsidised wind and solar for over 20 years but still believe at some point in the future they would become capable of surviving without subsidies — in the context of those lower electricity prices and higher production costs that those same wind and solar are causing, prompting developers to reconsider expansion plans. The market has no mercy. And the German government clearly has no brain.
In further evidence that the market has no mercy, even when GCC governments are trying to strangle it, BusinessEurope, the lobby group of the bloc, has warned that, to the surprise of absolutely no one with functioning brain cells, high energy costs will be with us forever, even if the transition goes exactly as planned.
Why, you ask? Well, if we are to believe BusinessEurope, because not enough subsidies are being poured into wind, solar, storage, hydrogen, and all the rest of the transition arsenal. It’s almost as good as a Monty Python sketch.
“Targeted public funding will be crucial to de-risk and trigger some of the investments needed to massively increase the deployment of energy capacities and infrastructures,” the lobby group wrote, adding, hilariously, “Projects receiving public funding should strive towards market-based dynamics as soon as possible.”
Well, as we see, whether they strive or not, they are getting those market dynamics and these dynamics are not doing them any favours. Yet this has not deterred BusinessEurope from recommending a “massive increase” in the deployment and integration of all renewable and low-carbon energy sources, plus all relevant infrastructure. Oh, and removing all regulatory obstacles to that deployment, of course. After all, who are grid operators to say how much wind and solar they can connect to the grid at any given time, right? Plug it all in, ya greedy freaks.
Without a lot more subsidies, stricter implementation of the carbon border tax, and creating demand for low-carbon products (yes, creating demand for something most people could not care less about), energy costs in Europe will be 50% higher than the same costs in the U.S. and China in 2050, BusinessEurope concludes. And tentatively, shyly suggests the only sensible thing in the whole report: a reconsideration of the phaseout of free carbon permits.
That’s the most honesty we can hope for in a completely twisted environment where stating the obvious has been termed disinformation. Luckily, the market doesn’t care about any of that, and the market, that’s all of us. And most of us, apparently, don’t want EVs. Yes, again.
“A leading South Korean producer of electric vehicle batteries has declared itself in crisis as its customers struggle with disappointing EV sales in Europe and the US,” the Financial Times reported yesterday, saying SK On’s debt has ballooned fivefold over three years and losses are ballooning, too. All because the company severely overestimated demand for EVs.
“SK On has made a series of aggressive investments in the US and Europe in recent years, betting on a widely predicted boom in demand for EVs,” the FT said and I shall treasure this quote forever, putting right there in that file with all those predictions of a demand boom.
Incidentally, this morning Bloomberg reported that the other South Korean battery major, LG Energy, has dipped into the red because of, wait for it or don’t, really, because yes, it’s because of EV demand’s failure to live up to expectations. The only thing that saved LG Energy from official shame is an IRA tax credit that put the bottom line figure above zero. Who said market dynamics? Not the X user who informed the world the other day that subsidies are a market mechanism.
The signs, then, are not encouraging. They’re not encouraging at all. The market is winning over the transition time and time again. But is anyone paying attention? Not in Britain, it seems. In Britain, the new government is preparing to start lowering electricity bills, cleaning up energy generation, and creating new jobs. Might as well invent the perpetuum mobile while they’re at it.
I know, I ranted about this on Friday but here is a quote from an adorable article on Labour’s energy plans, courtesy of the Daily Mail’s This Is Money. Apt name for the publication, by the way.
“Labour still has to flesh out exactly how GB Energy will work, including how it can save each household its promised £300 a year by 2030,” the author wrote.
“But big savings should be possible if GB Energy is a success, as renewable energy is cheaper than that made by fossil fuels.
This is because there is no need to purchase the fuel needed to burn to create power, unlike gas, for example, which currently makes up about a third of electricity needs.”
Twenty years of transition attempts and we are still at the “wind and solar are free” stage of denial. The market will fix all this eventually but the signs are multiplying that the pain during the healing process will be of the more rather than less severe variety. It could also go up to most severe if GCC governments are stupid enough to go full totalitarian but at least it would last a shorter time. Always a silver lining.