Don’t blame renewables for worldwide rise in energy costs
The last year has been crazy in energy markets. The grid in Texas failed, California faced blackouts due to persistent drought, which lowered hydroelectricity production, and the fracking industry hasn’t ramped up production in part due to labor shortages.
As a result, energy prices are on the march up. This is not just a problem here in the U.S.; rising prices and supply problems are a worldwide issue.
Some pundits have blamed faltering energy supplies on the increasing role of renewable energy. In Great Britain, wind in the North Sea slowed down this summer, reducing wind power production.
At times, forest fires in California have created so much smoke they reduced solar power production. And of course, some wind turbines froze in Texas in February.
Yes, of course, wind and solar are at the mercy of Mother Nature, but the truth is that energy prices would be even higher without them. Consider electricity, which is supplied by fossil fuels (coal, natural gas, oil), nuclear and renewables (hydro, wind, solar, biomass).
At any moment, the price of electricity is determined by whichever fossil fuel-based power plant has the highest cost, and that is almost always a natural gas or oil-based facility. This means that electricity prices generally are set by whatever is happening to the price of natural gas, oil or coal.
Actually, the only effect that renewables can have on energy markets is to lower electricity prices, which in turn will cause natural gas and coal prices to fall.
Consider this: Electricity prices became “negative” in Texas and Europe at the beginning of the pandemic when demand fell and the wind blew. When prices are negative, electricity producers are paying people to use electricity, not the other way around.
One reason electricity prices are rising now is because natural gas, oil and coal prices are rising, and those increases have nothing to do with renewable energy. As global demand surged in the past nine months, the oil exporting cartel OPEC decided not to keep pace with increased production. And other exporters, like Russia and aligned countries, appear to be restricting supplies, as well.
Another reason relates to labor shortages in market economies like the U.S. Here, natural gas prices have more than doubled the last year, while production has stayed stable. In the past, we would see lots of new drilling rigs enter the market, but that hasn’t happened so far. The nationwide labor shortage is limiting our ability to deploy new rigs and ramp up production.
And finally, coal won’t come to the rescue because of environmental constraints. Nowadays, nearly everyone agrees that coal is one of the most harmful sources of energy we have.
Over the past three decades, environmental regulations on coal have increased the cost of using coal to produce electricity. As a result, coal plants have been shuttered, and natural gas, wind and solar facilities have replaced them.
Increasingly, this is true across the globe, as fewer and fewer countries are willing to build coal-fired electric plants because of their human-health and climate impacts. This is a great outcome for the environment, but it does increase the price of electricity.
So, if we really want to blame higher electricity prices on something, let’s blame the right things — supply shortages due to labor, OPEC and our own environmental regulations that have increased the cost of coal-electricity — not renewable energy.
Brent Sohngen is a professor of environmental and natural resource economics at Ohio State University.
If we really want to blame higher electricity prices on something, let’s blame the right things — supply shortages due to labor, OPEC and our own environmental regulations that have increased the cost of coal-electricity — not renewable energy.