Alternative
Energy's Alternate Reality
By Bill
Frezza
Creating
a “green energy” economy may be the most daunting central planning task ever
attempted. It entails nothing less than the reengineering of our entire energy
infrastructure. And, like all central planning schemes, it is based on a
roadmap that eschews real-world experience and sound economics in favor of
utopian ideology driven by political connections.
Now
the experiment is unraveling, having barely begun. As the parade of
government-subsidized failures like Solyndra, Stirling Energy, SpectraWatt,
Evergreen Solar, Beacon Power, and others mount, now is a good time to look at
how all the pieces of the alternative energy puzzle are supposed to fit together—and
what happens when they don’t.
Everyone
acknowledges that electricity generated from wind and solar cannot be produced
and delivered at prices that compete with coal or gas. However, alternative
energy advocates believe that someday the cost curves will cross, and that
government subsidies will accelerate that day’s arrival.
For
this to come true, multiple problems have to be solved before taxpayers run out
of money or patience. Along the way, the alternative energy industry has to
avoid getting sidetracked into the wrong technologies, as this will delay the
eagerly awaited carbon-free future.
First,
technology has to be invented that can deliver unprecedented levels of
efficiency in the conversion of low energy-density sources like wind and solar
into electricity suitable for transmission over the grid.
Second,
the prices of fossil fuels have to rise, either because reserves become
depleted or through the passage of regulatory encumbrances, such as a massive
carbon tax.
Third,
new techniques need to be developed to store electricity produced only while
the sun shines or the wind blows, allowing that stored energy to be delivered
later, when it is actually needed.
Fourth,
massive transmission system upgrades need to occur to transport electricity
from the wind and solar farms where it is produced to the urban areas where it
is consumed.
Finally,
unknown problems that crop up when immature technologies are brought to market
have to be identified and resolved—from the scarcity of critical materials
never before consumed in large quantities to the siting of massive structures
that disturb the view of influential public figures. And, of course, after
decades trying to protect wildlife from oil spills and other calamities, we
must avert our eyes as windmills annually massacre millions of birds, many of
them supposedly protected as endangered species.
Failure
to solve any of these problems can doom the whole enterprise, stranding
investments. Picking winners and losers in this interconnected risk management
puzzle is like playing ten games of roulette simultaneously—you can only win if
every bet comes in. Yet this has not dissuaded the Department of Energy from
smacking your money down. So, how is our Nobel Prize-winning high roller doing?
Conversion
efficiency is, indeed, climbing—very slowly. Under unsubsidized conditions,
wind and solar would be nurtured in niche markets that fossil fuels cannot
satisfy. In time, improvements might expand the market beyond those niches.
But
when government subsidies are used to prematurely scale up technologies that
make no economic sense, these early experiments become frozen in amber.
Speculative investments counting on those subsidies fail. Solyndra was one such
failure. Loss-making operations at scale can only be sustained while the
mandates and subsidies last. Take away that expensive government support and
the businesses crash.
Meanwhile,
mature technologies are not standing still. Thanks to fracking and horizontal
drilling, proven reserves of gas and oil are soaring, holding fossil fuel
prices in check. Even as the Obama administration throws regulatory sand into
the gears to slow these developments, newly accessible oil and gas isn’t going
anywhere. Sooner or later, it will be pumped out, delaying the day at which the
cost curves cross.
Attempts
to store enough electricity to power the grid predate current environmental
fashion. The motivation has been to reduce the cost of running expensive
peak-load generators. However, the storage problem has not yet been solved
because the physics are very, very hard. Dozens of ideas have been tried and
found wanting, including flywheels, compressed air, pumping water uphill, and
mammoth ultracapacitors. And if a practical technique is ever found, its
primary economic benefit will not come from enabling windmills and solar farms,
but from allowing the expansion of base-load fossil fuel generators, making it
possible to reduce the fleet of peak-load facilities.
Then
there is the upgrade of transmission lines. Political pressure can be used to
force regulated transmission companies to agree to install new high voltage
lines. But imagine how long the permitting and construction process will take
when company executives are as loath to make these malinvestments as
NIMBY-objecting residents are to have towers erected on or even on sight of
their land.
The
likelihood that all of these problems will be solved simultaneously before the
political winds shift is vanishingly small. As we enter an election year, it is
easy to see why the venture capital community is rapidly abandoning early-stage
alternative energy investments, shifting their last bets to late stage deals,
hoping to cash out before the party is over.
No
one knows when the final chapter in this saga will be written, but we can be
sure it’ll make a fine addition to a book describing the folly of central
planning.
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