Monday, September 15, 2014

Wind and Sun, Conquerors of Fossil Fuels

The New York Times ran an article Sunday about how Germany is rapidly expanding its wind energy capacity, and realizing unexpectedly lower costs because of economies of scale never before seen in any non-hydro renewable energy industry. Large demand from Germany, Denmark, and a hanful of climate-conscious countries has helped induce the entry into the sector from Chinese businesses, which of course benefit from government support.

The question that hangs over environmentally-focused groups is why don't American utilities seem to be so intransigently wedded to fossil generation? This article seemed to point to the unease of utility executives. My theory is that in addition to a lot of physical capital in the industry, there is a lot of human capital tied up on fossil fuel extraction, transmission, and combustion. Economist and former Enron official John Palmisano used to talk about how he went around the country talking to utility executives, and made what he thought was a pretty strong case for switching to natural gas away from coal. The objection that seemed most heartfelt was that "[Utility Company X] was a company that is the coal-burning business, not the natural gas-burning business. Assuming we could retrofit coal plants to accept natural gas, what would do with all the people that know how to handle coal but not gas?" Add to that the infrastructure demands (gas pipelines, e.g.), it starts to look very difficult to switch from coal to natrual gas, or anything else. If it is that hard to get utility execs to think hard about another fossil alternative, it becomes even harder to think about non-hydro renewable energy sources. But it is not narrow-mindedness per se; it is form of capital that is specific to one way of doing things, and is not easily transferable to another way of doing things. That difficulty may be illusory, but it at least appears to those embedded in the fossil industries as very difficult.

https://lawprofessors.typepad.com/law_econ/2014/09/wind-and-sun-conquerors-of-fossil-fuels.html

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Comments

I can think of another explanation. The NY Times aritcle says, “Even as the country sets records nearly every month for renewable power production, the changes have devastated its utility companies, whose profits from power generation have collapsed….The plan is paid for through surcharges on electricity bills that cost the typical German family roughly $280 a year,…To induce utilities to go forward, the government has had to guarantee them power prices of several times the market rate.”

Posted by: Eric Rasmusen | Sep 17, 2014 9:43:54 AM

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