Free Markets Won't Get Us to 100% Renewables

Bart Shteinman - Politics & Economics



For those of us anguished by the Climate Crisis, positive stories about renewables are a kind of planetary Prozac – they put us in a sunnier mood when all else seems dark and futile. A new record-beating price here, a big new megaproject there, Green Capitalism promises to recharge our spirits as well as our smartphones.


Without question, there is an industrial revolution underway in global energy markets. The all-in, or ‘levelised’ cost of electricity from solar photovoltaic panels (PV) is 82% lower than it was in 2010, and nearly 40% cheaper for wind turbines. Prices for lithium-ion battery, used in everything from TV remotes to grid-scale solar sponges, have fallen even faster (85% since 2010). In 2019, 78% of the new additions to global power supply were (on net) in wind, solar, biomass, waste-to-energy and small hydropower - three times the share of new fossil fuel electricity.


Graphic supplied by Ramez Naam


Importantly, more than 50% of investment in renewables is taking place in developing economies, with China leading the way and non-Western countries accounting for four of the top five largest investors in solar and wind. Coal demand peaked globally in 2010, and as of this year, the world is shutting down coal plants faster than it is opening new ones. The youngest coal plants are not invincible either, this month Vattenfall announced it would shut its newest, largest and most efficient coal power plant in Germany – after just 5 years.


Industrially powerful countries such as Germany are running their economies off solar and wind over 40% of the time, while California, South Australia and Denmark are exceeding 50%. Certainly, the credit for catalysing this energy revolution belongs to the visionary policies adopted by governments in Europe, the US and China in the mid to late 2000s. Now in motion, and with capital clamouring behind it, renewables look unstoppable.



Graphic supplied by Ember-Climate


With all this wondrous good news, it is tempting to imagine we can sit back and let Green Capitalism do all the hard work of decarbonising electricity. It is certainly a relief to turn our eyes from political gridlock and the stranglehold of fossil fuel interests over our democracy, and impress ourselves with humanity’s technological ingenuity.


The economic forecasts for green energy are certainly bright. According to financial analysts at the thinktank Carbon Tracker, half of all coal power plants in operation today are more expensive to run than simply replacing them with new renewables, a figure that rises to 100% by 2030.


In Australia’s case, if over the next 10 years it could maintain the pace of investment in solar and wind that it achieved in the prior two years, it would be the first G20 economy to achieve carbon-free electricity. Renewables seem not only feasible, but invincible!



After the Prozac wears off, the come-down sets in. Green Capitalism is revealed to be no deus ex machina. Elon Musk will not be drifting by in his cybertruck to bail us out for our carbon calamities. In the end, the invisible hand is no match for the hard laws of physics.


Electricity Markets are fiendishly complex, but the most important feature to recognise is that they are not, nor have ever been, ‘free markets’. The term ‘market’ is itself somewhat of a misnomer, springing up images of free floating and atomised agents. We might better imagine the electricity grid as a singular ‘system’, with a vast array of interlocking parts and physical needs to fulfil.


This is an essential fact from the wholesale markets in which electricity is produced (the power plants) to the monopoly networks (powerlines and wires) that transmit watts to your home. The original electrical revolution that brought the world universal electricity was itself a government-orchestrated, and more often than not, publicly-owned venture. Even today, most of the world’s electricity infrastructure is state-owned and/or financed (see below), an important reason unprofitable coal is still able to be built.


Graphic supplied by IEA


Far from being ‘natural’, the electricity ‘markets’ we are familiar with in much of the developed world are not even half a century old. The idea of having a market – where generators bid to provide power – began with British Prime Minister Margaret Thatcher to coincide with her privatisation of electricity in 1990. In this context, electricity markets were designed to deliver efficiencies and incremental replacements to an already built-out grid. ‘Spot’ prices (as in ‘on the spot’) were designed so that only the available capacity with the cheapest marginal costs (the fuel) would be called on to serve demand.


The assumption was that power supply would be delivered by a combination of large, centralised ‘baseload’ generators like coal or hydropower plants to service the bulk of stable demand (hence the ‘base’). This would be complemented with small expensive ‘peakers’ (usually gas or oil) to meet periods of extra demand (mornings, evenings and the hottest or coldest days).


The idea that such a system would be called on to orchestrate a total revolution in the power system, based on fluctuating and free to run renewables, would have seemed an entirely preposterous notion at the time. Should we really be so sure a system designed for old technologies and little change will self-manage a shift to 100% renewables?


The primary hurdle erected by such a system, to use a phrase from a more glamourous industry, is location, location, location. The areas with open space, sunny weather and strong winds are often far from where existing power infrastructure was built. In the United States, most of the network is built around stations on the coasts or in urban centres, whereas the best renewable supplies run through the windy prairies of the Midwest or the desert Southwest (see below). For new transmission to be built, regulated markets usually require cost-benefit analyses to be approved, but this produces a ‘chicken and egg’ problem for renewables that cannot be built for lack of a network, and a network that cannot be built for a lack of generation to service.


           The US Department of Energy's controversial plan for a renewable super-grid. Graphic supplied by NREL


Being shared by whole populations, the costs of building this infrastructure are modest, and can be negative when one includes the economic benefits of unlocking the cheapest new renewables. Even so, the long – sometimes decadal – lead times on new transmission alongside the need to orchestrate them with new renewables is a job fit for planners, not market players.


In Australia, which has one of the most intensively marketised electricity regimes, we’re already seeing a return to central planning in the ‘Integrated Systems Plan’ released by the grid operator AEMO in July, to model a 21st century grid with 94% renewables. A similar planning project, the Interconnections Seam Study was undertaken by the US Department of Energy, before being buried by Trump political appointees for forecasting a high renewable grid. Both anticipated herculean expansions of the grid, on a scale unseen since the ‘big government’ days of the mid-twentieth century.


A mix of public and private investment may have managed to attach a fair bit of wind and solar to the old grid. However, the signal from the engineers is loud and clear, on its own the market alone is too slow, too fragmented and too wedded to fossil fuels to deliver the renewable revolution.


The combination of renewables and markets also runs the risk of severing financial incentives from the physical needs of the market. The low cost of solar and the option to sell excess power to the grid is attractive for households and businesses interested in getting panels on their roof. Larger businesses can lock in power purchase contracts at fixed prices to underwrite, for example, the construction of new solar farms. However, with enough solar PV simultaneously feeding back into the grid in the middle of the day, market prices have repeatedly gone negative (buyers are effectively paid to use electricity). While I will save the lecture in electrical engineering for today, suffice to say a power system with only solar and wind is also a serious challenge in the vital task of managing voltage and avoiding blackouts. If these are wickedly difficult tasks for a singular central planner, they are impossible ones for a disorganised crowd of private investors.


When all 5 states in Australia’s National Electricity Market hit negative prices in April. Graphic supplied by reneweconomy



It is true to note that energy storage technologies, like batteries or pumped hydro, can mitigate this issue by shifting power to when it’s needed. Even better, large continent spanning grids can make use of negatively correlated wind and solar to smooth out supply. In addition, we are at the dawn of a new era of digital grids that can protect the frequency voltage quality of the grid from renewables’ intermittency. Even so, the economic, engineering and geophysical complexity of such a balancing act is, once again, a task that demands whole-of-system planning if it is to be a success.


Finally, it is important to recognise that the scale and speed of the transformation the climate crisis demands may simply be beyond investors could reasonably countenance. The IPCC has told us that to have any hope of keeping temperatures to 1.5°C, the world must reduce carbon emissions by 45% by 2030. A disproportionate share of decarbonisation will need to take place in the electricity sector so that electric transport, heating and industry can decarbonise with renewable energy. That means, in 10 years eliminating two-thirds of global coal power with clean energy (see below). A leisurely transition might have presented manageable risks for an obliging ‘Green Capital’. By contrast, the escalating stakes of climate change augur disruptive change and disorderly transitions as entire systems are reengineered and governments are forced to enter the fray.


Graphic supplied by Carbonbrief


Far from being ‘masters of the universe’, most of the largest electricity players have trembled in the face of such uncertainties. In a recent Oxford University study of 3000 global utilities, only 10% actively prioritised investment in renewables over fossil fuels in the past decade. Most shockingly, 75% did little to no investment at all, in either renewables and fossil fuels. Instead of capitalist disruption, we get the inertia of timid investors waiting for governments to act. Indeed, the study points to strong and certain policies on climate pollution, such as the revamped European Emissions Trading Scheme, as being key to triggering the necessary new investments.


More edifying is the contrast with Australia, which abandoned its attempts to set a climate and energy policy in 2018, and as a consequence saw private investment in renewables fall by 60%. Renewables outgrew the need for public subsidy long ago, which expired in Australia in 2019. However, in a world of uncertain policy to respond to a dead-certain catastrophe, we are doomed if we believe Green Capitalism will lead the way.


The time for incremental change is over. If we do not force governments to act, the result will be a disorderly transition that – paradoxically – will only serve to preserve a sclerotic status quo. We have enough ‘green’ business ideas. What the planet needs is planners.



Bart Shteinman is a Founding Editor of TheClimatized, and studies Economics/Arts at the University of Sydney. Bart is gripped by the contradictions between capital, democracy and ecology that have generated the climate crisis, and how unifying them might regenerate our world.

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