Balance of Power, Columns, Energy, Environment, Jobs

Energy as a proxy for power: renewables vs fossil fuels


Renewable energy frequently gets a bad press because it explicitly and publicly is the recipient of subsidies, whether in the form of feed in tariffs, as in the case of solar and wind energy,  or capital grants, as in the case of newer technologies such as wave energy.

In an era of austerity, where different parts of society are competing for a smaller amount of government support, all subsidies should be looked at with a critical eye.  What is revealed is that government subsidies for the fossil fuel industry, whether in the form of oil, gas or coal, and the nuclear industry dwarfs that of the renewable energy sector.

In an age of austerity why are renewables getting subsidised?

The dirty little secret is that if the fossil fuel sector did not get its subsidies and had to pay for the damage that it does to society and to the planet, then it is likely that many renewables would need not need any subsidies at all.

The fossil fuel and nuclear sectors get a number of subsidies.  Some of them are obvious, like tax cuts for oil exploration and taxpayer funded decommissioning of nuclear power plants.  Others, such as the maintenance of US aircraft carriers in the Persian Gulf and the cost of the wars in Afghanistan and Iraq are less so.  But some studies have been conducted and the results are shocking.

According to one study, based on information gathered by the International Energy Agency, global subsidies were $400 bn per year for fossil fuels, £45 bn per year for nuclear and £20 bn for biofuels.  Renewables came in at £27 bn per year:  17 times smaller.  As a point of reference the UK’s entire government budget for 2012 is expected to be about £600 bn.

In an era of austerity why do conventional power sources get 17 to 37 times more government funding than renewables?

The military cost of supporting cheap oil, however, is even more extraordinary.  According to another survey, the cost of the US maintaining its fleet in the Persian Gulf (explicitly to defend oil shipping lanes) was $7,300 billion between 1976 and 2007 – or £235 billion on average per year.   The direct US cost of the war in Iraq and Afghanistan (excluding the First Gulf War) between 2001 and 2010 is estimated to be $2.6 trillion (or $300 billion per year) and could go as high as $4.4 trillion.

Excluding any environmental damage, it is safe to say that global subsidies to fossil fuels, including some US military costs, is currently running at over $1,000 billion per year vs $27bn for renewables, or 37 times higher.  Shifting that budget could install a lot of renewables, generate a lot of home grown jobs, and do wonders to the environment.

Conventional power sources are strategically important to governments.

But what does this mean from a future history perspective? Old power sources all were strategically important:  Coal was plentiful and cheap enough to kick start the Industrial Revolution;  oil was a strategic commodity, firstly for shipping.  The first oil powered Dreadnought class battleships transformed the balance of power at sea between Great Britain and Germany prior to the First World War;   nuclear power was a bi-product of the nuclear weapons industry, another strategic imperative.  As a result, it is not surprising that governments find it hard to give up supporting old power sources.

However, old power sources are causing problems that are increasingly hard to ignore.  Coal power is a major contributor to global warming.  Oil is the cause of expensive wars in far away places and also is a contributor to global warming.  Nuclear power is on the wane throughout the developed world as the concerns of meltdowns and cost of decommissioning become more clear.

But as the economic and social costs of conventional power increase the cost of renewables is falling.  There are now solar projects being developed without any government support in Spain and Italy.

Renewables are also doing increasing well without ANY government support. There are now large ground mounted solar projects being developed in Spain and Italy that will get zero financial support.  This is an amazing event yet, despite this triumph, margins for solar PV manufacturers are either very thin or are negative.  With the Holy Grail of renewables in sight – no government support – many German, Japanese and American solar PV manufacturers have been driven into bankruptcy.

It is the Chinese who are dominating the solar PV market.  They are selling product at a loss or with razor thin margins. Many Chinese solar PV manufacturers have reported financial losses for six financial quarters in a row.  One hundred and fifty years ago western governments saw the coal sector as strategically support.  One hundred years ago they saw oil as strategically important.  Sixty years ago they saw nuclear power as important.

Today it is the Chinese who see renewables as strategically important.  They are now the largest producers of wind turbines and solar PV modules in the world.

Today it is China that see renewables as strategically important.  They are now the largest producers of wind turbines and solar PV modules in the world.  With the price of renewables on the cusp of being cheaper than subsidised conventional power this has become a strategically important sector.  Once more and more renewables projects come on line at lower than the cost of subsidised conventional power more technical, commercial and strategic power will flow in the direction of China.

The West has stumbled and fallen out of the race for the energy of the future.

This is good for the environment and will result in cheaper power, so we should all rejoice.  But this victory does not feel complete.  It was Western governments that initially supported renewables financially.  It was Western companies that developed all of the technologies.  Just before the finish line, after all the cost and hard work, the West has stumbled and has fallen out of the race.

———-

For further information, McKinsey has recently produced a great report on the solar sector.  Most of these kinds of reports are a complete waste of time to read.  This is an exception.  Read it. 

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