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In 2021, an influential American climate commentator chided his compatriots for being too gloomy about their country’s energy transition. Contrary to popular belief, the US wasn’t failing to go green, Robinson Meyer argued. In fact it was succeeding — even without the more aggressive pro-climate policies of many European countries. The reason? Renewable energy costs were tumbling. “As technologies develop, they get cheaper,” Meyer explained. “As they get cheaper, more companies adopt them.”
This simple idea has offered rare grounds for hope in our attempts to address climate change. Wind and sunlight are, by definition, free. Drive down the cost of collecting them sufficiently, runs the argument, and their advance should be unstoppable because — well, why wouldn’t you go green if it was cheaper? It is a faith that has blossomed as costs of renewable electricity have fallen; by 62 per cent for offshore wind turbines over the decade to 2020, and an even more astonishing 87 per cent for solar.
This is the jumping-off point for Brett Christophers’ The Price Is Wrong. A British academic based in Sweden, Christophers has written several provocative books about areas such as property and asset management, challenging the idea that markets know best. Now he turns his sceptical gaze on climate change, and the attempts of western governments to nudge consumers away from fossil fuels.
It’s a good moment for such an accounting, as the free-market story on climate change has frayed. Just four years ago, entrepreneurs were promising to build wind farms in Britain so cheaply they wouldn’t require any public subsidy. It proved a false dawn. Last year’s wind auction failed to attract any bids at all, because the subsidy on offer wasn’t high enough. The UK is now planning a more generous second round. Even Robinson Meyer has lost his mojo. Faced by Congressional dithering about renewing some green tax credits, he warned that failure to do so would “virtually [seal] the planet’s fate”.
Why is it so difficult to wean renewable energy off public support? While higher interest rates and steel prices clearly haven’t helped, Christophers argues we’ve missed the answer for a structural reason: we are looking at the wrong measure. It isn’t just relative power prices that determine how many wind or solar parks get built; more important is how profitable entrepreneurs think these investments will be. And here’s the rub: the anticipated returns are unappealing. On average, renewable projects earn just 5 to 8 per cent on their equity, Christophers reports, compared to more than 15 per cent for oil and gas.
The reasons for this are many, and Christophers picks through them expertly. The biggest villain, he argues, is the “unbundled” electricity markets that governments have introduced round the world. These divide the market between generation, distribution and retail, permitting competition to take place at some points in the chain — especially generation. Yet this very process throws up prices that are too volatile to support the upfront capital investment that renewable generators (or, rather, their lenders) require.
To counteract this, support structures must be woven into the system, from privileged market access (renewable generators receiving guaranteed fixed prices, including getting paid for not producing on especially sunny or windy days) to being able to “socialise” additional costs they import, such as the need for back-up generation to deal with renewables’ congenital intermittency. These, Christophers convincingly argues, are a feature, not a bug.
All this seems to leave us stuck in a sort of energy no man’s land even as decarbonisation slips further behind schedule. Fossil fuels still generate four-fifths of the world’s electricity, much the same as four decades ago. The one bright spot for renewables is China, yet there, investment is state directed. It is, says Christophers, “a textbook example of what Antonio Gramsci famously called an interregnum, when the old — fossil fuelled power — is dying though not dead, and the new — clean power — cannot be fully born”.
The Price Is Wrong isn’t always the smoothest read. A former management consultant, Christophers packs the book with dense case studies and statistics. Some will question his enthusiasm for renewables, and wonder whether there aren’t other better ways to decarbonise. Nuclear power, for instance, is only mentioned in passing. But as an exposition of how electricity markets work — or don’t — it is masterly.
Unsurprisingly, Christophers ends up pleading for more government intervention. Only the state, he argues, has “both the financial wherewithal and the logistical and administrative capacity” to deliver the vast investments that will be needed. Whether it has the wisdom to make the correct technical choices, or the executive grip, is less certain. Despite all the talk of Rooseveltian New Deals, western countries still seem loath to step back from the market and intervene directly. What is clear is that the world remains on a very uncertain green trajectory. Get the price wrong, and the consequences could be dark.
The Price Is Wrong: Why Capitalism Won’t Save the Planet by Brett Christophers Verso £22, 442 pages
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