Why Are Electricity Prices Increasing With the Use of Renewables?

Most countries are seeing above inflation electricity price rises. Renewables’ promise to provide cheap, abundant green electricity does not seem to be coming true. In some countries, for example Germany, the prices are rising with increasing use of renewable electricity. In January 2011 German electricity prices will rise again by an average of 6.9 % according to Verivox, a leading German price comparison site. The reason that the companies give is their contribution to the expensive expansion of renewable energy. However is that the real cause?

Renewables not making the grade?

Wind and solar energy are still expensive when you look at the raw per kilowatt hour price, but there are a number of factors that are not included in this price:

1)      The cost of or lack of a carbon price gives an unfair advantage to coal and other traditional energy plants. The externalisation of the cost of carbon, like all externalisations is an unfair distortion of the true market cost. Through climate change monumental disasters may push us into permanent recession. These disasters will be the costs that traditional power plants have been allowed to externalise.

2)      Solar, wind and tidal are still all extremely young technologies. The subsidies are driving innovation forward at impressive rate. Other industries notably nuclear and oil have seen massive subsidies for decades with little improvements in either their cost or energy efficiency.

3)      The increasing number of green jobs. Germany has already created over 500,000 green jobs, but is this is a false positive?

Monbiot argues that the solar branch is wasteful in terms of the capital investment needed to create work:

Of course you could justify any scheme with the creation of jobs: even employing people to throw bundles of banknotes into power station furnaces.

George Monbiot, March2010 “Treachery or Common Sense?

Monbiot argues that investment in energy efficiency would create more jobs at a lower cost. However Monbiot’s argument attacks the solar industry more strongly than is justified. Road building is also probably a more effective way of job creation. However that would of course have a negative environmental impact.

Investment by governments in renewables is justifable because of its potential. Imagine: nano-technological self-organising solar cells that come in a can and therefore can be sprayed onto almost any surface or solar parks stretching across the deserts creating 15% of Europe’s energy. These technologies may be expensive at the beginning but their potential in terms of abundant energy and massive job creation are massive.

Failure of the Market?

1)      Lack of competition. Germany has four main electricity suppliers that dominant the market. They may not directly fix prices but their year on year increasing profits and the increasing burden of electricty bills on the consumer suggests that the market is not really working in the consumer’s interests.

2)      Excuses for price rises. If a producer divides up his rice and packs it into little portion bags,people will often pay more due to it being “more practical”. It may not be more practical, but like the electricity companies’ excuses, they make the price easier to accept. If you say price increases are due to solar energy then the customer does not look in your direction but rather in the direction of the politicians as they introduced the feed-in-tariffs. They may even simply accept the price rises as an unavoidable side effect of clean energy.

The subsidies for green electricity are providing the large energy companies  with an alternative to their currently unsustainable practices. The traditional electricity companies instead of using this opportunity to expand their own renewable capacity use it rather as another reason to increase prices. Consumers need to see through this if we are not going to let the extension of renewables stall due to the destruction, through price rises, of the wide public support.

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