Where the Institute of Public Affairs went wrong on renewable energy

Gerard Jackson

Alan Moran has been leading the Institute of Public Affairs charge against renewable energy policies. Now far be it from me to criticise Australia’s leading authority on the economics of renewable energy but, as was the case with Lord Cardigan and the Light Brigade, Dr Moran has mistakenly charged down the wrong valley.

His approach boils down to simply chanting that renewables are too costly, which is just another way of saying that they are less efficient than centralised power generation. It eludes him that the greens’ response is to argue that renewable energy will become more efficient if given enough time to develop. (I have been unable to find a response from any member of the rightwing to this assertion).

Every single member of our rightwing failed to grasp the simple and fundament fact that renewables just do not work. By this I mean that they cannot do the job that greens dishonestly claim for them. Expecting renewables to provide the vast amounts of energy required to drive an advanced economy is like expecting a Ford pickup to do the work of a 300 ton truck. It is a physical impossibility. The bald fact remains that so-called renewable energy faces insurmountable natural and economic obstacles. Yet this unalterable truth has never rated a mention from Alan Moran or anyone else at the Institute of Public Affairs.

There is nothing like providing examples to strengthen one’s argument. And when it comes to so-called renewable energy we have an abundance of examples, even though the right has ignored them, that reveal the economic insanity of these policies. Four years ago the Florida Power & Light Company completed its Martin solar plant. While the plant has a nameplate capacity of 75 MW it only delivers on average 18 MW, giving it a capacity factor of 0.24. To produce this paltry sum requires 500 acres. What its unthinking admirers consider to be a twenty-first scientific miracle is adjacent to the same company’s natural gas plant that generates a massive 3.8 gigawatts whenever it is needed.

Now let us put these figures into perspective. The solar plant requires 33.3 times the area of the gas plant to produce a miserable 0.0197 of its output. (Remember: a gigawatt is 1000,000,000 watts, so 3.8 gigawatts equal 3,800,000,000 watts.) Therefore, to produce 3.8 gigawatts would have to cover 25,333.3 acres or 39.6 square miles as against 15 square acres. To top it off, this super-duper leap into the future can only produce electricity one-third of the time. Clearly, the insurmountable natural obstacle is energy density.

The Institute of Public Affairs could have used the Martin plant, or some other solar compolex, to confront the public with the fact that solar energy is so dilute that it requires masses of land, labour and capital to produce a tiny fraction of the electricity that coal-fuelled or nuclear plants could produce with the same resources. It could then have stressed that this is why solar plants will always be a total failure. They could even have used this example to take a swing at those greenies who scream about ‘urban sprawl’ swallowing up land but see nothing wrong with blighting the landscape with destructive solar plants and wind farms.

Examples like this illustrate why it is physically impossible for solar energy, including wind, to meet the needs of a modern economy, or any economy above a medieval level of existence. Instead of stressing this fact Moran chooses to ignore it in favour of focusing on the price of electricity. But this approach diverts attention from the true costs of these phony alternatives. By focusing on present electricity prices Moran and those like him are in fact giving the Greens breathing space in which they can concoct fantasy tales about improved efficiency closing the so-called energy cost gap.

I stressed time and time again that a full-blooded attempt to switch the economy to alternative energy would be an economic disaster. As I frequently pointed out, the effect of this policy is to shift an industry’s supply curve to the left by raising its costs of production. The result is reduced supply, higher prices, idle capital, less investment and more unemployment.

Alan Moran’s response to this was to state that this argument was full of “deficiencies” and to accuse me of having “forgotten that businesses must cover their costs in the prices and volumes they supply to customers or go out of business”. But the fact is that the cost of alternative energy means that businesses will not be able to cover their production costs. They cannot shift their prices forward¹. This, as Judith Sloan pointed out, is the “normal market mechanism”². Moran’s comment was not an unfortunate slip. He also stated:

Businesses must pass on any additional imposts to their own customers—there is no “magic pudding” whereby costs not imposed directly on the final consumer are avoided³.

This is the old cost-push fallacy that helps explain why getting out the real truth about alternative energy policies has been such heavy going. To be fair to Moran, he has stressed in places that “renewables have been a lead weight around the economy” and that $20 billion has been wasted on these projects. But this fact also serves to highlight the deficiencies and contradictions to be found in his arguments.

And speaking of deficiencies, this brings me to Alan Moran’s total failure to recognise another crucial fact: because the energy source for renewables is so dilute the result will be enormous diseconomies of scale. How he managed this feat is completely beyond my understanding. However, the more intelligent Greens are not so remiss. Recognising that the insurmountable problem of diseconomies of scale could be used against them, they now argue that the problem can be solved by building huge numbers of solar complexes with an ‘optimum’ output of 300MW.

This is no solution at all. Diseconomies of scale afflict renewable energy as a whole and are not confined to individual plants. The more plants they build, regardless of size, the higher their production costs will be. There is no escape. Their solution is the equivalent of telling a mining company it is more economical to use hundreds of pickups to do what a few 250 ton dumpsters do in a matter of hours.

This is what Drs Arden and Marjorie Meinel, pioneers in solar energy, had to say about the greens and their alternative energy proposals: “Should this siren philosophy be heard and believed we can perceive the onset of a New Dark age.”

If only the likes of Alan Moran were as plucky and forthright, which raises the question of why the Institute of Public Affairs refuses to do the right thing and publicly and categorically announce that alternative energy does not work and never will, instead of producing stuff saying it’s just costly and inefficient.

Note: I cannot forget that when in 2008 John Humphreys wrote, courtesy of Greg Lindsay’s Centre for Independent Studies, an atrocious apologia for a carbon tax that also contained proposals to subsidise alternative energy projects Dr Alan Moran remained completely silent. The man who now presents himself as a courageous crusader against the carbon tax and alternative energy subsidies said nothing — in public. However, what he said in private about Humphreys’ paper is another matter. Moreover, it still remains private. Never once has this outstanding example of moral courage even mentioned Humphrey’s paper in public nor has he publically challenged Humphreys to defend his atrocity even though he now attacks the man’s arguments without referring to him by name. Readers can draw their own conclusions.

¹Although it is true that in a free market the demand curve for a product is elastic above each firm’s equilibrium price this does not necessarily hold for the industry’s demand curve. If this turned out to be inelastic and all firms in the industry successfully raised their prices in unison then this action would be offset by downward pressure on prices elsewhere in the economy.

²Alan Moran’s charming response to my use of the same approach was to accuse me of not being the “full quid”, even though Steve Kates arrived at exactly the same conclusion.

³Alan Moran, Regulatory Subsidies to Renewable Energy in Victoria a Submission to the Victorian Government’s issues paper “driving investment in Renewable energy in Victoria”, Institute of Public Affairs, p. 6, 2006)