by Tyler Cowen
on November 17, 2011 at 12:10 pm
1. More on the dim fate of solar power, and a lesson in the fallacy of mood affiliation.
2. Toward a theory of optimal swearing seigniorage.
3. Subsurface lakes on Europa?
4. Thai flood hacks.
5. Fuchsia Dunlop on Chinese food.
6. Publishing markets in everything.
4-How can a dog not swim?
Depends on if its a sprint or a marathon.
Some breeds are heavier than water.
As has been discussed exhaustively every time there’s a post on solar, “grid parity” doesn’t need to mean that solar is cheaper than every single other technology. It means only that it’s a cheaper option at the margin for some additional capacity. The falling cost of PV should mean additional marginal demand, not that we all of sudden replace all energy generation with solar. “National battery” discussions and estimates of the large total land area we’d need to cover with panels to replace fossil fuels completely are getting tiresome. While there are limits to the amount of energy solar will ever be able to provide, that does not mean the demand curve is vertical. The market is discounting a perpetual supply glut when we should expect more demand at lower prices.
#1 There is not a storage problem until solar production exceeds daytime electricity use, and that is a long ways off. Also solar doesn’t compete with oil in that domain. To make solar an oil competitor you need high electric car acceptance AND high solar production.
While technically true, that’s really beside the point. What do you do on hot, cloudy days? (Or cold, cloudy days for that matter, if you heat with electricity.)
If your answer is use another source of power, whether it be ‘stored solar power’ via batteries, pumped hydro, or compressed air or a natural gas peaking plant, they all cost money and most be used when the solar power is unavailable to replace the unavailable power. At present, solar (without any storage) is essentially limited to the differential between the peak power required on hot, sunny days and the peak power required on hot, cloudy days. Which is a far smaller amount than total daytime electricity use.
It’s costly to have natural gas power plants sitting around unused on sunny days to deal with this intermittency, but it’s a requirement without another form of power storage. And currently the cheapest solution. The cost of having such plants sit idle is part of the underlying costs of solar and wind power.
Yes, it is “costly” to have stand-by natural gas generation. It’s “cheaper” to just burn coal, everywhere.
Also, solar generation tends to occur at times of high load, meaning times of high prices, so if it can get compensated at real-time rates it can make a lot of sense. Furthermore, adding extra supply at extreme peak hours benefits everybody else who consumes electricity. For example, in Texas the price can spike up to $3,000/MWh as constraints are approached. A small amount of incremental solar generation can keep prices at $300 instead of $3,000, so every user is saving 90% for those hours when the system is strained. (Yes, the price elasticity is that great.)
This is why having some solar in a system makes sense. And why it’s foolish for the greens to think that the entire load can be served by it.
There are also some unpriced benefits to having part of the system distributed and decentralized, as I’m sure people in Connecticut are realizing these days.
Except that it actually spikes to $300/MWh ($0.30/kWh), not $3000/MWh ($3.00/kWh!), rendering your point moot.
Verizon math, anyone?
No, the ceiling price in the ERCOT market (which covers most of Texas) is $3,000 (three thousand) per MWh. I work for an electricity generator that owns a lot of generation in Texas, so I know what I’m talking about on this one. These kind of prices were most recently observed in early August 2011.
I suggest you refrain from talking about things you know nothing about – it’s the easiest way to avoid looking like a fool.
Wouldn’t it make more sense just to build a cheaper gas turbine?
Even if investors did see solar taking off relative to fossil fuels, it would be very difficult to determine which companies to invest in while oil and natural gas companies are relatively safe bets due to rapid technological changes in the solar industry. In the case of solyndra, their product did not succeed in the face of rapidly declining solar prices, but that doesn’t mean other technologies are also doomed to failure. I think solar will likely become a much larger portion of our total energy supply in the next 10 years, but have no clue which company is going to be the leading producer.
Investing, like economics, is hard.
So invest in a solar power ETF or fund
Most green technology is already priced high for the most likely amount of future returns. I made a lot of money shorting BLDP and discussed a lot with the longs. It turns our many of the longs see it as half charity and half investment.
Investing is hard, but the underlying analysis isn’t. Identify the concerns and research them…worried about bankability? Stress test the balance sheet. Think the lowest cost producer will win? FSLR. Think integrated production is essential? TSL, YGE. Worried about end market exposures? It’s all publicly available. Brand and technology advantages are a little harder to identify, but this is what investors do for a living….
I still do not think I am seeing comprehensive cost comparisons. What is the total cost of energy/electricity produced from fossil fuel production that has the same environmental impact as solar energy/electricity production – especially residential solar production? Are all of the costs to the environment being factored into the fossil fuel energy production – extraction, transportation, distribution, etc. – when costs are compared?
Oh Yeah! And accident costs to cover things like the Gulf Oil Spill and all the smaller events. What happens when you add the insurance premium on something like that into the cost of fossil fuel energy production?
I had the greatest eggplant in Shanghai. I can’t eat Chinese in North America any more it’s just a pale shadow of the real thing – even the street food over there is top notch.
Trying to mimic Tyler_Cowen’s food elitism?
No, no – seriously.
Tyler’s food posts are one of the few reasons to actually read this thing – otherwise it would just be his crackpot economic theories.
You need to go to Flushing.
Too bad I don’t live anywhere near New York.
Technologists are sometimes guilty of hatching “boil the ocean” business plans–all we have to do is get every single person who uses email today to switch to Google Wave!
I’ve noticed that anti-solar folks are guilty of the same thing in reverse. Who CARES how many tons of lead would be needed for a “national battery?” Assinine. But about par for the course for Megan McArdle. (Shouldn’t we at least start by shaving off 20% of the figure for all those lovely nuclear plants?)
Tyler’s original question simplifies to “why can’t stock markets reliably predict the future?” I don’t have an answer for that; I’m not an economist. But I don’t think economists have much of an answer for it, either.
The answer is that they can.
They can. That is why all the solar companies needed government money. The markets realized they were bad deals and dumped them.
Does anyone remember when Chesapeake almost went under back in ’99?
Fracking was clearly not ever going to be price-competitive, and anyone who thought otherwise was off their rocker.
In 2006, the stock market predicted Greece was going to spend its way to a fiscal surplus large enough to easily repay all the Greek government debt the Wall Street innovative investment banks were issuing for them with AAA ratings, because the Greeks would become liberals are see paying taxes as patriotic instead of holding their conservative view of taxes as theft.
In 2006, the stock market was predicting Iceland would stand behind the deposits of Germans and Brits and others which exceeded Iceland’s GDP.
In 2006, the stock market was predicting Spain would assume all the liability for the bad debt the European banks were writing on Spanish real estate and easily hike taxes to maintain that bad debt’s AA and AAA rating.
Of all the nations, two nations had and have totally broken fiscal policies where the governments run huge structural deficits, Greece and the US. In 2006, the risk of US government debt was seen as proportionately higher in 2006 than Greek government debt – the size of US government debt is so huge, a default would directly trigger global insolvency because the assets of banks globally would shrink, while the Greece debt is a drop in the ocean. But hey, the Greeks had zero problem in 2006, just like the US, of funding consumption with endless new debt.
In 2006, the stock market predicted Spain was a lower credit risk than California, ignoring the fact that California is not in 1930 where the California government insured all the private bank debt, while Spain insures all the Spanish private bank debt. The EU is by governance like the Perpetual Union of 1786, with the banking system of the US in 1930. Spain has a far better fiscal balance than California, better tax policy, better spending policy. Spain’s problem is like California in 1930, responsible for the bank solvency without controlling monetary policy. Today, California bank solvency is the responsibility of the Fed which controls the monetary policy. Everything true today about Spain and California were true in 2006. If markets predicted the future, they should have placed a much higher risk on Spain and a lower risk on California. Instead, California was a high risk in 2006 because of political dysfunction caused by a refusal to hike taxes to access the huge wealth of California, not because it had a huge risk in the bad debt of California banks. In 2006, the banks of Spain were great credit risks because they were making high profits from bad debt that the fiscally solvent Spanish government insured but could not possibly finance because it didn’t control its monetary policy, yet the Spanish government debt was lower risk than California.
Markets predict absolutely nothing, unless you believe the house in a casino predicts the out come of every bet you place, or even the amount you will go home with. Casinos predict their profit is proportional to the number of people in the casino. Casinos predict low attendance in the casino if no one goes home richer, so someone will go home richer every day. In fact, casinos must have days when they end up poorer at the end of the day than when they started. However, casinos must enforce the premise of gaming rules where each game has odds weighted in favor of the house. Casinos like Goldman and Lehman were both taking a cut from each game, plus gambling knowing the card count to improve their odds. Goldman and Lehman failed for different reasons – Lehman got the card count wrong, and Goldman saw the players flees when the whales realized Goldman was stacking the debt, but its casino needed a large number of whales gambling heavily to pay for all the costs of its casino. Even with the inside knowledge of the card count, neither was able to predict the future which would break their bank and require a big brother bailout.
I think McArdle’s use of the battery illustration is fair. The point is that electricity storage is not feasible on any significant scale, period. It is clear from this example that even storing .1% of the needed electricity would not work with current methods.
We can’t even get the freaking light bulb debate right, the baseline being a wire and nothing (vacuum). We’ll never know the truth about solar panels.
We should not bullshit about solar power.
An entire green/solar city, Masdar, is being built from scratch, showing that it can be done, and showing that when it is not being done it isn’t because it can’t be done.
Masdar is a vanity project that is funded by bajillions of petrodollars, and is utterly unlikely to look anything like the original design. It’s already been downsized by an order of magnitude.
You can safely say “it can be done” when it’s actually done, not when a bunch of sheikhs unveil a pretty-looking architectural model.
Agreed, we should not bullshit about solar power. Which is why you linking to the ‘solar city’ is ironic. Solar power has it’s place and I’m hopeful the costs will decline and increase its utility, but it’s at this point still of limited utility.
Come back and make this comment when they actually have shown that it can be done.
#1. People say oil is running out, but oil companies are making huge amounts of money. Obviously increasing oil consumption must be the way of the future. And since computer hardware manufacturers have taken a hammering, I guess that means we’ll be using computers less and less in the future. Think I’ll invest in sliderules.
That’s the way the stock market works, right?
Hmm, I would say that the good performance of oil companies IS related to the fact that they have a good future. People who say “oil is running out” have no idea what they are talking about.
Also, computer hardware stocks falling may well be a sign of traditional desktop and laptops declining compared to tablets, smart phones, etc.
Of course, short-term stock performance doesn’t necessarily represent the long-term health of an industry, but if a major boom is expected, that should be reflected in the market.
Strange – one of the solar installers in town says business is fantastic. Of course, this just happens to be in Germany, which just happens to have a high quality manufacturing presence in the world market for solar panels and equipment (including manufacturing panels). Germans are also perfectly fine with selling wind power infrastructure, including the necessary grid upgrades, high efficiency natural gas generating plants, biogas reactors, biodiesel ‘refineries,’ coal stations, and fairly experimental systems involving hydrogen – really, the Germans seem to feel the future is marked by a wide variety of technologies and processes, all of which are likely to generate profits for well run companies able to master the technology involved.
This latest solar power perspective of our host’s is amazingly limited – not everyone is following an American model at this point. And the Chinese, for one, are not just looking at temporary market disruption (which they have in large part been responsible for creating) – being able to generate power is a long term Chinese goal, and manufacturing solar cells is part of a simple strategy. Solar has a storage problem – however, it does not necessarily have a grid problem. A decent sized panel can power a number of things, without requiring the cost of running a power cable for hundreds (or thousands) of meters. The economics are as clear to the Chinese as they are to Africans – a panel charging mobile phones makes a lot more sense than trying to pay for running (and maintaining) a cable from a central power plant miles and miles away. And if the cost of a panel is less than the cost of a mobile phone, then the African market, for one, has a demonstrated ability to pay for it.
And companies like Nokia and Siemens, both of whom were involved in creating much of that African cellular telecommunications infrastructure, are very aware of that fact.
it is hard to invest indeed
Step 1: Write a poorly researched opinion piece. Ignore people who know more than you do about the subject.
Step 2: Have Megan McArdle write a follow-up. Allow her to ignore people who know more than she does about the subject.
Step 3: Link to Megan McArdle follow-up.
Step 4: New consensus!
If this viewpoint is so obviously wrong, please provide us with a link to the information that refutes it.
“a lesson in the fallacy of mood affiliation” Wariness of mood affiliation is, of course, a strong mood affiliation of its own.
According to BP, installed solar energy has increased from 453 megawatts in 1996 to 39778 in 2010 with a 73% increase from 2009 total of 23042. So something is happening in solar power.
Of course, all renewables are less than 2% of total energy generation of 12 billion tons oil equivalent energy in 2010.
So is it any surprise not to see solar surging in the energy markets? No. It’s too small to matter.
And that is too bad because the future requires new energy sources of one kind or another.
Don’t worry, Ixm, everything starts off too small to notice. In my state we went from almost no wind power to getting 20% of our electricity from wind in seven years. (This is a state in Australia.) I’m not saying solar power will expand that rapidly, but if it continues to decline in price it certainly has the potential.
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