- How did we end up relying on the wind for our energy!?
- How to fudge the numbers on energy cost and reliability
- What does a Britain with weather-dependent electricity look like?
The greatest lesson economics ever taught was best summarised by Thomas Sowell: “There are no solutions. There are only trade-offs.” The idea is that when we make decisions, we must choose the best possible option instead of considering the merits of each option in isolation.
But this implies several things about your decision-making process that most people like to ignore…
First, you must consider and compare the different possibilities before deciding. It’s no good making a decision at the outset based on whether something is a good idea in and of itself. It’s a question of which is the best option, not whether something is a good option or a bad option.
Indeed, sometimes we must choose the least bad option, so declaring something is a bad choice doesn’t really help the analysis much. The question is: which is the least bad?
When you decide what to do with your savings, you must choose between different investment options. Just analysing a particular investment in isolation is not sufficient. There may be a better one.
Had lockdowns been compared to focused protection instead of just “no lockdown”, how would our decision-making have changed during the pandemic?
Secondly, focusing on trade-offs implies that you have some sort of evaluation process for what is good or bad. And that evaluation process cannot define the outcome. You can’t decide to make the analysis biased to arrive at a predetermined preferred conclusion.
For example, our economy needs energy on demand. Therefore, different forms of energy supply must be judged based on their capacity to provide that energy on demand, not intermittently. If you ignore the necessity of energy being on demand, then your analysis will be faulty and favour those options that provide unreliable energy.
Thirdly, correct economic decision-making assumes you have some sort of understanding of how to measure the different choices you can make and the ability to measure them.
Do we actually count the number of migrants coming to the UK? Or do we rely on small and non-representative sample surveys done by people with a limited understanding of English who don’t want to be deported for declaring their intention to remain in the UK after they finish their studies?
When choosing between cars, you can easily know their range, petrol consumption, comfort and many other factors. Unless you’re driving an electric vehicle, which seems to make things a lot less predictable, or a diesel Volkswagen…
In each case, environmental incentives and legislation led to some… issues in how things were measured versus how they actually performed.
Admittedly, national energy policy is a bit of a struggle on that third point. Whether we supply the country’s electricity from gas, coal, wind, solar, nuclear or hydropower is a real tough challenge to analyse because it’s so difficult to compare them all to each other in a way we can evaluate them fairly.
Today, I want to show you how wind power specifically weaselled its way around the type of analysis required to make a sound economic decision. It fudged all three stages of the analysis.
If I’m right, this will leave the wind energy industry in quite a bit of strife in the coming years. Even more than they’re already in, I mean.
The first trick was to demonise the other options we might consider as an alternative to wind. Nuclear power is too dangerous, coal and gas are too polluting, solar is too dependent on the sun, which shines less in the winter when energy demand is high, and there aren’t enough opportunities for hydro in the UK.
It’s windy on the British Isles, so let’s do that!
By avoiding a decent comparative process and defining the winner in advance, the wind industry voided Thomas Sowell’s lesson. Had we compared the different options properly, nuclear power would likely have negated the need for wind power and the trillions in infrastructure and energy storage spending that’ll come with it.
The next step was to come up with an evaluation process that is heavily biased towards wind power. By failing to insist that electricity must be provided on demand when comparing costs, the cost of dealing with intermittency was not laid at wind power’s feet but considered an abstract and separate question. This played out in two ways: energy transmission and storage.
When analysing wind power’s viability, the costs of needing to upgrade the grid and provide more interconnectivity were not attributed to the cost of wind specifically, despite the fact that other sources of power would not need all that infrastructure spending.
We’ve all heard about the Climate Change Committee’s failure to consider the right amount of storage needed to make renewables viable in the UK. But I think this omission actually belongs in the third and final stage: by using dodgy data, the green machine was able to make itself look viable under its already biased analysis.
While we were all busy focusing on things like capacity factor – how much power wind actually produces in practice rather than what it says it can produce – we ignored a more glaring issue. Sometimes, the wind doesn’t blow at all. And it is simply not viable to have an energy system that relies on a source of energy that occasionally does not provide power.
By focusing on monthly averages, for example, the days without meaningful power supply are simply hidden away. Or by using years without such weather events as the basis for analysis, you can eliminate the problem. Until it happens in reality.
Now, some might object to my terminology that “dodgy data” is coming out of the wind energy industry. But Bloomberg has done what it calls a “Big Take” exposing the issue of genuinely dodgy data:
Dozens of British wind farms run by some of Europe’s largest energy companies have routinely overestimated how much power they’ll produce, adding millions of pounds a year to consumers’ electricity bills, according to market records and interviews with power traders.
That much, we already knew. And it’s not like paying power companies to not produce power is going anywhere promising. But get a load of this next bit:
Adding to that expense, some wind farm operators exaggerate how much energy they say they intend to produce, which boosts the payments they receive for turning off, according to nine people — traders, academics and market experts — most of whom agreed to discuss this controversial behavior only on condition of anonymity.
In effect, they said, the grid has paid some wind farms not to generate power that they wouldn’t have produced anyway.
As Warren Buffett’s co-conspirator put it, “Show me the incentive and I’ll show you the outcome.” Pay power companies to not produce power and they’ll claim to be doing a lot of it.
What a mess… unless you own the wind farm that isn’t working properly but still gets paid as though it were. Funnily enough, that’s been a major problem for Siemens Energy since it bought its wind farm developer Gamesa…
Of course, the gas power companies, which are required to sit idle, ready to back up wind in case they don’t provide enough power, are hounded for profiteering for producing power when it is needed and selling it at the market price. A lack of wind energy caused the spike, not gas. But this bizarre set of circumstances is a cost that should be attributed to wind’s intermittency, not to gas companies’ greed.
When it comes to the analysis of how to supply the UK’s energy, the misleading advantages of wind are just extraordinary. This makes it impossible to conduct the trade-off analysis required to make the best possible decision.
Lately, more and more politicians and analysts are realising how deep the hole really is. Given that wind farms are no longer financially viable enough to even bid on some auctions, what would their true cost be if the cost of power storage, or backup gas plants, and transmission lines were included in their estimates?
After all, someone must bear that cost…
Speaking of which, eventually, the consequences of all this began to hit. On-demand power is declining in the UK. This excellent post from Net Zero Watch points out how our reliable and controllable energy generation capacity is declining.
What will happen when the wind doesn’t blow? Will the costs of the consequences be laid at wind power’s feet in the analysis of their true price? Or will we blame gas power plants for failing to cover for wind’s intermittency?
We already know from isolated examples in places like California, Texas, Germany, the UK and many more how badly things can go wrong. Companies and individuals get asked to cut their power demand to ease the pressure on the grid. In Australia, the grid operator is actively turning down 170,000 air conditioning units via their smart meters!
But that is no way to run an economy – it needs to have enough energy, when it needs that energy.
These are the issues created by having too many renewables. But lately, I’ve begun worrying we might not have enough of those either.
Wind projects are being abandoned because of costs spiking.
UK solar plants may never get built because they cannot be connected to the grid.
The grid that is going to cost trillions of pounds to build isn’t there for the projects that are built.
Curtailment is costing the UK taxpayer a fortune, and this’ll only get dramatically worse as the share and amount of wind farms grow.
What if we end up with neither fossil fuels nor sufficient renewables?
After the last few years’ action in energy markets, we learned about all this the hard way. I just summarised it. But what’s shocking is that any of it was a surprise.
How did all these incredibly obvious things not feature in the analysis going into this mess?
Well, what analysis? And what cost-benefit analysis was ever done? And how did it compare the different energy options to wind?
There wasn’t any comparison or analysis. Wind was just a bait-and-switch product sold to politicians, which you will pay for.
By deciding to go for broke on wind energy, the UK will end up broke.
Until next time,
Editor, Fortune & Freedom