“Germany had so much renewable energy on Sunday that it had to pay people to use electricity.” That was the striking headline from Quartz last week. Excess electricity can overload a grid, so to even things out some big consumers were paid to up their energy use.
Wind and solar provided 22 per cent of Germany’s electricity in 2015. That isn’t typical but it’s not the only place with too much energy at times. In Texas there is now so much wind energy that some firms give electricity away to households for free at night.
It sounds like wonderful news. The cost of wind and solar is falling so dramatically that they are finally becoming competitive with other electricity sources. The tempting conclusion is that the days of fossil fuels are numbered. Clean, green energy is going to deliver cheaper power for us all. Problem solved.
Except this is not how it works. To understand why, imagine you’re a potential solar investor in a free market. The question you have to ask is will you be able to sell electricity for more than it costs you to produce it. If you’re the first to install solar in an area, the answer could well be yes. But as more solar comes on line, there’s going to be a surfeit of electricity on sunny summer days, meaning no one will want to buy yours. You will have to sell it cheap if you can sell it at all – whereas your fossil-fuelled competitors, who can adjust production to demand, will still be able to sell theirs for a decent price.
In reality, the market is not free. To make renewables profitable, governments have had to subsidise them: most wind and solar firms get a guaranteed price for their electricity. This means they can sell power even when too much is produced – hence why Germany was paying customers to use electricity. Rather than being something to celebrate, this is a sign of a serious economic problem that could bring the renewables revolution grinding to a halt.
New ideas needed
We can’t keep subsidising forever. The UK is already slashing subsidies because they cost so much – and wind and solar only supply around 3 per cent of the country’s energy. Globally, it’s 1 per cent. It would be exorbitantly expensive to keep subsidising as that figure rises, says Varun Sivaram at the Council on Foreign Relations, a think tank based in Washington DC.
What’s that, you say? Batteries? Well, very cheap batteries would help but they are still costly. And while they are ideal for smoothing out the daily variation in solar, batteries don’t help much with the seasonal variation.
The solution is to keep reducing the cost of installing solar, so companies can still turn a profit even as the price of their electricity falls. The bad news is this might not be possible with the silicon solar panels currently used. But other, more efficient solar technologies in the pipeline might do this better.
So although it may look like some places are getting close to realising the renewable dream, with existing technologies this is an illusion. The only way forward, Sivaram and others argue, is to keep investing in new technologies that can deliver even cheaper power.
This is why it’s worrying to see headlines like “Why the renewables revolution is now unstoppable”. This is hubris. If left to market forces, the revolution is all too stoppable. The message politicians need to hear is, “The renewable revolution will only happen if you make it happen.”