Green Energy Is Now Competitive With Fossil Fuels

And Bipartisanship Is Increasing Because of It

Earlier January, I heard Matthew Gravatt of the Sierra Club make a claim which intrigued me. He said that wind and solar energy production — i.e., “green” energy — is now competitive with fossil fuel energy production and that recent trends in the energy market towards green energy investment reflect this newfound competition.

Understanding green energy production and the obstacles to its widespread adoption are key to understanding the future of reducing carbon emissions and, by extension, helps illuminate the central issue of how quickly the United States can curb its contribution to climate change. Based on recent evidence, I expect to see a shift in American politics, albeit mostly at the state level, where both the left and the right embrace green energy production and even support it with regulatory reform.

For a long time, green energy advocates have claimed that green energy is competitive with fossil fuels based on the fact that green energy has low — in fact, extremely low — marginal costs. A marginal cost is the cost of producing a unit of output, in this case, the cost of producing electricity (typically measured in kilowatt-hours or kWh). As Nader Sobhani of the Niskanen Center points out, “using hydrocarbons [i.e., fossil fuel] to produce electricity entails fuel costs.” Fossil fuel energy production incurs the marginal costs of extracting and shipping coal and gas.

“By contrast,” writes Sobhani, “renewable energy technologies have fuel costs of zero . . . . So although renewable energy technologies tend to have higher capital costs, their minimal operation and maintenance costs and zero fuel costs can easily make them cost-competitive with hydrocarbons.” However, the validity of this conclusion is in dispute.

According to Peter Van Doren, a senior fellow at the Cato Institute, “the capital costs of transmission and distribution systems, [for solar panels, wind turbines, etc.] are large.” Capital costs are one-time expenses incurred on the purchase of equipment used in the production of goods.

Opponents of green energy claim that the cost of purchasing the “transmission and distribution systems” used to produce electricity are currently too high to justify a financial preference for them over fossil fuels unless they are subsidized. Van Doren points out that, in California, “the discrepancy between the retail rate and the amount the system saves because of rooftop solar production is large.”

The retail rate refers to the amount of money that California pays its electricity customers for installing and using rooftop solar panels. “The marginal cost of power generation is about 6–10 cents per kWh, but customers are reimbursed at full retail rates (many at over 30 cents per kWh) rather than the lower marginal costs of system generation.”

In this way, California subsidizes rooftop solar panels since the state pays more for the electricity produced by them than it would have paid for the electricity produced without them. “Without the excessive payments,” Van Doren concludes, “decentralized solar would not be competitive.” In response, green energy advocates point out how advances in technology will lead to capital costs low enough to make green energy production competitive without government subsidies.

The real indicator of competitiveness is price. “The price of renewable energy ultimately depends on technology costs, which are only coming down,” states Sobhani. He explains that “wind, solar, and battery technology costs have dropped significantly and are predicted to keep falling, which will in turn reduce the system costs of a high-renewables future.”

Since 2018, five states have rejected plans to build new energy infrastructure powered by fossil fuels and instead they have adopted, or are considering the adoption of, plans to build green energy infrastructure instead. Sobhani details how, in all five cases, the price was a significant factor in the decision.

Until recently, the left supported green energy adoption primarily on the basis of its environmental sustainability while the right opposed it on the basis of its excessive prices. Now that those prices are in decline, the partisan divide over green energy should be dissolving.

Of the five states that opted to consider green energy over fossil fuel energy production, three of them — Wyoming, Indiana, and Arizona — have a Republican trifecta (i.e., they have a Republican governor and a Republican majority in both houses of their legislature). I predict that we will see more of these bipartisan plans to build green energy infrastructure; however, I believe that the bipartisanship will be limited to state politics. This is because Democrats and Republicans remain divided over the issue of fighting climate change.

A Pew Research Center survey conducted in October 2019 found that among Democrats and independents who lean toward the Democratic Party, 90% of them “think the federal government is doing too little to reduce the effects of climate change.” In contrast, only 39% of Republicans and independents who lean toward the Republican Party think the same. As a consequence of this divide, Democrats will continue to push for federal government subsidies for green energy production while Republicans will continue to oppose them.

It is difficult to determine how effectively carbon emissions will be reduced and climate change suppressed by the increasing competitiveness of green energy. Sobhani seems comfortable using reports that predict global temperature rise will be limited to 2° C; though, he also claims “that comprehensive climate policy is necessary for the U.S. to . . . get on a sustained path to decarbonization.”

Due to the partisan split over the issue of climate change, comprehensive climate policy at the federal level (as Sobhani proposes) seems unlikely to occur under the divided government we have today (though the 2020 election could change things). While we can expect to see more states adopting bipartisan plans that promote green energy, this shift in American politics is probably not sufficient to limit global warming to 1.5° C or even 2° C. Such a somber conclusion raises the question: to what extent should we focus on adapting to the effects of a post-1.5° world rather than on attempting to prevent it?

Photo from Piqsels, (CC0 1.0). https://www.piqsels.com/en/public-domain-photo-smwkv