Yes, you did read that title correctly, and no, it is not a joke. This is what happens when wasteful subsidies distort the market:
In the first half of 2008, prices were below zero nearly 20 percent of the time. During March, when negative prices were most frequent, prices were below zero about 33 percent of the time. After mostly taking the summer off, negative power prices were back to near 10 percent in October. This seems a little crazy. During these negative price periods, suppliers are paying ERCOT to take their power. Consumers (at least at the wholesale level) are getting paid for using power, and the more power consumers use the more they get paid. These prices are a big anti-conservation incentive. You could, as a correspondent put it to me, build a giant toaster in West Texas and be paid by generators to operate it.”
And,
“This isn’t the cast in West Texas. Instead, the negative prices appear to be the result of the large installed capacity of wind generation. Wind generators face very small costs of shutting down and starting back up, but they do face another cost when shutting down: loss of the Production Tax Credit and state Renewable Energy Credit revenue which depend upon generator output. It is economically rational for wind power producers to operate as long as the subsidy exceeds their operating costs plus the negative price they have to pay the market. Even if the market value of the power is zero or negative, the subsidies encourage wind power producers to keep churning the megawatts out.”
Alex Taborrak at Marginal Revolution compares it to farm subsidies and offers a better option for President-elect Obama: nuclear. The United States has not built a new commercial nuclear reactor in over 30 years, but the 104 plants operating today prevented the release of 681.9 million metric tons of CO2 in 2005, which is comparable to taking 96 percent of cars off the roads. If CO2 is the problem, emissions-free nuclear power must be part of the solution.
It also proves why nuclear shouldn’t be subsidized, either. The government shouldn’t pick a winner and a loser, even if nuclear is the winner. Government interference in the marketplace causes a misallocation of resources away from where they could be most efficient used.
That being said, it makes little sense for the government to set renewable targets and exclude nuclear from the mix. When they do, it’s the consumer that pays the higher price. Most recently, the House of Lords Economic Committee reported that meeting EU targets for renewable energy will increase electricity prices by 38% in the UK, arguing “that nuclear energy presents a viable, low-carbon alternative that is not intermittent and can be produced at a significantly lower cost than renewable energy.”
Having central planners set energy mandates and lavish subsidies hasn’t worked for years, and any attempt by the Obama Administration and the 111th Congress will do much more economic harm than the marginal, at best, environmental benefit.
