Regular readers of this forum have seen plenty of comments about the problems associated with renewable energy mandates.
A new Business Week article points to a key problem without actually identifying it. We learn from John Carey and Mark Scott:
With Congress considering both a cap on carbon dioxide emissions and renewable energy requirements for power companies, utilities are trying to figure out how they’ll produce clean energy. One increasingly viable option: solar panels. Solar is still several times more expensive than wind or natural gas and many times pricier than coal, says John Rowe, CEO of Chicago-based utility giant Exelon (EXC). “But solar is where costs are improving the fastest.”
So where’s the problem?
Figuring out the answer might be a little easier if you consider why solar costs are “improving the fastest.” Those costs are improving precisely because the people working on solar panels must make them operate more efficiently and at lower cost to compete with other energy sources.
Solar panels will make sense ? from the consumer’s perspective ? only when their cost is comparable to other energy sources.
This can be accomplished in one of two ways. First, innovators and entrepreneurs work tirelessly to find ways to cut production costs. Second, government puts in place mandates and restrictions that raise the prices of the cheapest energy sources while allowing more expensive options to survive without efficiency gains.
Under either option, the consumer is still going to pursue the lowest-cost energy source (all other factors being equal*). Under the first option, the expensive energy sources get less expensive to compete with the cheapest options. Under the second option, the cheapest energy sources get more expensive, and those who offer the least efficient options have less incentive to cut costs.
Under option one, consumers win. Under option two, consumers lose.
*This caveat is designed to address those who prefer to go out of their way to seek “green” alternatives. These folks are buying a different product than the consumers who are simply seeking an energy source.
