ABSTRACT
There is a trade-off at the heart of almost all climate proposals in electricity. Most climate investments end up making energy more expensive at a system level even if the cost of generation from an individual plant is low. This is because of many reasons, but the main one is that there needs to be a 100% backup of unreliable variable renewable energy. Costlier energy means that running businesses becomes tougher, which in turn has negative impacts on job creation. Costlier energy also means that government finances get strained as the energy consumption of vulnerable individuals has to be subsidised.
It is not easy to see how this trade-off gets resolved. What is clear, however, is that countries that have a very high level of variable renewable energy penetration, have very high electricity costs. This is true in the United States where S&P said in a recent report that “one could say that renewables have temporarily become destructively disruptive”. It is clear in Germany, which is, in some sense, deindustrialising. The case of Germany is remarkable, as two decades of Energiewende increased the share of wind and solar energy to 40% but led to a reduction of fossil fuel in the country’s primary energy only from 84% to 78%.
It is not easy to figure out solutions for India where job creation is perhaps much more of an imperative than in developed Western nations and where unlike the United States there is very little natural gas. There are possibilities – such as ensuring that coal is not transported long distances before it is burnt and others – which could be examined. However, much work would be needed before the costs and benefits of these proposals can be worked out.
