Don's Reviews > The Price is Wrong: Why Capitalism Won't Save the Planet

Christophers’ past work demonstrates a commitment to delving into the nitty gritty of the workings of capitalism, trawling though the operations of corporations and smaller scale business to show how the system is moving towards a rentier model, rooted in monopoly control of assets and out to gouge the biggest profits it can out of trading operations.

This time the focus is on the electricity generation sector and all its various components. There is an urgency about placing these operations under close scrutiny because it has been made central to the agreements reached during the COP process. Switch all energy use to electricity and then decarbonise its generation sums up the ambitions of the signatory governments to keeping global warming below 2 degrees by the end of the century. The question then has to be, do we have an electricity generating centre that is up to the job?

On paper it looks promising. Christophers acknowledges the significant achievement is reducing the unit cost of electricity generated by renewables below that of fossil fuel in recent years. But he challenges the idea that the advance made by the wind and solar sector in particular is sufficient to seal the deal on the direction power corporates will take in the future. His argument hinges on exposing the fallacy that is reduction in production costs that drives the competitiveness of industries – a view that is central to supply-side economics. His point is that when investors look at where they are going to put their money when it comes to new technologies the relative cost of the goods or services being produced is only one factor taken into consideration. Far more important is the size and reliability of the return on capital invested – aka profit – which they hope to pass on as dividends to their shareholders.

At this point the book gets very technical. Power generation in recent decades has moved away from being regarded as infrastructure costs to be borne by the state (in the case of the US it never was) and instead has been privatised in most countries. In order to construct something that looks like a free market in which competition can be relied upon to drive down costs, governments have relied on a ‘de-bungling’ of the industry, separating into companies involved in the generation of power, purchase in wholesale markets, and distributers in local networks. Keeping all these parts working in tandem requires a consistency of supply and predictable revenues to keep all parties happy. It turns out that the unit price of energy is not a particularly important part of the equation.

The issues that have to be address are considerable. One of these is the fluctuations in the cost of energy supply over the course of time periods which are typically as short as 24 hours. The industry segments this into 30 minute time slots which might during a period of low demand, be costed at £40 per MWh, rising to a high of £225 when demand reaches peak levels. In Europe most of the trading is done in spot markets, with generators bidding to be included among the successful applicants in what is known as the merit system. To be included means selling the energy produced at that time and vice versa if the bid is not accepted.

Christophers explains that renewal generators suffer greater consequences for not making the cut in this system than their fossil fuel competitors. This is because the producers of renewal energy cannot reduce their costs for that time slot if they fail to find a buyer. For them, energy is produced whenever the wind blows or the sunshines, and, assuming this happens during a period when there is no buyer, then the energy is simply lost. The fossil fuel generator on the other hand is able to mitigate the loss of a purchaser by powering down their system and saving on the use of the coal or gas used for production.

An addition risk for renewables comes from the times when their bid has been successful, but the wind or solar conditions do not permit the production of the electricity. When this happens contractual clauses kick in which require the company to purchase the energy they are committed to providing from another provider – either a renewable or fossil company.

The consequence of this is that the revenue streams for renewable companies is much more unpredictable than that of the fossil generators. This makes them less attractive to institutional investors on whom they depend on to finance the initial cost of installing wind and solar arrays. To overcome this disadvantage renewable energy production has been depended from the onset by government support which has come in varying forms. In the US Investment Tax Credits encourage financial institutions to take the plunge in investing, with the Europeans generally favouring Feed-in-Tariffs. Christophers explains in detail what these various systems entail. They all come down to the same point however – that the huge gains in reducing the the unit cost of producing electricity by renewables has depended on some form of financial support from national authorities.

In short, despite the lower cost of production, renewables cannot compete with fossil fuels without a financial commitment by governments to even out the playing field. Yet governments have difficulty in understanding this fundamental fact. The Cameron government in the UK was led to think that the drop in production costs had meant that renewables could compete on price alone and no longer needed support from the public purse. The uncertainty this induced has dimmed enthusiasm for investment in renewable generation with the result that decarbonisation by 2050 is looking increasingly difficult.

For Christophers, it is the structure of capitalist markets that are jeopardising efforts to reach the COP carbon reduction targets. The viability of an enterprise hinges on its profitability and investors will always look askance at any proposition that cannot guarantee revenues sufficient to pay off capital costs with an adequate return for the risk assumed. Renewable generated electricity, being a natural force which can only come into existence in accordance with the laws of physics (atmospheric conditions that allows the wind to blow and the sun to shine). On that score is falls into the category of being a ‘fictitious commodity’ in Polyani’s sense of being, like the human capacity to labour or the fecundity of the land, a gift of nature rather than a good emerging from an industrial process. When it is rendered up to market forces to establish its ‘value’, this appears as a ‘price’ only when acted on by social forces which help fix its final shape. For electricity, these social forces have come about from the debundling of the industry which took place in the early days of neoliberal reform.

The paradox we are now in is that continued progress towards the decarbonisation of electricity generation depends on continued financial support from government at levels which are deplored by the imperatives of the free market. This is becoming unsustainable as a backlash gathers against a sector which is failing to produce the returns on capital investment that the financial sector expects to see. The solutions seems to be that we abandon the idea of electricity that can be produced as a classic commodity in normal market conditions, and instead go back to seeing it as a part of social infrastructure, like roads, railways and harbours, which only come into existence through the political will of a community to support them.