Too cheap to meter

That’s the headline for my latest piece in Inside Story, looking at the implications of zero interest rates for renewable energy sources like solar and wind. Key para

Once a solar module has been installed, a zero rate of interest means that the electricity it generates is virtually free. Spread over the lifetime of the module, the cost is around 2c/kWh (assuming $1/watt cost, 2000 operating hours per year and a twenty-five-year lifetime). That cost would be indexed to the rate of inflation, but would probably never exceed 3c/kWh.

The prospect of electricity this cheap might seem counterintuitive to anyone whose model of investment analysis is based on concepts like “present value” and payback periods. But in the world of zero real interest rates that now appears to be upon us, such concepts are no longer relevant. Governments can, and should, invest in projects whenever the total benefits exceed the costs, regardless of how those benefits are spread over time.

21 thoughts on “Too cheap to meter

  1. By the same logic lets make the panels in Australia? That would be a great idea.

    But the reality is that the zero interest rate are really just an act of theft. They don’t represent unlimited resources. They represent a subsidy to the banking system and those sure things that allow the banks to ponzi up their assets (real estate, blue chips, monopolists). Anyone else eats high interest rates and chokes on them.

    Roadside and rooftop solar, along with nuclear, to pour energy into synthetic diesel … Sure this is the way to go. But lets not pretend that we don’t have to pay for these things. Basically the low interest rates are for the banks only. The magic pudding only comes from reducing the scope of the financial sector.

  2. “Governments can, and should, invest in projects whenever the total benefits exceed the costs, regardless of how those benefits are spread over time.”

    A possible quibble. Is it that the monetary value of the benefits must exceed the costs? That’s likely to be true in the instance cited but might not be if social benefits were a dominant part of benefits when the value of these benefits might need to be recouped by a tax for the scheme to be cash-flow positive.

    Presumably, the government must repay its debts and not just operate a Ponzi scheme by borrowing to repay borrowings.

  3. Panels are really cheap and not particular profitable for the producers. Panels prices would be around one third of that cost estimate. At least half of it should be local construction labor. Would be a really really bad starting for industrial policy games to produce solar panels in Australia.

  4. “Governments can, and should, invest in projects whenever the total benefits exceed the costs, regardless of how those benefits are spread over time.”

    The spending is fine. The red ink is not.

    There is a massive embarrassment of riches to plunder when it comes to getting the resources we need to solve problems. But deficits are no such resource. Deficits are not a resource. Unnecessary public sector jobs, trusts, the money creation benefit, the potential to partially default on the banks …. these are all huge wells of resources to be used for plunder. We’ve got to take them. And emergencies are the best time to unlock these emerald cities paved with gold.

    When you try to take resources with red ink, your tax revenues will be reduced further in an endless vicious cycle. Since red ink never was a resource in the first place. It never works. Its the same when we imagine that we can pay off debt with privatisation. Thats always been a losing situation also, since the ponzi money used to buy up the assets was never a resource. Always these attempts are followed by slack taxation revenues.

    Conversely if you decide to run surpluses they tend to reinforce themselves. Once they are established the money keeps pouring into the treasury.

  5. $1 per watt is for biggish solar farms. I’ve just put in panels in Spain at the going rooftop rate of €2 per watt. My spreadsheet tells me the internal rate of return should be ca. 3%, which is fine as it’s tax free. The feed-in export price in Spain is the wholesale rate of about 5c/kwh. That’s been quite stable historically, but may well fall over time as more solar and wind are installed. I figure it’s unlikely to be changed, as it’s a very good deal for the utilities. What won’t drop is the inbound retail rate, which has to cover transmission and legacy costs (nuclear, coal shutdown, a large gas turbine reserve) plus the new firming capacity of pumped hydro and batteries.

  6. Ukulele Laybay: do you have evidence on the going rates for bank loans to large creditworthy borrowers? Mortgage rates are historically low. Banks continue to charge usurious rates to credit-card customers who don’t know any better, but companies don’t pay that. The sub-2c/kwh PPA prices announced for large projects in good locations (Gulf, Portugal, US SW, Australia) do assume realistic low borrowing costs. The 9.8% WACC still used by Lazards for their comparisons of generating costs is just quaint.

  7. We are approaching $1 a watt for solar that can last 25+ years. This is before tax or subsidy and is for roofs. But you have to be careful because even if the hardware is good, if the installation is poorly done it can cause lots of problems. But the return is a lot better as solar electricity self consumed by a home or business saves them the retail price of electricity. Solar farms only receive the wholesale price. (Plus LGCs but they are not expected to be worth much soon.) It’s not perfect as solar inverters don’t last forever. Some have a warranty of 10 or 12 years while others only have 5. And we will get to an average of $1 a watt for solar farms. A lot of these will face east/west rather than north as slightly increasing output in the early morning and late afternoon when electricity prices tend to be higher will be worth the drop in total generation that results.

  8. @James The same points apply to transmission, and we are already seeing both the government and Labor taking notice. Labor wants direct government involvement, while the government has plans for cheap finance (haven’t seen the details on how this is supposed to be more than a transfer to the monopolists)

  9. Once again, my respectful challenge to Prof. J.Q. is to take economic ontology and its instauration or renovation seriously. [1] I wonder when Prof. J.Q. will write on economic ontology.

    To my mind, every post above, including the original post, illustrates the continuing lack of understanding or studious avoidance of the critical nature of the issue of real costs compared to the issue of formal, “concocted” costs. Real costs, insofar as we can model them accurately, are measured in real scientific dimensions. For reference, see the SI (International System of Units). Formal, concocted costs are measured in dollars, or other units of currency. Money costs do NOT permit us to measure real costs. Money does not measure value and it does not permit different values to be validly aggregated. Using money to manage real things (meaning real systems) including humans, animals, resources, ecology, climate and biosphere is a fallacy-riddled and now failing research enterprise. The empirical proof for this lies in climate change, the sixth mass extinction and other phenomena presaging near-term human extinction as delivered by conventional economics in praxis.

    Without solving the founding issue of the ontology of economics and generating a valid ontology of economic objects, economics is doomed and dooms us. (Of course, a true [2] ontology would be a necessary but not sufficient condition for success.) Just as the discipline of medicine needed to abandon the humors theory of disease for the germ theory in order to begin making real progress against pathogenic disease, so does economics need to abandon value theory for (social) power theory. Money does not measure value, it implements and instantiates power relations within society, within the political economy. Money is the information metric of (one important form of) social power and is used informationally to transmit that power throughout society as the data (information) which programs the actions of numerate persons capable of and schooled in obedience to the relevant calculative and algorithmic instructions carried by money information (and which also programs other calculating machines such as computers etc.)

    The inability to understand money in this light and the failure to banish the spurious assumptions of value-measuring and real-system management efficacy from our theories of money, value and markets, is one of the central problems at the root of our failures to manage our political economies and containing environment successfully, in the humane and sustainable senses.

    Blair Fix’s discussion of natural resources and the attitude of (some?) neoclassical economists to them, analyses the problem well. Fix talks about Locke and property and goes on to demystify our dominant views of property, income and value by removing them from their standard framing of neoclassical economic and political economy justification. He also illustrates how neoclassical economics, or at least the most value-fundamnetalist / market-fundamentalist proponents of it, completely fail to understand the real resource implications of economic activity.

    Click to access Fix_natural_resources.pdf


    1. This is meant In the same spirit in which Francis Bacon proposed “The Great Instauration” or “Novum Organum” to advocate and encourage the move from axiomatic deductivism and syllogistic reasoning to empiricism. Modern economics stands in the same need of a profound renovation which commences with the jettisoning of its current false ontology and the onerous and rigorous derivation of a valid ontology as an ontology of real economic objects with scientific meaning and not ideologically concocted objects like our current constructions of property, money and value.

    I recommend a reading of this paper. (I can’t break the one-link rule of course.)

    “Deductivism – the fundamental flaw of mainstream economics” – Lars Pålsson Syll.

    2. “True” is used here in the sense of a true model which corresponds to objective reality with sufficient accuracy to generate the capacity to generate and/or deploy explanatory, predictive and pragmatic manipulative success in the realm of the objectively real NOT in the realm of the formal.

  10. Until renewables can be replicated at every single step of their life-cycle using renewable energy, they are not sustainable. There are critical issues of scale, resource availability, and timing that I think are not being honestly acknowledged.

    “In 2016 the total world energy came from 80% fossil fuels, 10% biofuels, 5% nuclear and 5% renewable (hydro, wind, solar, geothermal). Only 18% of that total world energy was in the form of electricity.[17] Most of the other 82% was used for heat and transportation.”

    Currently, renewables are dependent on petroleum oil — from mining, to crushing ore and smelting it, to delivery (via petroleum-fueled trucks, trains and ships) to fabrication plants, to the supply chains for numerous parts, to the final delivery sites, along roads that need constant repair with diesel construction trucks laying more asphalt, which is found only at the bottom of a crude oil barrel. When they wear out or fail, the components then need to be recycled as close to 100% as possible. The process from start to finish would need to be electrified.

    Petroleum oil is a finite resource. We may have already seen global peak oil production in November 2018.
    “According to a 2019 Geological Survey of Finland report, the world average decline rate on post-peak production is 5 to 7%, meaning that oil production could plummet to half its current volume in the next 10 to 14 years.”

    Humanity also needs to rapidly reduce GHG emissions if we are to maintain a habitable planet to live on. What we do as a species within this decade will determine how much more inhospitable (not only for humanity but also for all other life) planet Earth will be become later this century.

    I’d suggest zero real interest rates won’t matter if we/humanity cannot rapidly deploy in a timely manner at large-scale affordable technologies that can replace/mitigate for declining petroleum oil supplies.

  11. Geoff, your point may be made more simply by saying that, until energy is 100 per cent renewable, everything we do will generate emissions.

    On peak oil production, that’s being driven by peak demand, not exhaustion of the resource and it is of course a good thing. The sooner we stop using oil, the better

  12. I agree with Geoff Miell’s post. Too often, even on this relatively enlightened blog, we get numerous instances of micro-focus optimism instead of macro-focus realism. People are cherry-picking hopeful developments in minutiae and failing to see the big picture. The big or whole-of-system picture is pretty much as Geoff Miell outlines it. This issue goes to the heart of my previous post on this thread where I say that continuing to see things in terms of conventional economics is to already have doomed ourselves to failure in dealing with the macro problems of our political economy and its egregious lack of humaneness and environmental sustainability.

    These matters are almost invariably seen by most people today (specialists and laypersons alike) from within the money, markets and conventional money-allocative / market-allocative economic prism. The cheapness of solar PV in money terms and the cheapness of money itself (zero interest), while useful in themselves SOLELY WITHIN the context of the extant financial-economic system are all but meaningless factors when taken out of the environmental context, as outlined by Geoff Miell. The entire economic question needs to be re-framed within a realistic thermoeconomics, bioeconomics. biosphere earth system and ecological context.

    To persist with the notion that money measures any objective value and that markets alone can achieve allocative efficiency WITH RESPECT TO ecological efficiency and/or sustainability is to be dedicated to a dangerous delusion. [1] “Allocative efficiency is a state of the economy in which production represents consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing.” [2] We must note the crucial fact that market economics on and in its own terms is a PRESCRIPTIVE [3] discipline; it avowedly prescribes that human consumer preferences are the allocative system.

    This by prescriptive definition means that allocations of real resources under a property-market system are not, in initiation, determined by real criteria but rather by human wishes alone. Customer preferences, human subjective preferences as wishes beyond absolute need, as expressed in a marketised economy are not in any way connectable back to an objective theory of allocating the real (real resources) sustainably. Market allocation simpliciter is almost completely divorced from objectively sustainable ecological allocation precisely because;

    (1) Every consumer is not an ecological and climate science expert;
    (2) Even if he or she were then self-interest, self-deception and human susceptibility to illogical or anti-logical temptations, as rationalistions, would too commonly intervene and govern behaviors; and
    (3) The feedback mechanisms of real cost (e.g. dangerous climate change) are far too delayed to permit money cost feed-backs via market mechanisms to perform their theoretically assigned allocative efficiency role with regard to all efficiencies including the implied long-term allocative efficiency of sustainability.

    To enlarge on the last point, by the time the market costs signal correct and environmentally sustainable allocations, the time is long past when the re-adjustment could save the systems involved (real economy and real environment) from runaway feedback disasters. Permitting consumers to self-prescribe environmental allocations via the many-levers, long-time-delays, Rube Goldberg system of market pricing and the get-it-if-I-desire-it-and-have-the-money hedonistic ethic of capitalist consumerism is akin to permitting medical patients to self-prescribe all their medications. We do not do this. We have professional gate-keepers called medical doctors. That system isn’t perfect but it is far better than open slather unless debased by corporate drug pushing as in the USA’s legal opioid crisis. In a similar way, the appropriate scientific and professional community must prescribe scientifically permissible consumptions at the overall level which then of course need to be allocatively implemented politically and democratically . This is just as scientific professionals are currently prescribing the ideal standards of Australia’s pandemic response and these are being implemented as closely as possible in a politically, socially and economically sustainable way. This is the basis of Australia’s relative success in combating a real threat and the converse (keeping societies and markets more open) is the basis of the egregious failures of the US, UK and other places.

    The market and conventional economics itself must take a back seat to scientific and democratic steering. They must sit in the back seat and shut up! They must stop being back-seat drivers and chauffeured elites, sitting back at ease, telling everyone else how the juggernaut of a finance-drected economy should steamroll the real world. Market system advocates should shut up too except when asked to provide market mechanisms and priced incentives ./ disincentives for achieving scientifically determined and democratically implemented sustainable allocations. Mere economics must be demoted to its proper subsidiary place.


    1. “The subtle difference between “illusion” and “delusion”.. is that an “illusion” can remain an abstract concept, while “delusion” is something clearly defining someone’s misconception of the reality.” – grammar dot com.
    2. Wikipedia.
    3. The argument here turns on the issue of normative versus positive economics or as I term them prescriptive versus descriptive economics. In turn, the standard case in economics or political economy, conventional or otherwise, is that the PRESCRIBED rules heavily condition the DESCRIBED (meaning objectively describable) outcomes, which outcomes are both formal system and real system outcomes. Market economics prescribes property, market and financial operations. The rules of the property, market, finance game condition the outcomes. In the purely formal system of the economy (prices, paper and electronic trades, ledgers, accounts and so on) the outcomes are of mathematically determined form. The outcomes are mathematically derived from the axioms or base rules of the formal system and its market mediated, politics mediated operations. It is is then presumed, by conventional economics, that the property, market, finance system is a finite state machine (essentially) with some homomorphic truth correspondence or congruence, as a model, with the state of the real economy system and even sometimes the state of the real environmental system. These assumptions are risible for reasons which go well beyond this note.

  13. JQ, you state:
    “On peak oil production, that’s being driven by peak demand, not exhaustion of the resource…”

    The COVID-19 pandemic has induced global demand destruction, and consequently substantially suppressed investment in long-term oil exploration and development. I’d suggest the consequences this will have on future global oil supplies/flows will begin to manifest within the next few years. New oil production must be brought online just to offset natural declines in existing ‘conventional’ producing oil fields (typically of the order of 5 to 7% per year – see my comment above). ‘Unconventional’ oil wells have much higher decline rates – US shale production from individual wells falls 70–90% in the first three years, and field declines without new drilling typically range 20–40% per year. See:

    “So let’s keep our priorities straight…shale oil was just an expensive seed bump in the long road to depletion in our country. It’s only one answer to a very big problem. Peak affordable oil is upon us.”

    Some say the fracking binge in America’s shale industry has permanently damaged its oil and gas reserves, threatening hopes for a production recovery. “That’s the dirty secret about shale,” VanLoh said last week, noting wells had often been drilled too close to one another. “What we’ve done for the last five years is we’ve drilled the heart out of the watermelon.”

    Can we/humanity leave oil before oil leaves us? We must – in agriculture; in road, rail, maritime, aviation, and space transportation; everything we do now must be transitioned away from oil dependency within the next two decades.

  14. J.Q.,

    Geoff’s point is a little more than saying that, “until energy is 100 per cent renewable, everything we do will generate emissions.” He is also saying;

    (a) Even deploying 100% renewable power will still generate wastes and negative externalities. We cannot presume at this point that these wastes and negative externalities will be environmentally negligible. That is to say, these wastes and negative externalities might also place real sustainable limits on renewable energy deployment.

    (b) The path to 100 per cent renewable energy deployment may well be fraught with its own difficulties, bottlenecks, transition problems and even (unknown at this stage) insuperable path-dictated obstacles (even though we must proceed on the hope there are no insuperable path-dictated obstacles).

    I think these are reasonable cautions or caveats to add. This is particularly the case when we consider that as a matter of precautionary principle in light of the above, that we should actively reduce non-essential consumption and seek a non-growth, circular and sustainable economy set-up even before it becomes patently and absolutely necessary. It seems to me that most developed nation people are always seeking rationalizations for continued growth and generally indulgent but non-essential consumption. The term “austerity” gets a bad rap and correctly so because it means austerity for the poor only. However, frugality, self-restraint and anti-obsolescence are all properly due for a revival. There is no way we can eat the cake too fast before the full transition and still get to have a full transition. Wasting our remaining stock too profligately will forestall our chances of a successful full transition.

    My earlier statement that “market advocates should shut up” should be taken as “market fundamentalist advocates should shut up” so it’s not directed at you. I see a place for markets but probably one even more limited than the place you see for them and subjected to more regulations, limitations and statist directions for genuine existential (survival) reasons.

    On the topic of economic ontology I certainly hope you will engage at some point after reading the several papers and one monograph by third parties that I have recommended at various times on this blog. Whether you have addressed this matter philosophically and/or scientifically in the past, whether you are too busy or whether you are “studiously avoiding” the topic (my admittedly impertinent words) as yet remains unclear to me. I hope this blog can get to such matters some day.

  15. Too cheap to meter is only true while Australia drags its feet on transitioning to electric vehicles.

    On the other hand when there is a substantial electric vehicle fleet another wave of solar panel installation will begin where people install their own panels on the roof of their employers premises to charge their vehicles during the day while they work. This then introduces another whole industry where people don’t move their panels around when they change employers, they swap them commercially with other people’s panels already installed.

    I am in the Netherlands for the foreseeable future (if only because I can’t fly anywhere) and the building I work in has 100Kw capacity on its roof to power the company’s fleet of electric vehicles. Out of the window I have a view past a gas fracking facility and a geothermal energy tap to a building past a field of grazing sheep to another huge warehouse which is currently installing a huge quantity of solar panels to cover its roof. Further off I can see at least 20 wind turbines which line the shores of the Port of Rotterdam. (to give some perspective: Netherlands 17 million people 46,000 sq. kilometres or 2/3rds the size of Tasmania)

    The more recent PV panel installation drive are a product of an organisation called Urgenda which successfully sued the Dutch government for its insufficient efforts to contribute to Climate Action. and

    On the price of solar Panels I recently paid Euro 164 + 21% VAT for 250 watt Panasonic panels which is a bit over $1 Aud per watt small quantity retail in Europe.

  16. The image in the “Too Cheap to Meter” Inside Story shows a solar field with a pedal powered maintenance crew moving along the road. In other parts of the world there could very well be sheep and chickens grazing in the field below the panels further improving the land use value.

  17. There might be a good error of sort in that calculation: At least if interest rates remain that low, further progress in solar technology should cause real electricity prices to decrease further. Usually that kind of effect could be almost ignored, albeit not necessarily with such low discount rates. Current solar is competing with future solar here up to a point.

  18. On Oct 19, Lazard published their latest annual Levelized Cost of Energy Analysis (LCOE 14.0) and Levelized Cost of Storage Analysis (LCOS 6.0).

    “…(LCOE 14.0) shows that as the cost of renewable energy continues to decline, certain technologies (e.g., onshore wind and utility-scale solar), which became cost-competitive with conventional generation several years ago on a new-build basis, continue to maintain competitiveness with the marginal cost of selected existing conventional generation technologies.”

    “…(LCOS 6.0) shows that storage costs have declined across most use cases and technologies, particularly for shorter-duration applications, in part driven by evolving preferences in the industry regarding battery chemistry.”

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