Perhaps worse than that, subsidies have created the illusion that wind and solar are cheap, fueling overexpansion.
Subsidy regimes, once established, are very difficult to overthrow as, doubtless, taxpayers and consumers will discover once higher tariffs — a form of subsidy that will doubtless give birth to subsidiary subsidies — become more entrenched.
But for now, as the Wall Street Journal reports, there is the example offered by the subsidies paid to promote wind and solar energy under the Inflation Reduction Act. These are proving a classic of the genre, costing more than once predicted and doing a lot less good than promised. Remarkably, some Republicans have been opposing their scrapping on the ground that this will mean electricity prices will go up.
Nope.
The WSJ explains why not, but not before pointing out that the cost of these subsidies could, according to the Cato Institute, rise to $130 billion a year by 2034.
Perhaps worse than that, subsidies have created the illusion that wind and solar are cheap, fueling overexpansion, just the sort of malinvestment that occurs when government messes with the price mechanism (as it will when higher tariffs, another boondoggle, bite). That overexpansion can at times cause, the WSJ explains, wholesale prices to go negative, meaning that producers pay the grid to take the excess power.
Negative! Well, that’s cheap surely.
Nope.
The WSJ:
Solar and wind producers can turn a profit when prices fall below zero thanks to subsidies. But other power plants can’t. Nor can they make money running only when they’re needed to back up solar and wind. Hence many have been shutting down even as power demand increases from AI and manufacturing.
The result is power shortages and prices that can spike 100-fold in a few hours when renewables aren’t producing power. These price spikes more than offset savings to consumers from negative prices. Utilities and grid operators must also spend heavily to strengthen their systems against fluctuations in power frequencies and loads.
According to the Journal, this is a large part of why Texas’s residential power prices have risen 40 percent over the last seven years.
Texas has now passed a law to subsidize gas plants to act as backup for the subsidized renewable energy.
Icing on the cake:
Interior Secretary Doug Burgum is [reportedly] considering using emergency powers to revive closed coal-fired plants and to keep others online.
Coal! The fuel of the past! Such are the wonders that subsidies can, uh, generate.
These coal-fired plants would also be subsidized.
The Journal argues it would be better to scrap the IRA subsidies that started all this in the first place.
And that is so.