T he U.K. and Germany have been “experimenting” with policies to promote an energy transition for more than a decade. The results have been a large increase in energy costs for households and industry, driven by levies to subsidise uneconomic generation, and rising volatility in electricity markets accompanied by a higher risk of power outages in future.
As Einstein famously did not say, running the same experiment repeatedly and expecting to obtain different results is one indicator of insanity. The EPA seems intent on meeting that criterion by proposing the same failed policies as Europe. The essence of these proposals is to accelerate the closure of existing coal and gas plants and, effectively, to prohibit the construction of fossil-fuel-powered replacements by mandating the adoption of carbon capture and other technologies that are both experimental and would impose punitive costs on operators.
Over the last 15 years the German and U.K. governments implemented similar policies under more-favorable conditions than in the U.S. They were eventually forced to change course because of fears of power outages during periods of low solar and wind generation. At first, power companies were paid to extend the life of lignite and coal plants. More recently, the German government agreed to spend 16 billion euros to fund ten gigawatts of new gas generation, while the U.K. government announced that it would support the construction of new gas plants to ensure energy security. It is unclear whether the EPA has even tried to learn from the European experience. If it did, then either it has ignored obvious lessons or it has hired advisers who told the agency what it wanted to hear.
The exam question is how to decarbonize electricity systems, especially over a short period, when the primary methods of low carbon generation are either (a) intermittent and cannot provide secure generation without unfeasible investments in storage (i.e., wind and solar power) or (b) unpopular and expensive and take a very long time to build (i.e., nuclear power). The wrong answer, as demonstrated in various European countries, is to rely on massive investments in wind and solar generation, perhaps notionally supported by interconnectors, the European term for huge transmission lines linking different countries.
That strategy leads to extreme fluctuations in market prices under which no one makes any money absent heavy subsidies paid by consumers, taxpayers, or both. In addition, it leads to bad relations between neighbors as market instability in, say, Germany is exported to Poland, the Czech Republic, Denmark, and other countries, undermining the viability of investments in their electricity systems.
Market prices for power in Germany are negative for about 10 percent of hours in the year, and that frequency is increasing rapidly. Negative prices in Germany lead to negative or very low prices in neighboring countries, so power plants have to either stop producing or suffer large losses. The prospect of negative prices for 20 percent of hours (very likely by 2030) means that new power plants can’t cover their costs either, because they will operate too few hours in the year or their revenues will be too low.
The two primary sources of market stability in Europe are nuclear plants in France and hydro reservoirs in Norway. When a number of French nuclear plants required emergency maintenance concurrent with a (relative) drought in Norway — both occurred between 2021 and 2023 — the impact on electricity prices throughout Europe was large, larger than the impact caused by the reduction in gas supplies from Russia.
The instability of the power market today has been exacerbated by decisions to close nuclear plants made a decade or so ago, at a time when carbon capture was seen as the quick fix to allow coal and gas plants to operate with greatly reduced carbon emissions. Unfortunately, the viability of carbon capture as an option for controlling emissions from the coal and gas plants required to back up intermittent solar and wind generation has proved to be a mirage. Pilot projects to retrofit carbon capture to power plants in Europe have been postponed or canceled because they are too expensive. The small number of carbon-capture projects in operation or under construction are little more than costly indulgences funded by oil and petrochemical companies hoping to ward off action by climate activists.
In North America and Australia, technologies based on the use of solvents to remove carbon dioxide from boiler exhausts have been expensive failures, even when supported by revenues from enhanced oil recovery. Proponents argue that costs will fall in future, but the reality is that the plants involve standard chemical engineering whose costs will not fall by the 70 to 80 percent required for viability. Even worse, the plants consume between 20 and 30 percent of the power generated by their host, while high capital costs have to be spread over a small number of operating hours per year for backup generation. The result is a control option whose operational performance is erratic and mediocre at best but with costs so high as to require either large subsidies or very high electricity prices if deployed commercially.
Alternative approaches integrate carbon capture with power generation using natural gas, but these are still under development or testing. There is no certainty about their performance or economics at a market scale. In seeking to mandate carbon capture, the EPA is repeating the error of European countries, choosing to believe that technical unicorns will avoid the need for difficult choices.
Our economic and social life is based on ready access to reliable and relatively low-cost supplies of electricity. The combination of networks, plants and institutions that make this possible is arguably the outstanding innovation of the 20th century. Electricity systems can handle a growing contribution from intermittent wind and solar generators if there is a sufficient volume of either storage (hydro or batteries) or controllable backup generation (coal or gas).
What the European experience shows, however, is that there is a tipping point. The instability in market prices caused by intermittent generation undermines any incentive to invest in either storage or backup generation. Even existing plants are closing. Generators are paid to build vast quantities of backup capacity that will operate from 5 percent to 50 percent of the time during the year. The alternative of constructing huge banks of batteries to store power currently costs even more, and is likely to do so for the foreseeable future.
The result is an electricity system that is extraordinarily expensive and extremely inefficient. And who pays? Electricity consumers — not just households with few options but also companies that, when faced with high energy costs, simply transfer their activities to other locations where electricity supplies are both cheap and reliable.
Europe is de-industrializing — a process that has been under way for more than a decade. That is the unacknowledged consequence of the policies that the EPA wants to impose on the United States. There is little chance of these trends being reversed in most European countries. Do we really want the U.S. to satisfy Einstein’s (supposed) definition of insanity?