The Price is Wrong
Details
Author: Brett Christophers
Release Year: 2024
Publisher: Verso
Pages: 432
Purchase Link: The Price is Wrong: Why Capitalism Won't Save the Planet | Verso Books
Review
The Price is Wrong is among the best books I have ever read for a class. I read this in fall 2024 as part of an Economic Geography seminar, and what I appreciate most about the book is how cogent the argument is, and how well it pairs with some other great books I have read on the energy transition and energy policy. Written by Brett Christophers, a human geographer at Uppsala University in Sweden, The Price is Wrong explores a critical question about the renewable energy transition: If not to help with price, why are the types of economic support for renewables that are provided by governments still required? The answer, quickly provided by Christophers, is deceptively simple: Viewing the energy transition and the development of renewable energy through the prism of price is misleading because, economically, price is not the problem. Rather, the issue is that renewables are not profitable enough relative to other forms of energy, and government support is necessary to make the profitability of renewables both visible and viable.
With this question and primary argument firmly established in the introduction, Christophers then utilizes Marxist political economy as a framework to systematically explainsand in some cases deconstruct, the inner workings of the electricity market and how it is shaping (hindering) our ability to respond to climate change. The book closes, perhaps predictably, with an argument that since markets have proved time and again to be ineffective means of facilitating a renewable energy transition, we should consider increasing public ownership of renewables to overcome the challenge of renewables’ inability to compete in current electricity markets without government support. However, Christophers does not present this as some panacea for our renewable energy woes. In fact, Christophers doesn’t attempt to outline any grand plans to overcome the profit-obstacle to achieving a renewable energy transition. To some, spending a book explaining a problem and then not putting forward an effective solution may seem fatalist or pointless, but I disagree. As Christophers states in his books, electricity markets are complex, and neither public or private solutions have proved to be a true ‘silver bullet’. Why then, after decades of development, would we expect a solution to be so simple that it can be presented in a chapter or two of text? My advice to readers is not to go into this book expecting to be presented with a plan to reform national electricity systems. Instead, read the book with the intent of understanding what is in reality an incredibly complex network of actors, regulations, and infrastructure that is rooted in historical choices and which varies across geographical scales. In this case, you will finish the book feeling quite enlightened, and you’ll have a much better idea of what the problem is, which you can use to begin formulating your own solutions.
There are two books I highly recommend reading along with The Price is Wrong. First, consider reading Andreas Malm’s Fossil Capital, which conducts a historical analysis of the rise of coal as the dominant form of energy production and explains how the British industrial revolution placed the world on the path of an economy powered by fossil fuels. Christophers credits Malm for encouraging him to write The Price is Wrong, and he references the text in the book. I would even recommend reading Fossil Capital prior to The Price is Wrong, as this is the order in which I read the book and I felt much more prepared to engage with Christophers’ argument in The Price is Wrong after reading Fossil Capital.
In addition to Fossil Capital, I highly recommend reading Short Circuiting Policy by Leah Stokes. Unlike Fossil Capital and The Price is Wrong, which take global perspectives grounded in Marxist political economy, Leah Stokes focuses her analysis entirely on the renewable energy policy landscape in the United States with a political science approach. Short Circuiting Policy could be read before or after The Price is Wrong, and I wouldn’t say there is a ‘correct’ order to do so. Dr. Stokes is a great scholar of energy policy more generally, and I highly recommend reading her work on Feed-in tariffs after reading how important they are to our global energy transition in The Price is Wrong.
Chapter by Chapter Synopsis:
What follows is a synopsis of each chapter. My intention is not to rewrite the book or make reading it irrelevant, but to distill the Christophers’ arguments into a few paragraphs and give you a sense of what each chapter discusses so you can find the sections most relevant to you.
Chapter 1: Electric Dreams
Pages 1-34
Chapter one is a general introduction to the renewable energy transition, with the goal of explaining why wind and solar are crucial energy sources for mitigating climate change. Christphers makes several claims about the renewable energy transition in this chapter as he outlines the importance of renewables, but there are two that I find particularly important for readers to take away. First, Christophers argues that our present use of fossil fuels is grounded in the geographical availability of the resources and historical trends. Keep this in mind, because Christophers frames many of his arguments throughout the book within this context. Second, Christophers argues that renewable energy cannot keep pace with the absolute growth in global energy demand without nuclear energy. This is another critical point that his implications for the nature of the transition.
The meat of the chapter aims to explain why the energy transition is so essential. Simply put, we need to decarbonize the electricity generation sector not just because the sector itself is a significant source of greenhouse gas emissions, but because it electricity will be used more prominently in several other sectors in the coming years such as transportation and buildings. Wind and energy are so crucial to the energy transition because our other two viable sources of clean energy generation, hydropower and nuclear, have too many disadvantages. However, achieving the energy transition is more complex than just developing a certain number of wind and solar energy sources. The amount of renewable energy development necessary to achieve a clean energy grid is a constantly moving target (almost exclusively in the upward direction), and the regionality of where renewable energy needs to be developed faces resource and policy barriers.
Chapter 2: The Business of Power
Pages 35-69
This chapter focuses on the overall structure of the western electricity industry, and how the growth of wind and solar energy is slowly reshaping how the industry functions. Electricity industries around the world increasingly emphasize commercial generation characterized by institutional specialization, private ownership, competition in electricity generation, and the market. Further, the electricity market has experienced four key instances of restructuring over the previous four decades: the unbundling of national electricity sectors, demonopolization, privatization, and marketization. The unbundling of of national electricity sectors is of particular relevance to the book, as it is the form of restructuring that has progressed the farthest and in the most places. Unbundling was a process of disintegration within the electricity sector. Rather than companies generating, transmitting, and distributing electricity on their own, each of these activities was separated into individual processes controlled by independent companies. The generation of electricity has been widely unbundled, especially in the context of wind and solar energy, but this unbundling is more pronounced for some electricity generation capacities than others.
The unbundling of electricity sectors around the world was key to another key aspect of the current state of the sector: marketization. Marketization of the electricity sector has not occurred in geographies where the electricity sector has not unbundled, but where it has, marketization typically occurs most prominently in the electricity generation business. With these concepts in mind, the chapter closes with three key lessons. First, electricity generation is usually competitive, more than the transmission, distribution, and or retail businesses. Second, The entities that compete in electricity generation are typically private businesses. Third, the types of energy capacity installed, how much energy is produced, and the amount that customers pay, are determined largely by market mechanisms rather than top-down prescriptions.
Chapter 3: Free Gifts of Nature
Pages 69-98
While the first two chapters focus on establishing the exigence of the book and acquainting the reader with some important foundational concepts of the electricity market, Christophers really digs into his arguments in this chapter. In Chapter 3, we begin to understand the challenges to the development of renewable energy sources. Renewables are different from fossil fuel energy sources in that they have no operational costs, with all significant expenses confined to project construction. While this is beneficial for the operation of projects, it makes developing project quite difficult due to high costs. Additionally, the location, time, and amount of electricity generated by renewable sources is important to recognize. Renewables are generally developed in rural areas far from urban centers where energy is needed due to the affordability of land. Renewable are also temporal in nature, and they may not generate electricity when it is needed most. Further, when electricity is generated, it can be in great quantities that limit the amount of profit generators can earn. Keep five key challenges to renewable energy development in mind: acquisition of territory, securing rights to develop energy infrastructure, planning jurisdictions, distribution, and project financing.
Chapter 4: The Price is Right?
Pages 99-132
In this chapter, Christophers deconstructs the idea that the price of renewable energy relative to other energy sources is the best way to determine the success of the technology. Since the early 2000s, people have largely agreed that the Levelized Cost of Electricity (LCOE) is this dominant means for comparing renewables to other forms of energy. This is largely due to the influence of the institutions such as the International Energy Association and Lazard representing the development of renewables as an issue of price. Christophers presents two key critiques in this chapter. First, LCOE is a convenient camouflage for policymakers to slow the actual or expected rollout of renewables, allowing them to explain the continued dominance of fossil fuels as an issue of relative price. Second, opponents of renewables continue to invoke the ostensible costliness of renewable energy as an ineluctable barrier to faster renewable development even though LCOE data shows that renewables have achieved cost parity or better with fossil fuels.
Chapter 5: The Price is Wrong
Pages 133-162
In this chapter, Christophers argues that price is the wrong metric for explaining the development of renewable energy sources. Rather than a supply-side or Keynesian approach to the economics of renewable energy, Christophers argues that political economy is the best means for understanding why renewable energy development has been so slow. In this case, instead of using price and LCOE, to explain the development of renewables, one should instead use profit. The simple argument is that if capitalists do not see a potential for profit in a renewable energy project, they will not invest. For vertically-integrated companies, the decision to adopt renewables is fairly simple, as renewable energy does have the lowest costs; however, independent companies stand to gain little benefit from renewables, as price competition will drive down revenues in accordance with costs.
Chapter 6: The Wild West
Pages 163-192
Christophers uses this chapter to explain the all important merit order that electricity markets operate under. In this system, a single clearing price is used to satisfy demand, with the uniform price equal to the highest bid accepted. Bidding higher creates a challenge for generators, as bids that are too high may be passed up, but bids that are too low could result in making no profit. Christophers goes on to explain how this system discourages investment in renewables, as the price volatility of the merit order makes investment risky. The chapter closes by discussing three primary ways that generators address price and revenue stability: signing power-purchase agreements with utilities or corporate entities, financial hedging by trading in futures markets, and utilizing government subsidies such as feed-in tariffs.
Chapter 7: Eating itself alive
Pages 193-230
This chapter explores the complex relationship between government support for renewable energy, and the ways that this support can subvert the profitability of renewables. When governments lower barriers to entry for renewable energy projects, boom-bust cycles dominate. Generators rush into the market when subsidies are made available, driving down the revenues associated through competition and then overburdening the programs that facilitate renewables development. Additionally, renewable energy development is not synchronized with fossil fuel retirement, resulting in overproduction of energy and some renewable energy projects not generating any revenues. Ultimately, these circumstances create a situation in which renewable energy revenues are so low the profits available are lower than those of fossil fuels, and investment is discouraged even though renewable energy sources crowd the market.
Chapter 8: Market Failure
Pages 231-264
Switching focus from the government to the market, this chapter explores the free market’s solution to renewable energy development: power purchasing agreements. These agreements enable the financial viability of projects that otherwise would not have secured investment. PPA’s take two forms: utility and corporate. Utility PPAs are a process in which utilities can meet renewable energy goals by procuring energy from independent generators to supply to utility customers. In contrast, corporate PPAs are a process in which a firm signs a direct agreement with an electricity generator to secure renewable energy. PPAs can be sleeved, meaning the generator and the receiving firm are on the same electricity gird; synthetic, in which the generator and offtake do not need to be on the same grid but replicate a direct purchase through hedging against market prices; and on-site, in which generation of renewable energy occurs at or near the consumption site. Corporate PPAs are becoming increasingly important for facilitating renewable energy generation in countries where government support for renewable energy is scarce, but they are flawed in that generally only very large companies provide the reliability necessary for an investor to feel confident financing the development of a renewable energy project. This may also be problematic as a solution, because using corporate PPAs as the driving force of the renewable energy transition implies that we are dependent on major companies such as Amazon or Google save the climate.
Chapter 9: Stuck on Support
Pages 265-304
This chapter discusses the falsity of ‘zero-subsidy’ renewable energy projects. Increasingly, renewable energy developers are claiming that their projects are built without any government support. However, this is ignoring the fact that despite the fact that some projects may never receive a subsidy payment, they are able to be developed either because the government fulfills some critical development need such as the procurement of land or transmission infrastructure, or the safety net of a financial subsidy being available if necessary provides the context necessary for investors to finance projects. In some cases, zero-subsidy claims aren’t only false, they are actively harmful to the further development of renewable energy projects, as governments or other entities begin to believe they are being overcharged for project development, not knowing that ‘zero-subsidy’ projects were actually built with some form of government support.
Chapter 10: Electric Nightmares
Pages 305:334
This chapter uses the 2022 European energy crisis to prove how reliant the free market is on government support. The European Union’s survival of the energy crisis without a major economic upheaval was attributed to the free market, but Christophers raises five key points. First, governments enacted new policies at a range of geopolitical scales. Second, policymakers attempted to avoid moral hazard to varying degrees. Third, the wariness of this moral hazard was part of a deeper longstanding commitment to the sanctity of markets and price signals. Fourth, the European market was already not a true free market utopia. Finally, the support provided to electricity users to avoid the harshest impacts of the crisis came in the form of windfall taxes on energy generating firms. The chapter closes by pointing out that while an uptick in renewable energy development did occur in the EU during and after the energy crisis, but it was related to concerns of energy scarcity rather than price or profit, as nations were concerned about the implications of being dependent on other nations for fuel.
Chapter 11: Roads to Nowhere
Pages 339-380
Christophers closes out his argument with the claim that our current electricity systems were built for a fossil fueled world, with a market optimized for fossil fuel electricity generation. Christopher further argues that electricity is not a suitable object for marketization and generation in the first place, saying that it is a ‘fictitious commodity’ to use the language of Polanyi. The conclusion of these arguments is that it is time for governments to take control of renewable energy development not because it is a profitable business, but because it is not a profitable business. Since the government already supports renewable energy development so strongly, claims Christopher, why not take over the business altogether?