Will renewables become cost-competitive anytime soon?

From Institute for Energy Research.

"Despite advocates’ claims to the contrary, wind and solar continue to be the most expensive sources of electricity. The New York Times recently reported that “wind power is currently more than 50 percent more expensive than power generated from a traditional coal plant.” [1] Energy Secretary Stephen Chu told the New York Times that solar technology would have to get five times better to be competitive in today’s energy market.[2] In spite of these reports and admissions, the public relations campaign for wind and solar powered electricity marches on.

For decades, representatives and advocates of wind and solar have claimed that their technology was near a competitive tipping point—but just needed a bit more subsidies, set-asides, and government aid to succeed. But even after 30 years of massive subsidies, wind and solar continue to be more expensive and contribute only a small amount of electricity. In 2008, wind produced 1.3% of the electrical generation in America and solar produced a meager 0.02%.[3]

The quotations below highlight the errant predictions of near-term viability (with the predictions bolded for emphasis). These are just some of the examples of over 30 years of claims that wind and solar will soon be cost competitive.

Overly Optimistic Wind/Solar Claims 

In 1983, Booz, Allen & Hamilton did a study for the Solar Energy Industries Association, American Wind Energy Association, and Renewable Energy Institute. It stated: “The private sector can be expected to develop improved solar and wind technologies which will begin to become competitive and self-supporting on a national level by the end of the decade [i.e. by 1990] if assisted by tax credits and augmented by federally sponsored R&D.”[4]

In 1986, Amory Lovins of the Rocky Mountain Institute lamented the untimely scale-back of tax breaks for renewable energy, since the competitive viability of wind and solar technologies was “one to three years away.”[5]

In 1990, two energy analysts at the Worldwatch Institute predicted an almost complete displacement of fossil fuels in the electric generation market within a couple decades [i.e. 2010]:

Within a few decades, a geographically diverse country such as the United States might get 30 percent of its electricity from sunshine, 20 percent from hydropower, 20 percent from wind power, 10 percent from biomass, 10 percent from geothermal energy, and 10 percent from natural-gas-fired cogeneration.[6]

Overly Optimistic Wind Power Claims

In 1986, a representative of the American Wind Energy Association testified:

The U.S. wind industry has … demonstrated reliability and performance levels that make them very competitive. It has come to the point that the California Energy Commission has predicted windpower will be that State’s lowest cost source of energy in the 1990s, beating out even large-scale hydro.
…
We are not quite there. We have hopes.[7]

Christopher Flavin of the Worldwatch Institute has been predicting competitive viability since the 1980s. In 1984 he wrote:

Tax credits have been essential to the economic viability of wind farms so far, but will not be needed within a few years.[8]

In 1985, he wrote:

Although wind farms still depend on tax credits, they are likely to be economical without this support within a few years.[9]

In 1986, he wrote:

Early evidence indicates that wind power will soon take its place as a decentralized power source that is economical in many areas…. Utility-sponsored studies show that the better windfarms can produce power at a cost of about 7¢ per kilowatt-hour, which is competitive with conventional power sources in the United States.[10]

Overly Optimistic Solar Power Claims

In 1976, solar advocate Barry Commoner stated:

Mixed solar/conventional installations could become the most economical alternative in most parts of the United States within the next few years.[11]

In 1987 the head of the Solar Energy Industries Association stated:

I think frankly, the—the consensus as far as I can see is after the year 2000, somewhere between 10 and 20 percent of our energy could come from solar technologies, quite easily.[12]

In 1988, Cynthia Shea of the Worldwatch Institute wrote:

In future decades, [photovoltaic technologies] may become standard equipment on new buildings, using the sunlight streaming through windows to generate electricity.[13]

Conclusion

Wind and solar should not be thought of as “infant industries” but as government-dependent industries that penalize consumers and/or taxpayers. “Buyer beware” should also apply to the purveyors of political energy. Self-interested consumer decisions in the energy marketplace should be respected—and false promises about inferior energies exposed—for good public policy outcomes."

Obamacare Delivers. Just Not Very Much.

From Megan McArdle.

"The administration is expecting barely any increase in enrollment in Obamacare next year. The forecast is for enrollment of only 10 million, just a smidge higher than the 9.9 million currently enrolled.

If enrollment growth has truly stalled out, that would be big news. The Congressional Budget Office had originally forecast that 22 million people would enroll in the exchanges in 2016. Some of this disparity may be because fewer employers are “dumping” employees onto the exchanges, but at best this could account for less than half of the shortfall. Mostly, this represents people who were expected to sign up declining to do so.

Of course, the Obama administration's estimate could be a lowball. After the embarrassing performance when Obamacare began, officials have tended to underpromise, enabling them to trumpet a nice “upside surprise” when they tell the public about enrollment.

Still, even if there is an upside surprise, it’s more likely to be on the order of a million or so than the missing 12 million people who were expected to be on the exchanges. What should we take from this?

1. People are mostly interested in Obamacare only if they get large subsidies. The CBO had projected that by 2016, about 80 percent of people buying an exchange plan would be subsidized; in 2015 the actual percentage was 87 percent. If the administration is correct about the enrollment estimates, it seems mathematically impossible that this number will increase significantly. A report this year from the consulting company Avalere Health said that exchange enrollment is disproportionately concentrated among people  who are close to the poverty line; most of the eligibles over 200 percent of the poverty line have declined exchange policies, and almost none of those whose incomes are too high for subsidies have bought policies on the exchange.
2. The exchanges are going to have smaller pools than expected. Insurance is based on the law of large numbers; the bigger the pool, the easier it is to project your costs, because the outliers -- people who were unusually healthy or unusually sick -- cancel each other out. Smaller pools mean more risk.
3. There’s probably some adverse selection. Insurers have sporadically mentioned that the pool was sicker than expected, a problem reflected in the program’s risk-adjustment programs, which had far more claims for excess losses than payments from insurers that had unexpectedly good results. If half of your enrollment is missing, it’s a good bet that the missing people are disproportionately the healthy folks who don’t expect much in the way of health-care costs.
4. The program will cost less than projected, since fewer people will be getting subsidies. The original CBO projections expected 19 million people getting subsidies on the exchanges; the actual number looks like something under 9 million. Some of those people are of course getting employer insurance, with the accompanying tax subsidy, so the savings will not be as great as those numbers would suggest, but it will still be a noticeable reduction in the government spending.

Obamacare has undoubtedly produced a large drop in the number of uninsured. But if the administration is correct, then that decline will be less than half of what was originally expected, both because of the underenrollment in exchange policies and because so many states didn’t expand their Medicaid programs. The program may be shaping up as a modest expansion of Medicaid, coupled with a more robust version of the old high-risk pools.

Obamacare's architects can justifiably say that this is more than we had before. But it is less than anyone expected."

Some policies to fight climate change have done more harm than good

From Matt Ridley. Excerpts:

"Far from ushering in a brave new world of cleaner air, the technologies adopted by European car makers, driven by policy makers in Brussels, have been killing thousands of people a year through an obsession with lowering emissions of harmless carbon dioxide, at the expense of creating higher emissions of harmful nitrogen oxides."

"The great European switch to diesel engines was a top-down decision as a direct result of exaggerated fears about climate change. Convinced that the climate was about to warm rapidly, and extreme weather was about to get much worse, European governments signed the Kyoto protocol in 1997 and committed to reducing emissions of carbon dioxide in the hope that this would help. In the event, the global temperature stopped rising for 18 years, while droughts, floods and storms also showed no increase.

But in 1998, urged on by EU transport commissioner Neil Kinnock, welcomed by environment secretary John Prescott and acted on by chancellor Gordon Brown, Britain happily signed up to an EU agreement with car makers that they would cut carbon dioxide emissions by 25% over ten years. This suited German car makers, specialists in Rudolf Diesel’s engine design, because diesel engines have 15% lower CO2 emissions than petrol engines."

"Britain obediently lowered tax on diesel cars, despite knowing that they produce four times as much nitrogen oxides as petrol, and 20 times as many particulates, both bad for human lungs."

"Diverting agricultural crops into making ethanol or diesel to feed motor cars rather than people forces up the price of food, kills approximate 200,000 extra people a year and increases pressure on the rain forest.


Burning wood instead of coal in power stations has devastated forests and actually increased CO2 emissions: wood emits more CO2 per unit of energy generated even than coal"

"Subsidising windmills has raised the price of energy, rewarded the rich, killed eagles and gannets, polluted Chinese waterways with effluent from rare-earth refining"

" giving tax breaks to diesel cars has made urban air quality worse than it would otherwise have been, killing possibly 5,000 people a year in this country alone"

"As so often, Adam Smith got there first, saying in The Wealth of Nations, in 1776: ‘The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society.’"

New Data Shows Large Insurer Losses on ACA Plans

From Brian Blase of Mercatus.

"Risk corridor data released on October 1 by the administration shows that insurers lost a lot of money on Affordable Care Act (ACA) plans in 2014. The ACA established a three-year risk corridor program to transfer funds from insurers with lower-than-expected medical claims on ACA plans, i.e., profitable insurers, to insurers with higher-than-expected claims, i.e., insurers with losses. Despite administration claims that incoming payments from profitable insurers would cover losses from unprofitable ones, the risk corridor program shortfall exceeded $2.5 billion in 2014. Insurers with lower-than-anticipated claims owed about $360 million, and insurers with higher-than-anticipated claims requested about $2.9 billion from the program.

Using available data, mostly from the administration, I estimate that insurance companies likely lost at least 12% on ACA plans in 2014. There are two explanations for such large losses, with both probably true to some extent. First, a larger share of older and sicker people enrolled for ACA coverage than insurers projected. Second, some insurers underpriced plans in order to capture market share and then raise rates in future years. Many people will stick to an insurance plan because of the hassle involved with switching plans. Moreover, the ACA’s reinsurance and risk corridor programs allowed insurers to price aggressively, anticipating that a large share of any initial losses would be heavily subsidized. Insurers’ large losses on ACA plans last year and Congress’s decision late last year to prohibit taxpayer money from filling in a risk corridor shortfall will undoubtedly put upward pressure on ACA plan premiums in the next few years."

"The reinsurance program compensates insurers for people with extremely high medical expenses. In 2014, HHS paid insurers the full cost for enrollee’s claims between $45,000 and $250,000. This totaled $7.9 billion and was financed by a $63 tax on each person with private coverage."

"only a portion of the losses of insurers with actual expenses greater than expected expenses are subsidized. Using the net risk corridor deficit of $2.5 billion and the risk corridor formula, I estimate that insurers had actual claims in excess of expected claims by at least $4 billion on ACA plans in 2014."

"insurers collected total premiums of about $20.4 billion from subsidized exchange enrollees in 2014."

"87% of people who signed up for exchange coverage at HealthCare.gov received subsidies. Assuming 87% of all exchange enrollees received subsidies and equivalence between the average premium chosen by subsidized and unsubsidized exchange enrollees, insurers collected about $23.4 billion in premiums from about 5.5 million exchange policyholders in 2014."

"The insurers that tended to make the most costly pricing mistakes appear to be the new health care cooperatives established by the ACA with large federal start-up loans."

"Most of the other co-ops are in terrible financial shape. The news that HHS is limited to pay out just 12.6% of insurer risk corridor claims may lead to the collapse of additional co-ops and other smaller health insurers."

"It is important to remember that insurers lost such significant money in 2014 on ACA plans even including the $7.9 billion reinsurance program subsidy they received. Assuming $33.7 billion in total ACA plan premiums, reinsurance payments equaled about 23% of premiums collected in 2014. As the reinsurance program phases out and the risk corridor program provides much less relief than insurers had assumed, next year’s high premium increases are likely to be replicated for at least one more year."

Liberal Physicist Says Obama Is Wrong On Global Warming

From Keith Farrell is the Editor-in-Chief of The Libertarian Republic.

"Renowned physicist and self-described Democrat Freeman Dyson said President Obama is wrong about global warming.

“I’m 100 percent Democrat myself, and I like Obama,” Dyson told The Register in an interview published Sunday. “But he took the wrong side on this issue, and the Republicans took the right side.”

Dyson lamented scientists are ignoring “obvious” facts about global warming, and continue to conflate air pollution — which he says is not behind global warming — with carbon dioxide, which is not technically a pollutant.

“How does it happen that a whole generation of scientific experts is blind to obvious facts?” Dyson asked.

He has taught physics for nearly 40 years at the Institute for Advanced Study at Princeton, and his work in electrodynamics, climate studies and nuclear engineering has earned him notoriety in the scientific community.

He acknowledged fossil fuels emit “very unpleasant stuff” when burned, but said pollution from coal, oil and gas is not behind global warming. The greenhouse gas carbon dioxide, he alleges, is what’s behind global temperature rises.

“Pollution is quite separate to the climate problem,” Dyson told The Register. “One can be solved, and the other cannot. And the public doesn’t understand that.”

Dyson was featured in the forward of a report released Monday by the UK-based Global Warming Policy Foundation, where he challenged his colleagues to honestly judge the climatic effects of carbon dioxide.(RELATED: CO2 Emissions Are Making The Earth Greener)

“To any unprejudiced person reading this account, the facts should be obvious: that the non-climatic effects of carbon dioxide as a sustainer of wildlife and crop plants are enormously beneficial, that the possibly harmful climatic effects of carbon dioxide have been greatly exaggerated, and that the benefits clearly outweigh the possible damage,” Dyson wrote."

Senator Sanders and the Fixed Pie Fallacy

By Chelsea German of Cato. 

"“The rich are getting richer and the poor are getting poorer.” Senator Bernie Sanders first said those words in 1974 and has been repeating them ever since. Senator Sanders is not alone in his belief. Three out of four Americans agree with the statement, “Today it’s really true that the rich just get richer while the poor get poorer.” 

Senator Sanders is half right: the rich are getting richer. However, his assertion that the poor are becoming poorer is incorrect. The poor are becoming richer as well.

Economist Gary Burtless of the Brookings Institute showed that between 1979 and 2010, the real (inflation-adjusted) after-tax income of the top 1% of U.S. income-earners grew by an impressive 202%. He also showed that the real after-tax income of the bottom fifth of income-earners grew by 49%. All groups made real income gains. While the rich are making gains at a faster pace, both the rich and the poor are in fact becoming richer.

In addition to these measurable real income gains, decreases in prices have given the poor increased purchasing power, helping to raise living standards for the worst off in society. As a result of falling prices such as for groceries and material goods, along with gains in real income, Americans have more income left after basic expenses.

Technology has also become cheaper, improving our lives in unexpected ways. For example, consider the spread of cell phones. There was a time when only the wealthiest Americans could afford one. Today, over 98% of Americans have a cellular subscription, and the rise of smart phones has made these devices more useful than ever.

Unfortunately, progress has been uneven. In those areas of the economy where competition is hobbled, such as education, housing, and healthcare, prices continue to increase.

Still, the percentage of the population classified as living in relative poverty has decreased over time. Why then do three quarters of Americans, including Senator Sanders, believe that the poor are “getting poorer?”

A simple logical error underlies Sanders’ belief. If we assume that wealth is a fixed pie, then the more slices the rich get, the fewer are left over for the poor. In other words, people can only better themselves at the expense of others. In the world of the fixed pie, if we observe the rich becoming richer, then it must be because other people are becoming poorer. Fortunately, in the real world, the pie is not fixed. U.S. GDP is growing, and it’s growing faster than the population.

Poverty remains a pressing issue, but Senator Sanders is incorrect when he says that the poor are becoming poorer. In the words of HumanProgress.org advisory board member Professor Deirdre McCloskey,

The rich got richer, true. But millions more have gas heating, cars, smallpox vaccinations, indoor plumbing, cheap travel, rights for women, lower child mortality, adequate nutrition, taller bodies, doubled life expectancy, schooling for their kids, newspapers, a vote, a shot at university, and respect."

Why trying to help poor countries might actually hurt them

Nobel-winning economist Angus Deaton argues against giving aid to poor countries

By Ana Swanson of The Washington Post. Excerpts:

"Deaton argues that, by trying to help poor people in developing countries, the rich world may actually be corrupting those nations' governments and slowing their growth. According to Deaton, and the economists who agree with him, much of the $135 billion that the world’s most developed countries spent on official aid in 2014 may not have ended up helping the poor."

"Deaton’s skepticism about the benefits of foreign aid grew out of his research, which involved looking in detail at households in the developing world, where he could see the effects of foreign aid intervention.

“I think his understanding of how the world worked at the micro level made him extremely suspicious of these get-rich-quick schemes that some people peddled at the development level,” says Daron Acemoglu, an economist at MIT.

The data suggested that the claims of the aid community were sometimes not borne out. Even as the level of foreign aid into Africa soared through the 1980s and 1990s, African economies were doing worse than ever, as the chart below, from a paper by economist Bill Easterly of New York University, shows."



"The effect wasn't limited to Africa. Many economists were noticing that an influx of foreign aid did not seem to produce economic growth in countries around the world. Rather, lots of foreign aid flowing into a country tended to be correlated with lower economic growth, as this chart from a paper by Arvind Subramanian and Raghuram Rajan shows.

The countries that receive less aid, those on the left-hand side of the chart, tend to have higher growth -- while those that receive more aid, on the right-hand side, have lower growth.

Raghuram G. Rajan and Arvind Subramanian, "Aid and Growth: What Does the Cross-Country Evidence Really Show?"

 

Why was this happening? The answer wasn't immediately clear, but Deaton and other economists argued that it had to do with how foreign money changed the relationship between a government and its people.

Think of it this way: In order to have the funding to run a country, a government needs to collect taxes from its people. Since the people ultimately hold the purse strings, they have a certain amount of control over their government. If leaders don't deliver the basic services they promise, the people have the power to cut them off.

Deaton argued that foreign aid can weaken this relationship, leaving a government less accountable to its people, the congress or parliament, and the courts.

"My critique of aid has been more to do with countries where they get an enormous amount of aid relative to everything else that goes on in that country," Deaton said in an interview with Wonkblog. "For instance, most governments depend on their people for taxes in order to run themselves and provide services to their people. Governments that get all their money from aid don’t have that at all, and I think of that as very corrosive."

It might seem odd that having more money would not help a poor country. Yet economists have long observed that countries that have an abundance of wealth from natural resources, like oil or diamonds, tend to be more unequal, less developed and more impoverished, as the chart below shows. Countries at the left-hand side of the chart have fewer fuels, ores and metals and higher growth, while those at the right-hand side have more natural resource wealth, yet slower growth. Economists postulate that this "natural resource curse" happens for a variety of reasons, but one is that such wealth can strengthen and corrupt a government.

Like revenue from oil or diamonds, wealth from foreign aid can be a corrupting influence on weak governments, “turning what should be beneficial political institutions into toxic ones,” Deaton writes in his book “The Great Escape: Health, Wealth, and the Origins of Inequality.” This wealth can make governments more despotic, and it can also increase the risk of civil war, since there is less power sharing, as well as a lucrative prize worth fighting for.

Deaton and his supporters offer dozens of examples of humanitarian aid being used to support despotic regimes and compounding misery, including in Zaire, Rwanda, Ethiopia, Somalia, Biafra, and the Khmer Rouge on the border of Cambodia and Thailand. Citing Africa researcher Alex de Waal, Deaton writes that “aid can only reach the victims of war by paying off the warlords, and sometimes extending the war.”"

"The old calculus of foreign aid was that poor countries were merely suffering from a lack of money. But these days, many economists question this assumption, arguing that development has more to do with the strength of a country’s institutions – political and social systems that are developed through the interplay of a government and its people.

There are lot of places around the world that lack good roads, clean water and good hospitals, says MIT's Acemoglu: “Why do these places exist? If you look at it, you quickly disabuse yourself of the notion that they exist because it’s impossible for the state to provide services there." What these countries need even more than money is effective governance, something that foreign aid can undermine, the thinking goes."

"While Deaton agrees that many development projects are successful, he’s critical of claims that these projects can be replicated elsewhere or on a larger scale. "The trouble is that 'what works' is a highly contingent concept," he said in an interview. "If it works in the highlands of Kenya, there’s no reason to believe it will work in India, or that it will work in Princeton, New Jersey."

The success of a local project, like microfinancing, also depends on numerous other local factors, which are harder for researchers to isolate. Saying that these randomized control trials prove that certain projects cause growth or development is like saying that flour causes cake, Deaton writes in his book. “Flour ‘causes’ cakes, in the sense that cakes made without flour do worse than cakes made with flour – and we can do any number of experiments to demonstrate it – but flour will not work without a rising agent, eggs, and butter – the helping factors that are needed for the flour to ‘cause’ the cake.”

Deaton's critiques of foreign aid stem from his natural skepticism of how people use -- and abuse -- economic data to advance their arguments. The science of measuring economic effects is much more important, much harder and more controversial than we usually think, he told The Post."

"many of the positive things that are happening in Africa – the huge adoption in cell phones over the past decade, for example – are totally homegrown. He points out that, while the world has made huge strides in reducing poverty in recent decades, almost none of this has been due to aid. Most has been due to development in countries like China, which have received very little aid as a proportion of gross domestic product and have "had to work it out for themselves."

Ultimately, Deaton argues that we should stand aside and let poorer countries develop in their own ways."