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  1. wind is a low-density source. It's not surprising that it costs more per MW; but ultimately it is irrelevant (just as the 20 or 25 lifespan is irrelevant as long as the price per MWh or actual electricity works, and it does.

  2. no, the feed-in tariff is required to provide a revenue to wind producers in a market environment where, as I explain, wind drags prices down for everybody. If you are in an integrated utility model where the utility can include wind power at its average cost over the long run (ie, the utility effectively internalises the feed-in regime), then you don't need a feed-in tariff, but until we do, it's required.

2bis) as noted in my text, wind is already cost-competitive with other technologies; it is its high fixed cost, lower marginal cost which makes it require a feed-in tariff, not its lack of competitivity. But there is no subsidy per se: as I note, the overall effect of the feed-in tariff is to lower the price paid by the rate payers who are bearing that tariff.

  1. everything is driven by political considerations. Are you saying that the coal industry's priorities are more legitimate just because they've been imposed on us, politically, for much longer?

  2. that's just not true. Wind wend from 0 to 10% of net generation in Germany and Spain without a crash programme. If wind was given the kind of political attention given to Russia or to nukes, it could go to 50% in surprisingly fast time. Again, it's technologically, economically and physically easy; it's the political will that's missing.

  3. as you know, BruceMcF has been calling neolib economics "marginalist" economics. Repudiating these in the energy sector (which is what this debate is all about: wind is NOT a marginalist technology, thus its difficulty to be accepted by the incumbents and the ideologues) would go a long way towards defining new economics that make more sense.


In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sun May 3rd, 2009 at 11:21:19 AM EST
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by rootless2 on Sun May 3rd, 2009 at 12:00:57 PM EST
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One of the regulars.

BruceMcF:

Obscure Development Economist, living in Ravenna ... though, as the Rubicon is nowhere in sight, its unlikely I will be crossing it anytime soon.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun May 3rd, 2009 at 03:21:10 PM EST
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Just in case it isn't obvious, I think that's Ravenna, Ohio.
by gk (gk (gk quattro due due sette @gmail.com)) on Sun May 3rd, 2009 at 03:29:57 PM EST
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Hence the difficulty in finding the Rubicon.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Sun May 3rd, 2009 at 08:30:09 PM EST
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No idea, never heard of him.

I took adopted the marginalist economists from Sraffa.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun May 3rd, 2009 at 03:59:03 PM EST
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thanks.

what strikes me about modern neoclassical economists is their twin delusion that all wealth is produced by finance and that finance operates on some fundamental laws of nature.

by rootless2 on Sun May 3rd, 2009 at 05:28:22 PM EST
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It comes from believing that money as such plays no fundamental role in the economy, but is only a veil covering trade in reals.

Perversely, without an ability to model stable macroeconomic levels of output below full employment, financial saving, receiving money incomes and not consuming them, is automatically freeing resources that will then be used in real investment.

With that automagic equation between monetary saving and real investment in place, its a short step to acting as if financial "investment" is identical to real investment.

These are all empirical fallacies that macroeconomists understood quite well after WWII ... there is no automatic tendency toward full employment, there is no automatic association between creation and trading of financial assets and actual investment in productive capacity ... but for decades now, mastery of the marginalist microeconomics at every greater levels of sophistication has been required to become a professional economist, while mastery of the rudiments of actual Keynesian economics has been entirely optional in ever more schools, and in the last two or three decades often entirely unavailable in the grad school curriculum.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun May 3rd, 2009 at 05:57:33 PM EST
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I also see a belief that everything is fungible and determined by investment price: "Intel constructed this factory for making chips  with $1B investment" does not mean that any wannabe with $1B can make an equivalent factory.
by rootless2 on Sun May 3rd, 2009 at 07:20:16 PM EST
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well give me a billion and I'll give it a try.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Sun May 3rd, 2009 at 08:17:41 PM EST
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... marginalist modeling tractable when extended to the whole economy. In the real world, there are lots of clumps of strong complements all over the place, and key concepts like the marginal productivity of individual inputs fall apart in the face of strong complements.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Sun May 3rd, 2009 at 08:29:07 PM EST
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Are feed-in tariffs a market designed structure or a government encouraged activity? I tend to think it is the latter. As I said, long-range contracts have gone out of fashion and this is atypical.

In fact it is almost a validation that the present wind plants being built are uneconomic over the long term. If they weren't they wouldn't need a guaranteed income stream. Instead we can expect to see the price of future construction drop as technology improves making cost recovery of existing plants impossible. You pointed this out yourself implicitly by saying that bankrupt wind farms would always be a good deal for later investors.

I have nothing against government sponsoring startup technology either directly through subsidies or indirectly through tax breaks or the like, but let's not pretend it is anything but an attempt to make uncompetitive technologies more competitive.

I'm all in favor of making conventional power generation more expensive by accounting for externalities. What I think is a fallacy is that this will per force lead to technological innovation. Economic forces can encourage innovation, but cannot guarantee it. The economists debating carbon tax vs cap and trade are leaving the hard issue of what happens next to someone else to deal with. It's a variation on the old economics joke "assume a can opener".

There's an old joke about three guys stranded in the desert, dying of thirst. They have a can of water -- but can't open it. One guy, an engineer, uses a stick as a lever and a rock as a fulcrum and ... nothing. The second guy, a physicist, does some calculations, drops the can from a predetermined height at a carefully considered angle and ... still nothing. Finally, the third guy, an economist, looks at the can and says: "OK. I have the solution. Assume a can opener."

I'm not trying to be discouraging. I'm quite pleased to see the progress you and your colleagues are making, but I think it has to be combined with more emphasis on reducing demand.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Sun May 3rd, 2009 at 01:20:45 PM EST
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Are feed-in tariffs a market designed structure or a government encouraged activity?

It is a way to structure a market, just like take-or-pay contracts are a way to structure the gas market. They are, of course, government designed, because the electricity market is government designed and operated (where it works, at least).

As I said, long-range contracts have gone out of fashion and this is atypical.

Your own example (Enron in California) is actually noteworthy here, in that long-term contracts did not "go out of fashion" with the market participants. They were forbidden by the regulators, because they were thought to stifle "competition." When this ban was lifted, the majority of the juice went back to being sold under long-term contracts.

In fact it is almost a validation that the present wind plants being built are uneconomic over the long term. If they weren't they wouldn't need a guaranteed income stream.

Huh? You mean, like Gazprom's insistence on take-or-pay contracts is evidence that gas extraction is uneconomical?

Instead we can expect to see the price of future construction drop as technology improves making cost recovery of existing plants impossible.

And so what? Should we stop making integrated circuits today, because we know that a cheaper, faster version will be available in six months? What's the point here?

You pointed this out yourself implicitly by saying that bankrupt wind farms would always be a good deal for later investors.

scratches head I don't get it. How do you get from there to here?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun May 3rd, 2009 at 03:33:50 PM EST
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I would add that all markets are designed - some from scratch other by try and error. And today they are all in part designed by government. There has been examples of markets without an authority or even a common language but today that is quite rare.

I read about an small island in northern Sweden that was used for trade between locals and southerners with a simple system of placing items on a given date, leave for a day and then return. If there was any takers there was a pile of stuff next to yours. If you accepted you took that pile and left. If you wanted to barter you either decreased your pile or left it all. Anyhow you then left for a day. When you returned the other side had either made a new bid or taken their stuff back. I believe it was described in the 18th century (possibly Linneaus or one of his pupils) as having been around longer then anyone could remember. This is what I would call a market that was regulated, but without government.

You can also have trade without regulation - for example viking style - but a market implies something a bit more permanent. And then there is regulation.

Bit ot, but the "unregulated market" is an annoying term.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Mon May 4th, 2009 at 05:01:49 AM EST
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... that the regulation is provided by the private participant with the most power.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon May 4th, 2009 at 10:59:30 AM EST
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In fact it is almost a validation that the present wind plants being built are uneconomic over the long term.

No.wind producers  are economic on average but the way markets are sturctured means that there is price volatility, which they are not able to tolerate for very long. Gas is more expensive, but closer to market prices, and thus thrives more.

Is that what you mean by "economic"?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun May 3rd, 2009 at 04:04:16 PM EST
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The issue is the high fixed cost / low marginal cost cost structure of wind. The price required to bring the wind power onto the market is the marginal cost of production, but the marginal cost of production is below the replacement cost.

That means with sufficient market penetration that wind is frequently on the extensive margin, it can be non-commercial, even when it is clearly economic given that providing it at replacement cost plus a normal profit yields a net reduction in energy cost to consumers.

This is independent of the issue that the market, of course, is not capable of designing a complex system, and so either we must be content with the complex systems designed to support the interests of private corporate governments, or else must support a public role in the design of complex systems.

The establishment of subcontinental long hail electricity to pool wind and other renewable energy resources to reduce or eliminate intermittency is an example of the type of complex system that a pure market system is incapable of designing.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun May 3rd, 2009 at 04:32:00 PM EST
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I'm all in favor of making conventional power generation more expensive by accounting for externalities. What I think is a fallacy is that this will per force lead to technological innovation.

Cap and trade, or even better cap and auction, or best of all cap and dividend, will harvest "low hanging fruit". However, without effective research and development in the New Energy Economy and investment in complementary infrastructure, the supply of "low hanging fruit" will run out and the cost of meeting a cap will be greater than it needs to be.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun May 3rd, 2009 at 06:02:04 PM EST
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