Good intentions always fall victim to reality

From Texas City Featured in Al Gore’s ‘Inconvenient Sequel’ Lost Millions in Its Green Energy Gamble by Michael Bastasch. As a report, it is somewhat one-sided but given that in the media at-large the one-sidedness is all the other way, it is the only counterbalance available.

With a more than thirty-year career consulting to the utility energy, I have more than a passing knowledge of the issues and context.

With a faith-based conviction in anthropogenic global warming, a native inclination to improve the environment, with a government designed incentive structure to invest in uneconomic energy sources, a strong tendency towards simplistic solutions, a pathological desire to use other people's money to solve putative but unproven problems, and capital markets with sufficient depth and liquidity to allow an almost inconceivable level of pushing costs onto future generations in order to indulge nonsense now, we have the perfect storm for virtue signaling failure.

The naive but hopeful idea is that we can conjure up cheap, reliable, safe energy alternatives to carbon based fuel and that we can replace all our coal plants, gas plants and nuclear plants with renewable energy such as solar, wind, or wave.

When I graduated college in 1982, after having taken a number of classes on energy economics and alternate energy sources, I made an assessment of career options. I was intrigued and very interested in the potential for a carbon free future through renewables. But my honest assessment then was that despite all the promising technologies on the near horizon, it was unclear exactly when renewables might become an economic or operational alternative. The horizon for feasibility always seemed five years ahead and that had been true for some decades.

Now, nearly four decades after that assessment, it remains as true now as then. The costs of solar and wind have fallen. We have made huge strides on the engineering and fundamental science so that the economics have improved. But the same has been happening on the carbon energy side of the equation as well. The gap between carbon energy and renewable energy remains as wide as ever. And the ten-year promise of fusion and thorium reactors also remains ten years out.

Whether you view Al Gore and his ilk as delusional faith-based evangelists or mere charlatans, there is no denying that they have been effective at parting tax payers from their money through the auspices of government policies. While a few big half billion losses such as Solyndra catch the attention, it is the small few hundred or few thousand dollar subsidies here and there and the local government initiatives in the millions and tens of millions which, in aggregate, really handicap the economy and the future.

Part of the problem is that the alternative energy sources, without subsidies, are still not economically viable. Almost a bigger issue is that alternative renewable energy sources, especially wind and solar, are inescapably unreliable which wreaks havoc on electric grids.

Germany has shackled its economy, already exposed to Chinese subsidized competition, with expensive and unreliable renewable energy. Sweden has been headed down the same road, both of them replacing their nuclear fleets with renewables. The Australian state of South Australia did the same thing to the point where they nearly destroyed their electrical grid.

Here in the states, California is doing the same thing. California and, to a lesser extent, a handful of other states, counties and cities. Tragically, they all tend to be blue locales with already strained tax burdens and over-extended public debt exposure. You can see the slow-motion wreck occurring and yet no-one wants to acknowledge that the happy delusions are just that.

Bastasch is reporting on just such an experience in Georgetown, Texas. Georgetown is a small city thirty miles north of Austin and an indirect beneficiary of that city's regional boom.

Georgetown began its shift toward 100 percent wind and solar energy several years ago, and the city says it reached that goal in July after the Buckthorn solar plant went online. The city owned utility contracts with Buckthorn and the Spinning Spur 3 wind farm for all its power needs.

Georgetown Utility Systems contracted to buy wind and solar at fixed prices until 2035 and 2043, respectively. Georgetown is obligated to buy about twice as much power as it actually needs from green power plants. The city is the first in Texas and the second-largest in the U.S. to go 100 percent renewable.

The idea was that Georgetown would have enough green power to grow into at fixed prices, avoiding market volatility and what it saw as the rising costs of fossil fuels. In the meantime, Georgetown would sell any excess power back to Texas’ electricity market.

But energy prices plummeted in recent years, particularly natural gas prices, meaning the city lost money selling power back to the market. Georgetown Budget Manager Paul Diaz told city councilors in late November the utility had lost $6.84 million. City officials are looking for ways to make up the shortfall.

“[Georgetown Utility Systems] is in the process of opening negotiations with our current energy suppliers to adjust the terms of our contracts,” City Councilman Steve Fought wrote in an email to constituents.

“Additionally, we are working to change our management strategy for daily energy market operations,” Fought wrote in his Nov. 26 email. “We also need to implement belt tightening measures in the electric department and shift funds to balance the GUS accounts.”

From another, somewhat more balanced report, found through Wikipedia, we have Georgetown renegotiating solar, wind power contracts by Claire Osborn.

The city of Georgetown’s bill for wind and solar energy ended up being $8.6 million more than anticipated in fiscal year 2018 because the falling prices of oil and gas meant it had to sell its surplus renewable power for less than forecast, said City Manager David Morgan.

The city had budgeted $45 million for renewable energy but ended up paying $53.6 million, he said.

So basically, in its first year having a 100% renewable energy policy, the city has already had an unexpected 20% overrun in costs.

In neither article are their rates or an accounting for overall energy costs, so all we have to go on are the budget items.

But it does serve as an example of the structural decision-making and governance issues so common in these initiatives. It sounds good. It signals virtue. It attracts attention. But then the bill comes due.

And it comes due because of Hayek's Problem of Knowledge. The City approached the "problem" with a deterministic philosophy which failed to take into account all the contextual moving parts. Yes, they locked themselves into what they thought were beneficial long term energy contracts so that they would know that they had the energy necessary. But they either failed to take into account the macro-energy market prices or they suffered tunnel vision which blinded them to the fact that non-renewable energy is usually cheaper than renewable and therefore there would be at least periods of time when they would lose money on their resale of renewable energy.

What is not mentioned in either article is that Georgetown theoretically might come out whole. Market prices always fluctuate. Just because you are losing money at one stage of the cycle doesn't mean that you won't come out whole over the entire cycle.

But the renewable energy people, aside from hiding the capital costs in long term debt, also tend to mistime the market. It is much like people pouring into the residential real estate market in 2007 at the height of the real estate bubble, taking on unsustainable loans for overvalued homes. As soon as the market adjusted to reality, they lost their money. If each of those individuals had a fifty year time horizon for investment, likely they might have made their money back. But typically residential investment decisions are in the 5-15 year time horizon. With that horizon, you end up buying high and selling low. Exactly as Georgetown has ended up doing.

Cities, particularly growing cities, can have longer time horizons so maybe on a fifty year scale, they might come out ahead. But cities prone to indulge in such risky ventures also tend to load up on all sorts of other risky and social equity type investments which cumulatively cause financial collapse.

It is a tremendous irony, and a delightful one for Americans who benefit from it, that the OECD nation most averse to central planning, least committed to the AGW mindset, and most inclined to let markets resolve social issues is also the nation which has the lowest cost of energy for its citizens (making them that much richer), the fastest falling CO2 rates, among the fastest improvements of energy densification (economic value per unit of energy consumed) and among the best improvements in the environment.

Despite that decades long evidence that coercive centrally planned economies which base their decisions on magical thinking and moral wishes rather than hard facts on the ground only leads to ruin and decline, the advocates of such approaches are still out preaching that gospel.

Meanwhile, Georgetown, Texas residents can look forward to higher energy costs and rising tax rates, despite their good intentions.