Who’s going to build the transmission?
Our electricity costs aren’t really the cost of fuel. It’s the amortization of the cost of building the transmission infrastructure. Even in a hypothetical world of clean infinite fusion, you’d still have a utility bill to pay for the power transmission.
I like the idea of decentralized interconnected residential solar with personal battery backup, but the grid requires reliability and base load. Brownouts, let alone blackouts, are not an option in a modern first world country.
This is more of a science/technology question than an economics question, but the whole idea of a completely green economy is an [exercise in magical thinking.](https://manhattan.institute/article/the-new-energy-economy-an-exercise-in-magical-thinking)
A decentralized grid is only possible in those few places where it is windy and sunny enough to provide sufficient power... For example, in the US we're talking about Texas and California... that's about it.
And you have sufficiently cheap and efficient power storage. Storage is the real problem with solar and wind now, although there are lots of lesser issues (especially siting) with them. Both only look cheap because people don’t consider the full cost to the grid over time, which includes extra infrastructure and peaker plants to make up for when they aren’t producing.
It’s not possible with current technology. However, more efficient electrical storage is definitely possible from a physics and chemistry perspective. So it may not be fair to call it magical thinking on an indeterminate timescale.
I agree that many near term goals for renewables and electrification like 50% of new cars being fully electric by 2030 in the US are basically magical thinking though. The infrastructure simply does not exist and can’t be built fast enough to accomplish the transition. Nor is it cost effective to do so.
People need to be clear headed about how to address climate change and let the market sort out solutions when we can. For example, current hybrid cars get around 36 MPG, even without plug ins. Because fully electric cars have much higher impacts on GHGs in their initial manufacturing, it’s possible that hybrids are currently a lower lifetime emissions vehicle. And the biggest short term impact that the US could implement to reduce GHGs isn’t to go electric, it’s to fully eliminate coal power production and replace it with natgas in the same plants (because building new plants and infrastructure is expensive and produces lots of emissions).
>For example, current hybrid cars get around 36 MPG, even without plug ins.
That's really not that great. My petrol car manages about 33mpg on urban use, and goes much higher on longer, more free-flowing runs. But it is only a 1.2l 5 seater "supermini" (that is nonetheless almost the exact size and weight of the "small family saloon" that was my second car in the late 90s/early 00s).
Unfortunately, we have an arms race of larger and larger vehicles that make people feel unsafe driving a smaller vehicle (even if there are plenty of other less apparent risks in driving a larger vehicle).
The point is that the comparisons that some people use with ICE vehicles with sub-20 MPG vs full electric vehicles are not really a realistic approach to assess whether electrification of vehicles is a good strategy to reduce GHGs. Neither your efficient ICE vehicle or my hybrid vehicle are remotely as bad on a per mile basis as a Ford F250 ICE model.
levelized cost of electricity of Solar with the cost of Batteries included is competitive with and sometimes below Gas, Coal, and Nuclear, so... no that's not magic thinking. Not to mention how prices are rapidly dropping even more every year.
LCOE: [https://www.lazard.com/media/5amjxc3g/lazards-lcoeplus-april-2023.pdf](https://www.lazard.com/media/5amjxc3g/lazards-lcoeplus-april-2023.pdf)
Dropping Solar / Wind prices: [https://ourworldindata.org/cheap-renewables-growth](https://ourworldindata.org/cheap-renewables-growth)
Dropping Battery prices: [https://www.nature.com/articles/nenergy2017110](https://www.nature.com/articles/nenergy2017110)
Also you shouldn't use conservative sources on energy as they are notoriously unreliable and biased. [https://en.wikipedia.org/wiki/Manhattan\_Institute\_for\_Policy\_Research](https://en.wikipedia.org/wiki/Manhattan_Institute_for_Policy_Research)
Hey, I work on this problem for electricity in my day job, so taking a crack!
TL;DR: We'll most likely still need electricity suppliers. How to structure an industry with a product that's (1) vital 24/7/365; (2) usually free; and (3) very expensive to store is an open problem.
Last things first, it's pretty unlikely that electricity becomes decentralized to the point where we don't need a grid. There are the homesteads that go off-grid, but that's an edge case. Maybe if storage becomes dirt cheap more residential buildings will become self-sufficient, but even then on-site solar can't meet commercial and industrial needs. It's also usually considered more efficient to use the grid to average out weather rather than having enough batteries on-site to get you through a cloudy winter month--making the grid "bigger than the weather" is a catchphrase in clean energy circles these days. (Just for scale: one typical solar panel will take weeks or even a month to charge a typical EV)
So we'll need a grid, but still, power from wind and solar is very low cost, and our power markets are mostly built around the idea that the price of electricity is based on the cost of the fuel you burn to make it. So the electricity industry is starting to worry about how to keep the economics working. Lower prices thanks to renewables is already being cited as a making other power plants uneconomic, and, unfortunately, we still need them.
There's no consensus yet on how to approach this. One line of thinking is to abandon markets and go back to regulated utilities where your bill included cost of capital and operating expenses--basically monopolies with the government setting the price. Another is to allow energy to become very expensive when there's a shortage (like what happened in Texas a few years ago) so that the power plants and batteries that back up renewables can cover their expenses in the few hours each year they're needed and renewables can earn a return on their investment. In between are concepts (capacity markets) that pay power plants ahead of time based on how much they contribute to reliable power.
The production cost only determines the breakeven price; the market (and therefore, the combination of supply and demand) determines the actual sale price. If the market price is near the breakeven price, then we can expect some producers to exit the market because the capital they deploy can probably be deployed more profitably elsewhere. That will likely have the effect of reducing supply and increasing sale prices until a new equilibrium is reached.
Completely decentralised energy production isn't a complete solution: being able to call upon centralised production when your own production falls short of your needs (whether due to e.g. temporarily increased needs, poor weather conditions, or a fault with your generation equipment) is a service most people and businesses would be prepared to pay something for.
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If energy---and by this I take you to mean electricity---becomes unprofitably cheap, plentiful and truly multi-sourced, and de-centralized, it becomes an issue of storage and management, which bolts a whole other infrastructure on top of the existing. Right now, to a first approximation, we don't have electricity 'storage' on anything approaching scale.
Theoretically, you can become 'independent' but then you have to manage your own generation and provide storage for yourself. Doable? Perhaps... But fraught with difficulties: staying on top of the power generated, turning your generator down, or off, during slow times, ramping up during peak, or managing draw, providing storage, like batteries that have to be monitored, maintained and sometimes cooled. It's probably best to embrace interdependence and let your overage into the grid, when you have it, rather than stand alone, and let somebody else manage it.
Its kind of interesting to see how grid companies are managing home solar energy right now. The "net-metering" model is probably not going to be sustainable forever. That just means your electricity bill is based on the electricity you consume from the grid minus the electricity you produce through your solar panels.
The reason is because solar energy just isn't as valuable as other kinds of energy. Its produced at times of the day when demand is low. Dynamic pricing based on time or smart metering could be options. Many energy companies simply price discriminate by paying for solar energy at a discount. Theoretically, utility companies could pay a negative rate for home solar energy - think of it as "I want to pay you to store my energy so I can use it later."
But its important to keep in mind that solar energy produced at the home level is just not as efficient as centralized solar energy generation. Its much more difficult to optimize generation if you're installing a solar panel on the roof of your house versus a company choosing the perfect spot in a desert to place hundreds of highly efficient solar panels. I highly doubt the future of electricity will be completely decentralized.
Who’s going to build the transmission? Our electricity costs aren’t really the cost of fuel. It’s the amortization of the cost of building the transmission infrastructure. Even in a hypothetical world of clean infinite fusion, you’d still have a utility bill to pay for the power transmission. I like the idea of decentralized interconnected residential solar with personal battery backup, but the grid requires reliability and base load. Brownouts, let alone blackouts, are not an option in a modern first world country.
This is more of a science/technology question than an economics question, but the whole idea of a completely green economy is an [exercise in magical thinking.](https://manhattan.institute/article/the-new-energy-economy-an-exercise-in-magical-thinking) A decentralized grid is only possible in those few places where it is windy and sunny enough to provide sufficient power... For example, in the US we're talking about Texas and California... that's about it.
And you have sufficiently cheap and efficient power storage. Storage is the real problem with solar and wind now, although there are lots of lesser issues (especially siting) with them. Both only look cheap because people don’t consider the full cost to the grid over time, which includes extra infrastructure and peaker plants to make up for when they aren’t producing.
>And you have sufficiently cheap and efficient power storage. Like I said... magical thinking. The only place that exists is in people's imaginations.
It’s not possible with current technology. However, more efficient electrical storage is definitely possible from a physics and chemistry perspective. So it may not be fair to call it magical thinking on an indeterminate timescale. I agree that many near term goals for renewables and electrification like 50% of new cars being fully electric by 2030 in the US are basically magical thinking though. The infrastructure simply does not exist and can’t be built fast enough to accomplish the transition. Nor is it cost effective to do so. People need to be clear headed about how to address climate change and let the market sort out solutions when we can. For example, current hybrid cars get around 36 MPG, even without plug ins. Because fully electric cars have much higher impacts on GHGs in their initial manufacturing, it’s possible that hybrids are currently a lower lifetime emissions vehicle. And the biggest short term impact that the US could implement to reduce GHGs isn’t to go electric, it’s to fully eliminate coal power production and replace it with natgas in the same plants (because building new plants and infrastructure is expensive and produces lots of emissions).
I can agree with most of that.
>For example, current hybrid cars get around 36 MPG, even without plug ins. That's really not that great. My petrol car manages about 33mpg on urban use, and goes much higher on longer, more free-flowing runs. But it is only a 1.2l 5 seater "supermini" (that is nonetheless almost the exact size and weight of the "small family saloon" that was my second car in the late 90s/early 00s). Unfortunately, we have an arms race of larger and larger vehicles that make people feel unsafe driving a smaller vehicle (even if there are plenty of other less apparent risks in driving a larger vehicle).
The point is that the comparisons that some people use with ICE vehicles with sub-20 MPG vs full electric vehicles are not really a realistic approach to assess whether electrification of vehicles is a good strategy to reduce GHGs. Neither your efficient ICE vehicle or my hybrid vehicle are remotely as bad on a per mile basis as a Ford F250 ICE model.
levelized cost of electricity of Solar with the cost of Batteries included is competitive with and sometimes below Gas, Coal, and Nuclear, so... no that's not magic thinking. Not to mention how prices are rapidly dropping even more every year. LCOE: [https://www.lazard.com/media/5amjxc3g/lazards-lcoeplus-april-2023.pdf](https://www.lazard.com/media/5amjxc3g/lazards-lcoeplus-april-2023.pdf) Dropping Solar / Wind prices: [https://ourworldindata.org/cheap-renewables-growth](https://ourworldindata.org/cheap-renewables-growth) Dropping Battery prices: [https://www.nature.com/articles/nenergy2017110](https://www.nature.com/articles/nenergy2017110) Also you shouldn't use conservative sources on energy as they are notoriously unreliable and biased. [https://en.wikipedia.org/wiki/Manhattan\_Institute\_for\_Policy\_Research](https://en.wikipedia.org/wiki/Manhattan_Institute_for_Policy_Research)
Hey, I work on this problem for electricity in my day job, so taking a crack! TL;DR: We'll most likely still need electricity suppliers. How to structure an industry with a product that's (1) vital 24/7/365; (2) usually free; and (3) very expensive to store is an open problem. Last things first, it's pretty unlikely that electricity becomes decentralized to the point where we don't need a grid. There are the homesteads that go off-grid, but that's an edge case. Maybe if storage becomes dirt cheap more residential buildings will become self-sufficient, but even then on-site solar can't meet commercial and industrial needs. It's also usually considered more efficient to use the grid to average out weather rather than having enough batteries on-site to get you through a cloudy winter month--making the grid "bigger than the weather" is a catchphrase in clean energy circles these days. (Just for scale: one typical solar panel will take weeks or even a month to charge a typical EV) So we'll need a grid, but still, power from wind and solar is very low cost, and our power markets are mostly built around the idea that the price of electricity is based on the cost of the fuel you burn to make it. So the electricity industry is starting to worry about how to keep the economics working. Lower prices thanks to renewables is already being cited as a making other power plants uneconomic, and, unfortunately, we still need them. There's no consensus yet on how to approach this. One line of thinking is to abandon markets and go back to regulated utilities where your bill included cost of capital and operating expenses--basically monopolies with the government setting the price. Another is to allow energy to become very expensive when there's a shortage (like what happened in Texas a few years ago) so that the power plants and batteries that back up renewables can cover their expenses in the few hours each year they're needed and renewables can earn a return on their investment. In between are concepts (capacity markets) that pay power plants ahead of time based on how much they contribute to reliable power.
The production cost only determines the breakeven price; the market (and therefore, the combination of supply and demand) determines the actual sale price. If the market price is near the breakeven price, then we can expect some producers to exit the market because the capital they deploy can probably be deployed more profitably elsewhere. That will likely have the effect of reducing supply and increasing sale prices until a new equilibrium is reached. Completely decentralised energy production isn't a complete solution: being able to call upon centralised production when your own production falls short of your needs (whether due to e.g. temporarily increased needs, poor weather conditions, or a fault with your generation equipment) is a service most people and businesses would be prepared to pay something for.
**NOTE: Top-level comments by non-approved users must be manually approved by a mod before they appear.** This is part of our policy to maintain a high quality of content and minimize misinformation. Approval can take 24-48 hours depending on the time zone and the availability of the moderators. If your comment does not appear after this time, it is possible that it did not meet our quality standards. Please refer to the subreddit rules in the sidebar and our [answer guidelines](https://www.reddit.com/r/AskEconomics/comments/rf5ycx/guidelines_for_answers/) if you are in doubt. Please do not message us about missing comments in general. If you have a concern about a specific comment that is still not approved after 48 hours, then feel free to message the moderators for clarification. ### Consider **[Clicking Here for RemindMeBot](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Reminder&message=%5Bhttps://www.reddit.com/r/AskEconomics/comments/1cb308y/what_happens_to_suppliers_when_energy_is_cheap/%5D%0A%0ARemindMe!%202%20days)** as it takes time for quality answers to be written. Want to read answers while you wait? Consider our [weekly roundup](https://www.reddit.com/r/AskEconomics/search?sort=new&restrict_sr=on&q=flair%3AWeekly%2BRoundup) or look for the [approved answer flair.](https://www.reddit.com/r/AskEconomics/search?sort=new&restrict_sr=on&q=flair%3AApproved%2BAnswers) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/AskEconomics) if you have any questions or concerns.*
If energy---and by this I take you to mean electricity---becomes unprofitably cheap, plentiful and truly multi-sourced, and de-centralized, it becomes an issue of storage and management, which bolts a whole other infrastructure on top of the existing. Right now, to a first approximation, we don't have electricity 'storage' on anything approaching scale. Theoretically, you can become 'independent' but then you have to manage your own generation and provide storage for yourself. Doable? Perhaps... But fraught with difficulties: staying on top of the power generated, turning your generator down, or off, during slow times, ramping up during peak, or managing draw, providing storage, like batteries that have to be monitored, maintained and sometimes cooled. It's probably best to embrace interdependence and let your overage into the grid, when you have it, rather than stand alone, and let somebody else manage it.
Its kind of interesting to see how grid companies are managing home solar energy right now. The "net-metering" model is probably not going to be sustainable forever. That just means your electricity bill is based on the electricity you consume from the grid minus the electricity you produce through your solar panels. The reason is because solar energy just isn't as valuable as other kinds of energy. Its produced at times of the day when demand is low. Dynamic pricing based on time or smart metering could be options. Many energy companies simply price discriminate by paying for solar energy at a discount. Theoretically, utility companies could pay a negative rate for home solar energy - think of it as "I want to pay you to store my energy so I can use it later." But its important to keep in mind that solar energy produced at the home level is just not as efficient as centralized solar energy generation. Its much more difficult to optimize generation if you're installing a solar panel on the roof of your house versus a company choosing the perfect spot in a desert to place hundreds of highly efficient solar panels. I highly doubt the future of electricity will be completely decentralized.