27 March 2012

Expensive Wind Power: is little more than a convenient fairy tale

Professor Gordon Hughes
Dr Gordon Hughes is a Professor of Economics at the University of Edinburgh where he teaches courses in the Economics of Natural Resources and Public Economics.
The key problems with current policies for wind power are simple. They require a huge commitment of investment resources to a technology that is not very green, in the sense of saving a lot of CO2, but which is certainly very expensive and inflexible. Markets have to be rigged in order to persuade investors to fund the investment that is required. The economic cost of fixing  markets in this way, especially if there is a possibility of making mistakes, is very high. Before proceeding along this path, any Government ought to be very sure that (a) the economic and environmental benefits outweigh the substantial costs incurred, and (b) the risks of pre-empting better options that  may emerge in future have been minimised.


In reality, neither of these conditions is close to being satisfied. To misquote another aphorism, unless the current Government scales back its commitment to wind power very substantially, its policy will be worse than a mistake,
it will be a blunder.

10. Final Thoughts
In a speech to a group of prominent business leaders the previous Secretary of State for Energy and Climate Change gave an extended soliloquy on his vision of greener growth for the UK – Huhne (2011). Nothing could better illustrate the gap between do-it-yourself economics and the realities highlighted by concrete economic analysis as presented in this paper. In Mr. Huhne’s world all investment that comes under the category of greener growth is a good thing, irrespective of whether it generates adequate returns on capital that has to be diverted from other uses or whether it reduces emissions of CO2 in practice.
The casual assumption that expenditures on green technology represent an efficient and economic use of scarce resources is little more than a convenient fairy tale for troubled times. Reality is rather different. Some green technologies will pay off – yielding satisfactory returns to both investors and users – but many will not. Ample experience tells us that any returns are likely to be smaller and take much longer to be earned than the enthusiastic projections produced by enthusiasts and lobbyists.

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