Review of ‘Price is Wrong: why capitalism won’t save the planet’ by Brett Christophers.
Wind and solar power projects, that for so long needed state backing, can now provide electricity to wholesale markets so cheaply that they will compete fossil fuels out of the park. It’s the beginning of the end for coal and gas. Right? No: completely wrong.
The fallacy that ‘market forces’ can achieve a transition away from fossil fuels is demolished in The Price is Wrong: Why Capitalism Won’t Save the Planet, a highly readable polemic by Brett Christophers.
Prices in wholesale electricity markets, on which economists and analysts focus, are not really the point, Christophers argues: profits are. That’s what companies who invest in electricity generation care about, and these can more easily be made with coal and gas.
Zeitgeist
Christophers also unpicks claims that renewables projects are subsidy-free. Even with renewably-produced electricity increasingly holding its own competitively in wholesale markets, it’s state support that counts: look at China, which is building new renewables faster than the rest of the world put together.
The obsession with wholesale electricity prices, and costs of production – to the exclusion of other economic factors – emerged in the 1980s and 90s as part of the neoliberal zeitgeist, Christophers explains.
The damage done by fossil fuels to the natural world, including climate change, was priced at zero; all that needed correcting, ran the dominant discourse, was to include the cost of this ‘externality’ in prices.
This narrative became paramount against the background of neoliberal reforms: electricity companies were broken up into parts, typically for generation, transmission, distribution and supply; private ownership and competition in markets became the norm.
But prices do not and can not reflect all the economic factors that drive corporate decision-making.
Smooth
The measure that has become standard, the Levelised Cost of Electricity (LCOE), is the average cost of a unit of electricity produced by different methods. But for renewables, 80 per cent-plus of this cost is upfront capital investment – and the fate of many renewables projects hinges on whether banks and other financial institutions are prepared to lend money to cover that cost. And on the rates at which they are prepared to lend.
The volatility of wholesale electricity markets does not help: project developers and bankers alike have to hedge against that. “We don’t like to absorb power price volatility”, one of the many financiers that Christophers interviewed for the book said. “We’ll take merchant price risk – right now we often don’t have a choice – but we’ll charge three times more for it. […] No bank in the world will take power price risk at low returns”.
Christophers writes in an exemplary, straightforward way about markets’ complexities. He details the hurdles any renewables project has to get over before it starts: as well as securing finance, it needs land and associated rights and licences, and – increasingly a problem in many countries including the UK – a timely connection to the electricity grid.
Corporate and financial decision-makers are concerned not so much with costs, compared to those of fossil fuel plants, as with “an acceptable rate of financial return”. Does the project meet or exceed that rate?
“The conventional transition model […] assumes an effortlessly smooth trade-off between fossil fuels and renewable electricity sources, just as stick-figure mainstream economics more widely assumes all manner of comparable smooth trade offs, not least between present and future goods.
“But real world processes of production and consumption involving real world businesses do not come even close to approximating to such smooth trade-offs.”
Revival
The clearest illustration of the argument that profit is the main driver of investment, not price, is the big oil companies’ behaviour.
Christophers writes:
“[T]he returns ordinarily associated with wind and solar power are much lower than those to which fossil fuel companies are accustomed in their core businesses.”
He adds:
“The big new hydrocarbon projects still being initiated by the international oil majors in the 2020s, in the face of widespread public fury and dismay, promise significantly higher rates of return – and, of course, on a significantly greater absolute scale – than renewables ever do.”
So tiny renewables businesses are used solely to greenwash the companies’ continuing investment in fossil fuel production. Shell, which in 2020-22 dabbled in slightly larger renewables investments, found that the rate of return for shareholders was the lowest of all its businesses.
“Chastened by Wall Street’s savage indictment of his company’s erstwhile turn – effectively – away from profit, [Shell chief executive Wael] Sawan spent the first half of 2023 pivoting Shell back to oil and gas. Hence the horrific spectacle of a significant revival in upstream exploration activity on the part of the European majors, with Shell to the fore. […] At the same time, Shell and its peers were busily scrapping projects (including in wind) with ‘projections of weak returns’.”
Investment
Despite all this, renewable electricity generation is expanding. Christophers forensically dissects the economics, showing that ‘market forces’ have played little or no part in this.
Many renewables projects only go ahead when they have signed long-term sales agreements (power purchase agreements or PPAs), that shelter sellers from choppy markets and provide good PR (“green” credentials) for buyers.
In many countries, PPAs with utility companies that provide electricity to households are being superceded by those with corporate buyers of electricity, and above all big tech firms that wolf down electricity for data centres and, increasingly, artificial intelligence.
And then there is state support – not only overt subsidies such as the tax credits offered by the US Inflation Reduction Act, but also schemes such as feed-in tariffs and contracts for difference, market instruments that shelter projects’ income from volatility.
China’s new megaprojects are “about as far from being market-led developments as is imaginable”, Christophers writes. So too are those in Vietnam, mammoths given the total size of the economy, that soared with a special feed-in tariff in 2020, and slumped to zero in 2021 when it was withdrawn.
“That investment plummets when meaningful support for renewables investment is substantially or wholly removed demonstrates precisely how significant that support in fact, and also just how marginal – or even downright unappealing – revenue and profitability prospects, in the absence of such support, actually are.”
Pretences
Christophers concludes that the state has to champion rapid decarbonisation, and “extensive public ownership of renewable energy assets appears the most viable model”. But this should not be done in a fool’s paradise, where it is presented as a means for taking profits from renewable electricity generators (what profits?!) and returning them to the public purse.
This is how the Labour Party is portraying its proposed state-owned renewable electricity generator, Great British Energy. Labour’s claims that GBE will benefit the state and taxpayers “betray a deep and perilous misunderstanding of the economics of renewable energy, and of the weak and uncertain profitability that actually plagues the sector”.
By way of contrast, Christophers points to the Build Public Renewables Act, passed by the US state of New York in 2021 in response to years of campaigning by climate action groups – which rests on the assumption that it is precisely the market’s failure to produce renewable energy projects on anything near to the timescale suggested by the climate emergency that necessitates state intervention.
All this prompts the question: don’t we need to challenge the whole idea of electricity being a commodity for sale, rather than a requirement of 21st-century living that should be provided as a public service?
Yes, we do, Christophers writes in his conclusions, with reference to Karl Polanyi’s idea of “fictitious commodities”, that under capitalism are bought and sold, but only in markets that are fashioned by “props, rules, regulations and norms”, and are therefore essentially pretences. The description fits the electricity markets ushered in by neoliberalism well.
Monopoly
The commodification of electricity, and other energy carriers, raises the prospect that, with a perspective of confronting and superceding capitalism, it should be decommodified.
Renewables technologies have opened up this issue anew, since they have hastened the trend away from centralised power stations and made it easier than ever for people – not only through the medium of the state but as households, community organisations or municipalities – to source electricity from the natural environment, without recourse to the corporations that control the market. How this potential can be torn from those corporations’ hands is a central issue.
The analysis by Christophers of the “props, rules, regulations and norms” used to bring renewables to neoliberal markets certainly convinced me. So too did his point that the returns from developing oil and gas, relatively higher historically, “are not ‘natural’ economic facts” either.
On the contrary, government economic support has always characterised the oil and gas business: in fact the line between state and business is often blurred.
In many countries they are “the selfsame entities, actively assembling monopolistic or oligopolistic constrol specifically in order to subdue volatility, stabilise profits and encourage investment”; indeed these “established institutional architectures of monopoly power” that scaffold oil and gas are a key distinction between it and renewables.
Corporate
We badly need a comparative analysis of state support for renewables and for fossil fuels – not just the bare numbers, which are available in many reports, but an understanding of the social dynamics that drive it, and that are deliberately obscured by oceans of greenwash manufactured by the political class everywhere.
Themes that Christophers touches on, such as governments’ failure to phase out fossil fuel plants, even as they make plans to expand renewables need to be developed. The appallingly slow progress of renewables and the weight of incumbency that favours fossil fuels can not be separated.
This understandable book, which brings dry capitalist realities to life so well – and is essential reading for anyone who wants to understand why the transition away from fossil fuels is so disastrously slow – raised some questions in my mind about electricity demand.
Take the steep increase in demand for renewably generated electricity from big tech. Amazon is the world’s biggest buyer of solar and wind power under corporate PPAs, and an even bigger promoter of its own “green” image. But its carbon footprint continues to grow, Christophers points out, especially that of its “energy-gorging cloud-computing Web services business”.
A big-tech-dominated fake energy transition?
“It would be difficult to conceive of a more ironic statement on the warped political economy of contemporary green capitalism.”
Trashing
Which is reason to interrogate the way society uses electricity – and the way that capitalist social relations turn use – to fulfil needs, to make people’s lives good into demand – an economic category no less ideologically-inflected than other ‘market forces’.
Amazon and the rest are sharply increasing their electricity demand, which in the US and elsewhere has led to shutdowns of coal-fired power station being postponed – while hundreds of millions of people in the global south still have no electricity at all.
Furthermore: the “green transition” envisaged by most politicians will see the economic sectors in the global north that gulp down the greatest quantities of fossil fuels – road transport, the built environment, and industry – switching many processes to electricity. The classic example is the shift from petrol vehicles to electric vehicles. And this will increase electricity demand.
Christophers takes no view on these issues:
“[R]ight or wrong, good or bad, electrification largely is what is happening and what will continue to happen”.
While I agree that, under capitalism, the dominant political forces take this for granted, I think that we should not. To stick with the example of road transport, none of the scenarios that assume swapping petrol vehicles one-for-one for electric vehicles can happen without trashing meaningful climate targets.
Catastrophic
The economic transformations that tackling climate change implies must include reshaping – for collective social benefit, and with a view to rapidly reducing emissions – the huge technological systems, like road transport, that account for the largest chunks of fossil fuel use. Simply electrifying them is not enough.
Moreover, with the current level of technology, including the prospects opened up by decentralised renewables, there is potential to establish completely new relationships between production and use – which are currently controlled by big capital, but need not be.
Hopes of energy conservation implied in the International Energy Agency’s latest net zero report “border on the Pollyannaish”, Christophers writes. Yes, granted – if the perspective is limited to one dominated by capital.
But insofar as it is possible to confront, confound and supercede capitalism, a future in which electricity is used less wastefully, more equitably, and within bounds set collectively with a view to avoiding catastrophic climate change, is surely plausible.
That is where hope lies – outside the matrix of profit-driven relationships that Christophers skewers so exquisitely.
