Yes, there are a couple of interesting recent postings up at the Adam Smith Institute blog, both involving falling prices and falling profits.
Tim Worstall writes about why the solar power business is not proving very profitable. This is not, he argues, because solar power is rubbish. It’s just that making the kit to capture it is not that hard, the price of such kit is falling all the time, and making that kit won’t be very profitable.
The other falling prices and falling profits ASI posting is by Sam Bowman, who links to a piece in the Atlantic Cities blog about how a sharp drop in the price of cocaine caused a similarly sharp drop in the murder rate in the USA, during the 1990s. The business stopped being nearly so profitable and became a lot less worth killing for. (The reason the price of cocaine dropped was that smuggling got cleverer.)
I have very little to say about how true either of these claims are. Mostly my reactions are: interesting! Can anyone here be any more informative than that?
I believe in legalising drugs no matter what. But if it is true that a freer market in drugs, and consequent fall in their price, already has reduced the crime associated with illegal drugs, then that surely strengthens the arguments that I can use to support what I already believe in.
As for solar power, is solar power really about to become economically rational in a big way? If so, how much is that reality talking, and how much the politically rigged and politically deranged energy market?
By my understanding, the major economic stumbling block in solar power is not the array itself, but instead the cost of the power inverter that produces AC from the DC the array naturally generates, and associated control circuitry. Both array costs and inverter costs need to be reduced significantly before solar becomes competitive with fossils.
Ground based solar has its place in making the average home owner more independent, but it only works when the sun shines… that is why in some locations there are meters that run both directions. When you are producing more energy than you need, your electric meter runs backwards as the power company pays you for your excess; when you are not producing enough, your meter runs forward by the amount you have to buy from them. Effectively the entire grid becomes your storage battery.
The problem with selling power back to the grid is the math only works out if the power company gives you retail prices. But that doesn’t work for the power company, which will have to raise rates if too many people are doing this.
A decade and a half ago, markets got very excited at the growth of the internet, and massively marked up the value of telecommunications companies, on the assumption that lots and lots of stuff was going to be done over their networks, and they were somehow going to be able to extract a fair portion of the profits of this stuff.
This didn’t happen. The telecommunications carriers did indeed carry lots of data which was doing lots and lots of fascinating and at times profitable stuff, but their businesses remained low margin and fairly dull.
Power generation – whether or not it is exciting solar and/or other renewable stuff – is like this too. Lots of interesting stuff is done with the power they generate, but the business is always going to be boring and low-margin. Solar will one day likely take over much of the power generation business, but it is going to be a very slow transition, and nobody is likely to make a fortune from it.
Because of the involvement of, and adverse effects on, the former custodian of my late mother’s house (for 17 years), I have been trying to get better information on the “markets” in what are referred to as “Prescription Drugs,” principally synthetic opiates or modifications.
Apparent so far is that “street” Heroin can be cheaper and more consistently available than, say, Soboxone (Rx) and Methadone (Rx).
So there are “comparative markets.” More of concern is the age distribution of the participants.
So, I think there needs to be a better understanding about the controls over distribution (Controlled Substances) and “Illegal” drugs.
An honest, non-judgemental, examination of the present “market structures” (which is what our society has so far generated) will probably lead to something better thought out than ” making drugs legal.”
If that latter term means ending all forms or means of affecting controls of distribution, then there is a failure to understand the extant markets and their participants.
Worstall is usually good but his claim that solar power is nearly at grid parity is based on nothing at all. Solar power adoption is everywhere tied to subsidy (feed-in tariffs usually), and we’re talking 10x the market rate for electricity as a typical figure.
That’s not to say, if course, that some new technology breakthrough or some “killer-app” won’t come through and revolutionise the industry, of course. I’m actually fairly optimistic for solar but I think it still has a long way to go and certainly the market should lead things. Have government involved and everyone will be churning out the same tech for the next 50 years.
That last paragraph is really the crux of the problem in so many areas, isn’t it?
Everything and anything that people do has been under such a relentless and overwhelming attack from the proponents of progressivism and collectivism for so long now that it is well nigh impossible to figure out what things might be like if that incessant interference had not been warping and twisting all our interactions.
Perhaps, someday, if those who value freedom and individual rights can prevail in the continuing conflict with the collective, an historian will be able to sort out all of the myriad turning points at which an economic decision was trumped by political expediency, or a rational policy decision was rendered impossible by the threat of a violent reaction from the collectivist forces within and without.
Indeed, the constant threat from violent and amoral collectivist forces was the main driver of most all of our public policy, both domestic and foreign, for the entire 20th century.
Is solar energy economically viable? No one will ever know until the endless meddling from political know-nothings and corrupt cadres ceases.
One of the basic, underlying arguments for freedom is precisely that it finally allows ordinary people to live their lives as they see fit, for their own purposes, instead of being treated as lab rats, (or pidgeons), in some collectivist “skinner box”, given a few extra grams of chocolate for doing what the pols want, (doubleplusgood), or racked for being uncooperative.
There was a fabulous article the other day about the worldwide “black market”, or shadow economy. Although the author didn’t come right out and say it, the stats screamed the real message—that the state has been and is the greatest obstacle to economic progress and innovation around the globe, from 1st world to 4th world.
Since time immemorial, the only true obstacle to human progress has been the corrupt, incompetent, and arrogant repression of the ruling elites, a plague that has crossed all boundaries of time and space, blocking attempts to innovate, supplanting the rational with the irrational, destroying the potential benefits of the independent, creative human mind by a combination of violence and mysticism.
To paraphrase the Corsican, the future is lying there in the gutter, where collectivism has thrown it.
Pick it up—it belongs to those with the courage of an independent mind. They’re the only ones who can make it work, anyway.
Solar power has long been economically viable in several non-subsidized niches. We first installed a solar fence charger maybe 25 years ago. It has the advantage that you can put it where the fence is. Prior to that, the method was to put the fence charger in the barn and drape the bare high voltage wire across insulators mounted on anything convenient to get the shocks to the fence that needed them. This lead to problems like when my brother knocked himself unconscious while carrying a couple of bales of hay to livestock and the snow had built deep enough that his forehead hit the wire while he was well grounded. He said he woke up flat on his back.
Another use is to power RVs that are parked away from contact with the grid.
These uses are viable because of two factors. One, they are in situations where a connection to the grid is either expensive or impossible. And two, they are for uses where the load is matched to the generation capacity of solar.
These are highly competitive markets and there probably is not a lot of margin in them. If you try to compete with a coal or nuclear power plant, probably not going to happen w/o subsidies. But if you are competing with the distribution grid, it is becoming steadily more viable. Especially in the wide expanses of the plains and mountain states. These alternatives are already commercially viable.
While the Greens are making all the noise about solar and, in typical fashion, trying to punish its non-use, it is amusing that the free market is quietly doing it in a profitable and useful way. As technology keeps improving, more and more houses may choose solar over the cost of a grid. Totally unrelated technology is assisting this trend. One of the biggest power users in a house is the clothes washer. When we purchased our latest clothes washer, I specifically looked for one that would have a minimum impact on our septic system. This meant the one that used the least water for the amount of clothes washed. I chose the Staber. While we don’t use solar power here, the washer I chose for water use reasons happens to be very popular with solar power users.
There won’t be any windfall profits to be made doing solar this way. But it is quietly capturing market share among people who aren’t necessarily environmentally ‘aware’ (read ‘indoctrinated’). Technology keeps increasing solar collector output and reducing device consumption while the grid’s transmission lines cannot really get any cheaper and can easily go up in cost. Also, increasing problems with grid reliability will speed the transition. A couple of years ago we had the coldest snap here that I’ve ever experienced. Reliable temperature reports over a substantial area had us in the thirties below zero Fahrenheit (-35ish C). The cold caused the power lines to shrink and some of them broke and we were without power at the time we needed it the most. Since our heating system’s only electric consumption is water circulators, we can heat with very little electricity. If any breakthroughs are made in refrigeration and air conditioning energy consumption, the two big remaining electricity users, then I expect a huge step up in solar.
I always suspected that solar power could not be brought in overnight!
“but his claim that solar power is nearly at grid parity is based on nothing at all.”
That’s not quite the claim. Rather, the claim is that it is getting there. The cells themselves are declining in price at 4% a quarter. 20% a year when compounded. It’s not quite Moore’s Law but it is close to it: after all, all you’re trying to do is bake the oxygen out of sand, slice the ingot and then lay a circuit on the wafer.
And you really don’t need that many years of 20% price drops to make anything at all price competitive.
I’ll not claim price competitiveness for this year or next (outside the specialist applications mentioned above) but regard it as being absolutely certain within 15 years and highly probable within 10.
And that’s when it all really does start to get interesting. For if we can also produce a method of storing the ‘leccie so produced then we’re pretty much, for transport and domestic uses, there. Done and dusted.
And yes, I can see a technology which will do that too: fuel cells. They again are subject to a variant of Moore’s Law. You’re just trying to write a circuit on a piece of zirconia (well, with solid oxide fuel cells you are).
Perhaps this is all me being blinded with optimism but I can (and my day job is in providing some of the weird metals used to make these things) actually see both technologies that work but are not economic yet and a path to their becoming economic.
TW: Thanks for replying. I am usually a big fan.
Solar atm is very high above the market price for electricity. That completely explains the small size and instability of the solar industry – it’s subsidy-driven.
In the mid-long term I somewhat agree. But two problems. First, solar is really expensive. There are base costs that don’t permit much further reduction: backing materials and inverters, raw material, labour, installation and maintenance costs. It is quite conceivable and from some figures I’ve seen likely that these will impose a permanent cost above the market price, at least for residential solar.
Finally, storing energy in the quantities required is the major problem with all renewable sources and is unsolved with no obvious solution. Even if a good technical method can be devised, the cost at least doubles as a result. Storing electricity is currently a lot more expensive than producing it.
First of all, as Sir Humphry might say: it is “brave” to imbue a great degree of rationality on the markets.
That said, I think most industries that enjoy large degrees of subsidy struggle with profit margins. This might seem paradoxical. But if we think to airlines; it often happens that when one of them is teetering on the brink of bankruptcy, i.e. being on the verge of making the industry less competitive and hence more profitable, it is propped up by a government “short term” loan. Ultimately the profitability of the whole sector is almost constantly precarious.
Not sure how well this maps to the solar sector, but presumably there is some size of it, where perhaps it is catering to niche power users, where it would have a reasonable profit margin.
On a related note, Instapundit has a couple of articles today about the decline ‘n’ fall of wind power. Abandoned windmill farms in what should be fantastic areas for same. Why? Because when the subsidies ran out, they were revealed as uneconomical frauds. Woops.
One problem with the solar sector in particular is that politicians don’t seem to realise what they’re doing. Maybe they swallow the industry spiel, I’m not sure. But for instance in Spain they accrued tens of billions of euros of solar subsidy liability – enough to replace the entire grid with nuclear or other conventional sources – and then decided to cancel the subsidies. So even though it is heavily subsidised when subsidies exist, or else it’s not at all viable, if one of a handful of major governments decides to pull the plug on feed-in tariffs the bottom will drop out of the market and you’re left with a lot of excess manufacturing capacity.
Also, Tim Worstall is right that the kit itself is pretty basic and easy to reproduce, resulting in low margins.
I sometimes wonder why nobody uses the winds in Bass strait. This is part of the ‘roaring forties’, a southern cycle of air which goes from west to east You could use the power to convert saltwater into hydrogen and oxygen. Since this windstream seems to be never ending, it might be one of the few places that is viable, all year round.
For solar power to make sense (not in terms of making the things – but in terms of buying them) the technology (the basic “solar cells” themselves) will have to dramatically improve.
This may happen (people are working on the problems right now) – but till it does, widespread useful solar energy (at least for Britain) is a scam.