Silent Surcharges

Paul Gipe just wrote a long post on the possibility of introducing feed-in tariffs for fossil fuel or nuclear generated electricity. I recommend reading it.

There are different opinions about the cost of renewable energy. Some people still try to say solar is too expensive.

But one thing is clear. All the figures are open for anyone to see. Everybody knows exactly how much is paid over the feed-in tariff to get solar energy deployed.

In contrast, the classic model of financing was: Add up whatever cost the utility had for their equipment, then add on some profit, and then fix electricity prices (requiring approval by a regulator) at a level resulting in that profit.

What exactly is the difference to the feed-in tariffs for solar energy?

For one, the feed-in tariffs are reduced all the time, since costs go down. Those costs go down as a consequence of the feed-in tariffs, but they go down. A lot.

In contrast, the costs of fossil fuel or nuclear have not gone down.

Next, the costs were never disclosed in the same way to the consumer the feed-in tariff does. Electricity bills don’t have a “fossil fuel cost surcharge” or a “new nuclear plant cost surcharge”. The utility just adds up all the costs in the model, without a need to disclose them to the costumer.

These are silent surcharges.

And, of course, most of the cost is just ignored. Yes, fossil fuel use leads to larger and more dangerous storms, but I have never heard that anyone damaged by a hurricane sends a bill for the damage to an utility responsible for that damage.

Yes, severe nuclear accidents like the Fukushima accident lead to basically infinite damage, which no insurance company will ever underwrite without a built-in limit, and the balance of the risk is loaded off on the taxpayer without any compensation.

But, arguably, the classic model of financing is rather similar to a feed-in tariff. The regulator looks at actual costs and sets the price.

If so, setting a feed-in tariff for nuclear energy, as the United Kingdom may do according to Gipe’s article, would not be ever so different to what was done when most of the existing nuclear plants were built under monopoly structures.

The most important difference would be that the feed-in tariff would make the assumptions about costs transparent. That would be progress.

So yes, maybe it would be a good idea to have feed-in tariffs for all forms of electricity generation (except for countries where nuclear is illegal altogether, which would of course not have a feed-in tariff for nuclear energy).

Update: Renewable Energy World kindly republished this post here.

Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003, lenzblog.com).

2 thoughts on “Silent Surcharges

  1. It’s an interesting idea. FiTs for nuclear, hmmm. My immediate reaction is horror but on reflection if it truly revealed the cost of NPPs then I’d be all for it.

    New NPPs in the US are working their economics on forward charging customers for the build, loan guarantees and then a “production tax credit” which is similarly given to the wind industry.

    Deniers in the US are trying to remove the “production tax credit” from wind would you believe.

    Like

  2. Of course, in Australia nuclear is illegal, so Australia would not have a feed-in tariff for nuclear. Maybe one for coal.

    My post referred to the economics of building nuclear back in the times where Germany had monopolies (still that way in Japan). I am not sure if it would apply as well to what you noted for the United States.

    I am well aware of the fact that the Republicans try to kill wind in the United States. Professor Lessig, who I have been following from my days of mostly discussing copyright here, is writing a lot about the flaws in the US campaign finance laws that make this kind of thing possible.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: