Cheap Renewables, Low Profits

Drawing on Marxist geographers like Doreen Massey and David Harvey, Christophers’s prior work has shown the devastating consequences of a capitalist economy increasingly driven by financial “rentiers” seeking high returns above all else — even as they gobble up the “assets” central to the reproduction of human life and a viable planetary future (housing, land, and, the topic of The Price Is Wrong, energy).

Christophers offers a corrective to those he calls the “disciples of [renewable] cheapness” by taking seriously the broader implications of their arguments. Since so many assume “cheap” renewables mean they are now “competitive” with fossil fuel energy, critics have pointed to other noneconomic explanations for the relatively lackluster scale of renewable penetration (for example, the political power of the fossil fuel giants, or the lack of electricity planning to integrate renewables into the grid).

Christophers does not deny these more political forces play their part, but he argues that economics still poses basic barriers to investment, despite all the boasting of cheap costs or prices. According to Christophers, the central obstacle is “expected profit: the profit that an entity that is planning commercial investment in new solar or wind capacity expects to be able to earn by virtue of that investment.”

For Christophers, the misguided focus on the cheap price of renewables mirrors that of neoclassical economics, with its fixation on supply, demand, and marginal costs. Theoretically, he draws more from the tradition of classical political economy — not least Karl Marx, whose definition of capital as M-C-M’ places profit at the center. He also draws from Anwar Shaikh, whose work, “unlike supply-side neoclassicism or demand-side Keynesianism,” deploys what he calls a “profit-side” theory of capitalism.

With these theoretical tools, Christophers systematically explains why renewable investment remains largely unattractive to capital, in particular using his research on the capitalists who renewable-energy developers rely on for financing. He calls financing the “ultimate chokepoint” determining whether renewable projects get built.

One of the most valuable aspects of the book is its thorough demolition of what he calls the “LCOE fetish.” LCOE refers to the statistical concept “levelized cost of energy,” which allows analysts to compare the lifetime costs of different energy technologies (and often disregard their fundamentally different use values or material capacities). The declining LCOE of renewable energy has led to much excited commentary — even from serious analysts like Adam Tooze, who Christophers quotes as saying “solar and wind offer power at unbeatably low cost” — on the inevitable deluge of solar and wind penetration.

Christophers shows how such a measure fails to account for the real-world “system costs” of delivering renewable power from remote areas (with associated land costs), and storage and backup costs of “firming” their intermittency. While LCOE is trotted out by countless policy wonks in debates over the energy transition, Christophers says it’s a nonfactor for capital: “JP Morgan’s Michael Cembalest described the metric as a ‘practical irrelevance’. He was expressing a position widely held among his peers in the financial sector.” Christophers also deftly explains how regardless of cost, different forms of electricity generation are “apples and oranges” in terms of available revenue opportunities. Ultimately the “LCOE fetish” is similar to the commodity fetish in how it obfuscates the material and social relations of production.

Another key factor that has led to substantial uncertainty about the “expected profitability” of renewable investment is the price volatility of newly restructured electricity markets. Christophers provides one of the clearest explainers I’ve come across of how actual electricity prices are formed. To make a long story short, the generator with the highest marginal costs tends to set the “market clearing price” for all generators. In most markets, this is driven by the volatile price of natural gas; therefore the price generators can receive for their electricity can vary wildly. Christophers recounts how, in August 2022 in Sweden, massive natural-gas price spikes (and unfavorable wind conditions) allowed for the electricity price to skyrocket from €38/MWh on August 21 to €372/MWh on August 22.

Christophers explains also how government policies meant to attract renewable investment oftentimes lead to a flood of market entrants, which accidentally results in overproduction of solar and wind power and collapsing prices and profits. Again, we see that capitalists’ need for profit means that cheaper renewables does not necessarily lead to a sustained increase in investment.

I wonder if there’s another more fundamental reason why capitalists have invested so little in solar and wind power. Andreas Malm’s analysis in Fossil Capital from nearly a decade ago, which Christophers draws from at times, argued capitalists can more easily enclose, commodify, and control “stock” energy resources like fossil fuels (coal, oil, and gas). In contrast, “flow resources” — like waterpower, in Malm’s discussion, and solar and wind power today — are notoriously hard for capitalists to delimit private access to. (Malm suggests harnessing waterpower would require collective infrastructure that capitalists don’t want to pay for.)

What Christophers calls the “free gifts of nature” — sunny or windy weather — leads to the paradoxical result that when conditions are most favorable is precisely the time capitalist generators will all seek to sell their solar/wind power on the market, thereby depressing prices and profits. Abundance in nature is a problem for a capitalist market dependent upon socially produced scarcity.

Although many have characterized The Price is Wrong as a case for “public ownership,” it is more an analysis of the problems with private ownership and investment decisions based on marginal price signals. Nevertheless, Christophers ends the book with some gestures toward the potential of public power, discussing specifically the prospect of public renewable investment in New York State’s Build Public Renewables Legislation.

Electricity Is Social Infrastructure

The book’s focus on solar and wind power is a great strength. Analytical precision on a core object of analysis allows Christophers to provide incredible detail on the complex political economy of solar and wind investment and their role in newly restructured electricity markets. But this narrow focus is a double-edged sword; I would argue the fixation on solar and wind is also the book’s greatest weakness.  

Christophers is clear that he did not choose this focus because of his own personal preference of electricity generation technology. His rationale is different:

[The book] adopts this focus because . . . the powers that be . . . have seemingly decided that the way forward will be predominantly solar and wind, suitably backed up by a combination of electricity storage mechanisms and the one or more alternative zero-carbon fall-back generating sources — such as nuclear — for when the sun does not shine and the wind does not blow.

We might question whether it is methodologically sound to base one’s analysis on the preferences of the “powers that be,” but the larger problem is Christophers does not specify who the “powers that be” are, exactly. Clearly, the book is focused on the crucial blocs of power in finance, but there are other “powers that be” — energy-system scientists modeling what is required for “deep decarbonization,” labor unions noting that solar and wind jobs tend to suck, and even the Biden administration with its “all of the above” approach to electricity — who recognize the decarbonization of the grid is a much broader challenge than simply building solar and wind farms.

To be sure, Christophers acknowledges this by mentioning storage and other zero-carbon sources like nuclear. But I fear the analytical focus of the book on why capital is not building solar and wind farms elides the critical question of electricity-sector decarbonization. It is not a question of building a single kind of generation technology — it is a question of rebuilding an entire social infrastructure.

Legal scholar William Boyd explains, “[The US electricity grid] has been described as the most complex machine ever built.” According to the Energy Information Administration, it is in fact a pulsating flow of electrons, “made up of over 7,300 power plants, nearly 160,000 miles of high-voltage power lines, and millions of miles of low-voltage power lines and distribution transformers, connecting 145 million customers throughout the country.” This “machine” must always be kept in balance, where supply is equalized with demand. That means electricity, by physical necessity, requires near-Soviet levels of central planning and statistical monitoring and projection of social needs (i.e., electricity demand).

So even if capital were to reap enormous profits building solar and wind generators, it is only one piece of the larger infrastructural puzzle of building other “zero-carbon” firm generation, long-distance transmission lines, and distribution infrastructure — and, most experts acknowledge, some degree of natural-gas power with carbon capture and sequestration (a technology itself that will require its own large-scale fixed-capital pipeline infrastructure). Indeed, many of these needed technologies like carbon capture and nuclear power are blocked by the same dynamics Christophers explains for solar and wind: investors don’t see them as sufficiently profitable.

Christophers reviews many of these technologies needed to supplement the intermittency of solar and wind power, and he discusses the “system costs” not integrated into supposedly cheap LCOE renewables. But overall, he does not pay much attention to the question of who should pay for these system costs, and how the challenge of assigning these costs is also a major barrier to decarbonizing the grid. This is not one of the “political” or “planning” barriers Christophers sets aside, but precisely the economic barrier of funding infrastructure investment.

The key investment problem is a common one when it comes to “long-range” infrastructure — the costs must be socialized. There is a reason why the public sector took on the interstate highway system, water sanitation infrastructure, and in many countries, as Christophers recounts, the electricity grid.

This problem of social infrastructure costs is now bedeviling the United States’ attempt at a clean energy build-out. The private developers seeking to build solar and wind farms must submit their proposals to grid operators who manage something called an “interconnection queue” (in an approval process that takes an average of five years). One outcome of this process is that private developers are asked to pay the entire “interconnection” upgrade costs, and unsurprisingly they often balk. In some European countries, like the Netherlands and Germany, offshore-wind project developers benefit from the government socializing the costs of transmission upgrades entirely.

Christophers lands on exactly the right theory to explain this problem: Karl Polanyi’s theory of “fictitious commodities.” In Polanyi’s telling, land, labor, and money are fictitious commodities in that they are not produced like commodities but nevertheless treated as such.

Electricity is a fictitious commodity par excellence: it is a shared infrastructure that cannot be stored, but we design elaborate systems to buy and sell it as if it were a mere bundle of widgets. As Gretchen Bakke put it in her excellent book The Grid: The Fraying Wires Between Americans and Our Energy Future, electricity and an ordinary commodity like a banana “might as well have originated in different physical universes,” yet efforts to marketize electricity mean “we now treat and trade them in an almost identical way.” But this implies that we cannot treat investment in electricity like any old commodity, and the analytical distinction between price and profit, while extremely useful, can lead to the impression that Christophers is in fact treating electricity that way. (It is instructive that, in an example illustrating how lower cost structures do not lead to higher profits, Christophers uses the decidedly not-fictitious commodity of a smartphone.)

In other words, if we only pay attention to the expected profits of isolated electricity producers, we can lose sight of the elaborate legal and institutional structures — structures that Christophers explains well — that make selling electricity for profit possible in the first place. Decarbonization of electricity will hinge less on whether or not a single kind of energy generation is cheap or profitable (or both), and more on fundamentally transforming those underlying structures.

It would have been good if Christophers took Polanyi a step further via the Marxist-Polanyian James O’Connor’s theory of the “second contradiction of capitalism.” O’Connor argues that private capital by its very nature tends to undermine the “conditions of production.” Most people focus on O’Connor’s discussion of “ecological conditions,” but he also talks about “communal conditions” — that is, social infrastructure. The case of utility company PG&E failure to upgrade a nearly one-hundred-year-old transmission line leading to catastrophic and deadly wildfires is a striking example. But the fact private renewable developers will not pay for needed social grid infrastructure is another one.

There are other reasons why Christophers’s focus on solar and wind matters politically. First, that focus can threaten to exacerbate the split on the Left Fred Stafford and I have identified between, on the one hand, a green left (led by NGOs and academics) who think decarbonization is only about increasing solar and wind energy and, on the other hand, unions, which are more concerned with a broader suite of technologies (nuclear, carbon capture, and hydrogen) needed for “deep” grid decarbonization and to address the larger concerns of reliability. The Price Is Wrong is very much about capital, not labor, and you find next to nothing in it about the actual workers and unions of the electricity system.

Second, there are more practical concerns. While Christophers is right that the “powers that be” expect decarbonization to be predominantly accomplished by solar and wind technology, much of this expectation is based on models rather than reality. In the real world, there is no example of an actually existing grid that is able to obtain the vast majority of its power from intermittent solar and wind power. (A recent report by the grid operator MISO claims “significant challenges” arise and “transformative thinking” is required over a mere 30 percent penetration.)

Solar and wind generation can get quite high when conditions are right (and quite low when not), but ultimately any grid with substantial solar and wind also relies upon some combination of imports from other regions, hydro, nuclear, and above all, natural-gas generation to keep the lights on. As Christophers observes, much of the “expectation” that this will be solved relies upon still-unrealized competitive breakthroughs in “long duration storage,” particularly to deal with the pesky reality of winter. While we wait to solve many remaining challenges of land use and transmission build-outs for a viable grid based on solar and wind, it’s worth remembering many countries like France and Sweden have already achieved nearly complete grid decarbonization through a heavy dose of public investment in hydro and nuclear power.

Third, as Christophers details, outside of the notable case of China, solar and wind development is itself a product of neoliberal market restructuring of electricity (“deregulation” or “unbundling”), which attempted to break up much of the grid system into small parts and subject them to private competition. In other words, solar and wind developers are usually isolated capitalists — “independent power producers” — with no public mandate or interest in investing in electricity as infrastructure.

Christophers points out that in the “developing” world, only 28 percent of renewables are publicly owned; in the “developed,” rich countries that figure is 4 percent. As he rightly says, these capitalists were not “designed to do the job” of decarbonization. But an exclusive focus on them alone leaves one unsure about who could do the job.

Reclaiming Electricity as a Public Utility

A narrow analytical focus can likewise lead to narrow views of alternatives. Much left politics around electricity focuses on the need for public ownership. But if we seek to only bring one aspect of the grid under public ownership in isolation, while subordinating the rest of it to competition and uncoordinated investments, we fail to advance a more holistic politics of electricity as social infrastructure.

Christophers points to the successful campaign allowing the New York Power Authority (NYPA) to “Build Public Renewables” as a possible solution to the lack of profitability of private renewable development. The legislation is quite an achievement for public ownership in the electricity sector. To channel Christopher’s sober realism, however, we should seriously interrogate the prospects for rapid decarbonization with one public developer competing in a sea of private “independent power producers,” all in the context of New York’s deregulated wholesale market.

This is why Stafford and I have recently argued that the Left needs to not just advocate for public power in the abstract, but rather reclaim electricity as a broader “utility” system (like gas, water, railroads, and so on). Emerging from early twentieth-century progressive legal scholars, “public utility” law argued there were certain essential services (i.e. social infrastructures) too important to be left to markets alone.

In the US context, it is striking how the public-utility model actually gives us a direct answer to the problem identified in The Price Is Wrong. Private investor–owned utilities — subject to regulation by public utility commissions (PUCs) — are guaranteed rates of return on investments if approved by PUCs. The question of expected profits is simply not an issue in the utility business. And the source of profits is not simply squeezing labor and underselling competition, but infrastructure development. Moreover, utilities used to be vertically integrated “natural monopolies” owning and planning the entire physical infrastructure across generation, transmission, and distribution.

The historical example of electric utilities shows that when we need massive growth of socialized infrastructure — and make no mistake, experts believe decarbonization will require massive “load growth” — ordinary capitalists are not up to the tasks. Christophers is right to point to the fact that vertically integrated utilities have sunk assets in fossil infrastructure, and thus a vested interest in maintaining them. But they are also uniquely equipped to build (and profit from) new investments. Just like in the postwar era of electricity growth, we need different institutional structures geared toward socialized investment and growth for twenty-first-century decarbonization.

In the US context, in the rare cases where utilities are allowed to build clean energy generation, they are proving quite capable. While supply-chain cost inflation has led states to cancel private offshore-wind contracts, the regulated utility Dominion is moving ahead with its own massive offshore project. A unique law allowing utilities to build solar has led Florida to become the fastest growing state for solar development. And it is only utilities like the Tennessee Valley Authority and Georgia Power that have actually finished nuclear plants this century. Finally, the IRA reverses decades-long disincentives for utilities and public power entities to fully benefit from clean energy incentives, making it more, not less, likely in the coming years.

The notion that electricity as a whole is a public utility has been systematically destroyed in the last half century of deregulation and unbundling, but a socialist electricity politics must place reversing this process at the center of our political project. Christophers claims that “the world . . . is moving towards, not away from, electricity spot markets.” This is unfortunately likely the case, but while scholars have sought to understand the world, the point is to change it. It seems to me that electricity politics is headed to another world-historical pivot point like the early 1900s or 1970s, where the entire model must be rethought.

To be fair, much of this is outside the expressly stated scope of Christophers’s analysis. And he is surely right that any decarbonized world will include a sizable increase in solar and wind generation. By giving us such an analytically focused analysis of why solar and wind investment is not proceeding at the scale and speed required, The Price Is Wrong will push readers to think for themselves about what other arrangements might be better suited to the job.