Tuesday, January 17, 2012

Cost of Renewable Energy

We signed up for Fortis' "renewable biogas" program a while back. When you sign up, you agree to pay a higher price for 10% of your gas supply, and this money goes to fund their biogas extraction program.

In this case, the biogas comes from a landfill up the Fraser Valley somewhere; the methane is trapped and cleaned and then piped into homes.

So I had a look at our bill the other day, just to see how much more this "clean, renewable" gas costs. Turns out....four times more. It is waaaay more expensive to extract methane from a landfill, than to stick a pipe in the ground and suck it out. So without willing, soft environmentalists like myself, with deep pockets, there is no way that this type of energy could be available.

The same cost issue is true for wind energy, solar PV, geothermal energy...you name it. They all cost appreciably more than fossil fuels. The exact numbers will vary regionally (solar energy is cheaper where it's sunnier!), but in all cases, subsidy is required to compete with fossil fuels in areas with modern infrastructure.

Yes, we can probably afford to subsidize these "green energy sources" more than we currently do, but this is a political discussion that has quite simply not happened. So far, we are subsidizing fossil fuel extraction instead, and have a huge vested interest in infrastructure (including a financial system, and, increasingly, a government apparatus) built around this.

But to what level can we afford the subsidies? Could we afford an increase in energy costs of a factor of 2?

This is a difficult question. Since I don't drive, it's easy for me to accept $2.50/l gas. My transit fares would probably go up but mostly I ride my bike to work anyways. If my hydro and gas bills went up by 2x, I don't think this would be a big deal - I live in a mild climate and pay a lot less than other Canadians to heat my home. So, speaking personally, I could probably live with a steep rise in energy costs. I suspect that other enviro-types think to themselves that they, too, could afford this. So it's a simple matter to extrapolate to the economy at large...

But really, can our economy function with this type of cost increase? This is much tougher to answer, and one that of course our government needs to think about before embarking on subsidy programs.

Industry that uses a lot of energy - like manufacturing, cement plants, pulp and paper mills, and sawmills - would probably shut down quickly in such a scenario, and set up in jurisdictions with lower costs. Some of the really big "heavy industries" are protected from rising energy costs because they have made deals with BCHydro, or actually own hydro dams / thermal plants of their own. The Teck smelter in Trail, for instance, owns 2/3 of the Waneta Dam. Government could make new deals to keep some industries in place (already happening, in fact). But mid-range outfits (ex. the Lafarge cement plant in Richmond) are not protected in this way. Any industry associated with transportation would likely take a big hit. It's hard to predict what would happen - the only sure thing is that the economy would shift, and there would be a lot of losers.

So you see, this is a risky thing for governments to do. Diddling with a small few percent is already politically difficult, and I sincerely applaud the Libs for implementing the carbon tax a few years ago. This is a mere beginning. We are at the single-digit stage, fighting about small BC Hydro rate increases (8% this year, 4% per year for the next 2 - and these are increases on practically the lowest electricity costs on the planet), and what's really required is a plan or ramp to 50% or more energy cost increases in order to stop wasting, and to allow renewables to compete. Only this way can we wean ourselves off of oil.

You know, I think this cost increase will happen, whether planned or not...

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