The Price is Wrong: Why Capitalism Won't Save the Planet

by Brett Christophers

What do the banks that finance renewables projects look for in a potential corporate off-taker? A company willing to pay a decent electricity price, certainly. But not only that. Bankers operating in this space emphasize both ‘the value of the revenue stream and the perceived security of the revenue stream’.

The threat that such aggressive pricing of corporate PPAs poses to growth in renewables development is, of course, that developers will not in fact build solar and wind farms and – ultimately amounting to the same thing – that banks and investors will not finance new such facilities, because the terms of corporate PPAs are simply not attractive enough: because, that is, the market power of Amazon, Google and the like squeezes developer and financier profitability too far.

In large part, this is a story about China and India. These two have in recent years typically accounted between them for around four-fifths of global annual growth in electricity consumption.

by de-risking private sector investment, the state socializes risk – financial and non-financial – while guaranteeing and inflating private gain.17

In time, this would become more or less orthodoxy within the mainstream of energy economics opinion. By 2017, for example, the Economist, picking up on important developments within the scholarly literature, was also convinced of the case for ‘changing the way the world buys, sells, values and regulates electricity to take account of the new means by which it generates

renewables developers ordinarily do everything they can – whether it be through feed-in tariffs, corporate power purchase agreements or financial hedges – to avoid selling their output at the market price. This, in fact, is arguably the market’s signal feature – a form, if you like, of categorical negation: we have a market that perversely requires certain increasingly significant participants to systematically evade its own price signals.

A helpful touchstone in this regard is the work of the economic anthropologist Karl Polanyi. Writing in the 1940s, Polanyi argued that in capitalism there are real commodities and what he called ‘fictitious commodities’.41 A ‘real’ commodity, he said, was something that was originally brought into being explicitly for sale on the market: commoditization, in other words, was intrinsic to it. Commodities were ‘fictitious’, by contrast, if they were treated by society as commodities by being bought and sold in markets, but had not been created with such commoditization in mind. Rather, the market had subsequently been imposed upon them.

Fictitious commodities, Polanyi pointed out, are typically awkward, unruly things from a capitalist market perspective. Not being originated for markets, marketization does not come naturally to them. When society goes about treating such things as commodities by buying and selling them, therefore, they seem to resist such efforts, and all manner of difficulties tend to arise which one typically does not encounter in the case of ‘real’ commodities.

The result, Polanyi observed, is that in order for markets in fictitious commodities ever to cohere and function (even imperfectly), various props, rules, regulations and norms must be fashioned and applied. These serve to make it appear like what exists is a real market, featuring real prices and actors earning real profits. But this is always a fiction – a kind of pretence. Prices and profits in such cases are always as much a matter of external institutional intervention (essentially, social construction) as o...

More generally, as Simon Pirani has observed, in most times and places around the world since its invention, humanly produced electricity has been regarded ‘more as essential infrastructure, or a means of social provision, than as a business’.43 A commodity by its nature, electricity is not.

Meredith Angwin, who had the following to say about the electricity ‘markets’ that have been created in those parts of the US where vertical unbundling and de-monopolization have occurred: They are not markets as we know markets. They are complex systems, with new regulations constantly tweaking and trying to improve existing regulations. They are a bureaucratic thicket, not a market. It’s Orwellian. [Electricity is] ‘deregulated’ only if ‘deregulated’ actually means ‘lots more regulation’. ‘War is peace.’ ‘Deregulation’ is ‘lots more regulation.’ Orwell would be amused.44

Consider, for instance, the profits of renewables generators. Nothing could be more un-‘natural’, as Polanyi would have seen it. Certainly, the profits are ‘real’ in the sense that they represent revenues less costs. But more than anything else perhaps, they are the product of continual, ongoing and, ultimately, rather haphazard efforts by policymakers to keep that magical financial output – revenues less costs – within what is best conceived as a zone of reasonableness. If profits are too low, developers will not invest; too high, and critics will cry foul. Thus policymakers are forever in the position of needing to pull one (or even both) of two levers: subsidies and other support mechanisms to enable profits when they are scarce, windfall taxes to cap them when they become abundant.

After all, this market’s signal feature in the age of climate crisis is, as we saw earlier, that the hallowed market price, which theoretically congeals all relevant information and sends signals to actors as to how to respond, is the one price that renewables operators endeavour not to sell at.

If, after Polanyi, a profit- and market-centred model is inappropriate to the relatively simple proposition of delivering a single fictitious commodity such as electricity, it is manifestly more inappropriate still when society is faced with the prospect of transforming – quickly, seamlessly and comprehensively – a whole complex system of social and economic life.

Our position would be that the private sector needs to be stripped of responsibility for renewable energy generation because renewable energy generation is not – or is not typically expected to be – consistently profitable enough for the private sector to develop it as urgently and massively as we need.

One does not in any way have to be an admirer of China’s political economy to acknowledge that, as Michael Davidson has pointed out, while Western policymakers – including those holding the reins of power in New York State – remain broadly convinced that they really do possess only one trick, namely deference to capital and the price mechanism, ‘markets represent just one tool among many available to Beijing’.