We’ll say it first, with good reason : Prices of renewables will go negative soon. This will be a result of two factors: 1. Production cost will go negative, meaning production can happen without returns 2. Governments will adopt a policy of maximum rollout speed, aided by the negative costs.
How can cost of anything go negative? The first step is to be able to originate the products without help. Think of a well spring which produces water, it has to because of geology and rainfall patterns. Nobody has to buy water to replenish the spring, it flows on its own. The same way solar panel producers will find they have reduced cost in the supply chain to zero, and can go negative. How is this done? By using renewables in every step, renewables owned by the producers themselves.
Negative electricity prices in the US
Paint a scenario in which a solar panel factory has to source its silicon, glass, aluminium from different producers. First it cuts cost by using solar electricity to refine the Silicion (which has to be separated from oxygen and purified in an energy intensive process), this already happens. Then it can cut cost by turning the glass manufacturing in gas based to electrical, and providing the glass producer with solar panels to cover its melting needs (another silicium oxide proces by the way). Third it sources the alumium from iceland, where it is processed using geothermal heat at competitive cost. This is the start of the process of cost reduction, but ultimately the cost will not only be zero, they will go negative. How?
Negative prices in Europe
For a while now we have seen negative electicity costs in the european market. Germany at times produces to much wind electricity, and as storage is being delayed by the fossil credit based economy the market price of megawatthours of electricity can go as low as minus 200 Euro. This has promted a dutch aluminium smelter to restart its operations. How nice if you can melt aluminium when the cost of doing so is zero or negative!
There need to be many changes in the production and logistics chain to get real negative prices, so a bonus for installing solar for instance, but it is an eventuality that seems unavoidable. Not only because it makes good business sense, but also because for instance, energy storage will lag behind the rise in production, so the use of the energy in production processes will become very attractive and stay attractive for ever. The obstruction of storage by the central distributing fossil based producers will bite it in the tail.
Holland will soon have an aluminium smelter, its own silicon refiners and solar panel factories. It can recycle glass with clean energy. It may be the first to produce at negative prices, extraeconomically, if it doesn’t sell to the international market.
Of course governments, as they are being cleansed of climate denier and fossil fuel lakeys, will become more agressive in preventing the catastrophic changes we (as predicted by the IPCC) see unfolding under our eyes. Part of that is not only going carbon neutral, but going seriously carbon negative. It will be come clear that we can do that, so leaders will step up that will do that. Like Paris no longer allows a roof to be carbon neutral, dictating it has to be either a green or a solar roof, governments will dictate there can be no unused space, roof or garden that could catch carbon or reduce emissions.
This possibility of negative prices shows the invalidity of classic fossil credit based economics
But there is another step that will change the game completely. That is the advent of what we call Extraeconomics. Extraeconomics is the framework of thinking about Extraeconomic zones. What are those? Extraeconomic zones are zones that 1. Have no ties with the world economy, 2. Run entirely on renewables and 3. Are dedicated to increasing carbon capture. They will come about because economics is too greedy and to dirty to fight climate change effectively. We have written about this before see here.
The key to Extraeconomics is to aknoweldge two facts : 1. Economics is about exploitation of available resources. Not the creation of them. Using fossil fuels. and 2. Renewables redraw the map of economic viability of our planet. Areas that before looked like they where uninhabitable now suddenly look perfectly capable of sustaining life.
The first fact is what has been getting us into this diseastrous state of near depleted resources, toxic oceans and atmospheres. The reason being that the economic model works like this : You see an opportunity to create a product or service of value? Ok, we give you the fossil fuel credit to bring that about. In return you help us keep money scarce (pay interest) and we can enjoy some of the fruits of your labour.
What this amounts to is :
- You : “Hey, a pristine forrest! If I had fuel for chainsaws, trucks and the sawmill, I could sell the wood into ‘the market’!”
- Bank : “Ok, here’s fuel credit. We’ll be rich!”
- You : “Hey, these are fertile lands for tree planting. If I plant trees here and wait 12 years I can cut them down and do the same thing as the other guy.”
- Bank : “Hold on! That’s 12 years of investment without returns! And how much fuel do you need? Not much huh? Ok, scram buddy!”
The above happens every time when the value to be traded is a result of a long process. This is why resources are being depleted. Oil itself is a good example, it’s “Get rich now” stuff as opposed to waiting 250 million years for plant biomass to fossilize and turn into coal, oil etc.
So there needs to be a separate paradigm to restore and replenish earths resources, and it can not be based on bank investment models (which are designed to run a fossil fuel credit system). Even though one may invest fossil fuels in an extraeconomic project, it will never produce a return to any lender and what is more shocking, it will produce value without bringing it to the market. What it will do is keep the community running it alive and well.
Extraeconomics is about overproducing carbon capturing commodities and not selling to the market
We will see that with the rise of renewables and the dire situation humanity finds itself in combined with the feasibility of extraeconomic projects, these projects will be set up and extraeconomic zones will grow in the heart of Africa, Australia, Chile and other now barren regions. The oceans similarly will become a tool to grow food and recapture carbon. All these things will be possible because renewable energy is so much more abundant than fossil energy ever was, and it is spread out over the surface of earth. It will bring about a revolution from the myopic city oriented visions of the future to one where people live across the globe, connected, productive and happy. One in which ‘classic’ economics is dead, and nobody is mourning.
More about the carboncredit economy and extraeconomics