Submitted by Awkward_moments t3_yg7zbt in Futurology
On this subreddit I see people talking about how wasting energy is a bad thing. People talk about how it's going to be unprofitable or bad for the energy market. Usually saying that it will prevent the rollout of 100% renewable grid or use it as an example of why nuclear must be used. I don't think it does these things and I want to throw my logic into the mix for anyone who cares to listen.
Caveat: I'm not in the energy market and I'm not an expert. I'm just a guy that knows a little about economics and spend too much time reading about renewables.
Let's just deal with solar and gas to make it easier.
Two things matter. Marginal cost and turning a profit on the lifetime of capital. Now what I think confuses people is they look at the whole market and not individuals in the market. Individuals acting rationally dictate the market and therefore you need to start there. If the marginal cost is too high the individual will leave the market. If the lifetime cost is too high the individual will leave the market. If they make profit they will grow.
Gas has a marginal cost of the price of fuel. Let's call this MC-G. Solar has a very small marginal cost so let's assume 0 to make it easy. If the price ever goes below MC-G no gas is used as it would lose the company money.
So how much solar do you install? Well profit is price times the amount sold. If this is high enough to pay off the initial invest more solar will be built. Important point: this is the total sold over the day. If you have gas running in the night making no money for solar and so much solar running in the middle of the day the price is 0, profit can still be made between these points. This is what is important if this is enough to pay for the panels more will be made, it doesn't always have to make money.
There are now three costs to the market.
Night time cost = MC-G + profit to cover capital costs of gas plants Middle of day costs = 0 Morning and afternoon costs = MC-G (just low enough to keep gas out of the market but makes solar money).
Solar stays in the market if morning and afternoon pay enough to cover costs and they will expand if they make money. The more they expand the more time of the day energy price =0
The growth of solar minimises the time the gas plants run so the price they charge needs to increased until they can pay off all their costs over an smaller and smaller part of the day.
This is where batteries can make their money if solar in the day creates energy cost of 0 and they can store it to collect a high price in the night this has two affects. In increases the price gas plants charge (as they run less) meaning it makes it more profitable to built batteries but it also increases the demand of solar futher increasing the growth of solar.
As such solar will create a huge over production of energy and there will be huge parts of the day where no one in the market is making any money. But the companies in the market will be making money.
This also applies to wind but wind is a lot more random than solar and harder to explain simply. I just wanted to point out that 0 cost in the day is a good thing for the expansion of renewables.
Additionally I do not see how nuclear can make any money. Because their marginal cost is low (but not 0) and their daily fixed costs and capital costs are so high.
I expected to go into a little more detail but I ended up writing a lot more than expected so I will leave it here.
Southern-Trip-1102 t1_iuf54ak wrote
If we didn't need to worry about profit going full renewable + nuclear would have been so much easier. The government puts down the capital investment and does not need to worry about profit. High profits doesn't even necessarily mean cheap electricity. Profit is an objective which hurts our ability to get what we really want which is cheap renewable energy.