The switch to green energy will depend on cost and location


There is a concerted effort to accelerate the transition to clean energy here in the U.S. The Biden Administration’s Inflation Reduction Act and CHIPS Act both featured climate-related features and incentives. Cities like Chicago, Dallas, and Denver offer game-changing potential for wind and solar energy. But completing the transition away from fossil fuels is far from certain.

Straight Arrow News contributor Peter Zeihan warns that making the switch to green energy will depend on figuring out the cost and location.

Excerpted from Peter’s April 24 “Zeihan on Geopolitics” newsletter:

The economics of green energy are vastly different from traditional fossil fuels, and we must understand their differences if the transition to green energy will ever be successful.

When building a traditional power plant, most of the costs come from the fuel used to manufacture the plant, which can be paid over time by the fuel you sell. Most of the expenses for green energy plants come from the plant’s initial construction, which requires lots of capital on the front end.

There are two complications with the transition to green energy. First, the cost of capital is rising and will continue for the next 10+ years, making those upfront costs even heftier. Second, energy costs are traditionally inelastic. So as the system is converted to green energy, the cost of components will have to be factored in.

The bottom line is not that we shouldn’t go green; instead, we should only put these plants where the technology matches the geography. Putting solar where it’s sunny and wind where it’s windy. Once we can figure that out, we’ll just need some help from the tech space and Congress to help with the transmission side of things.