Here is the intro to a long WSJ article on the economics of wind, solar and biofuels, The new math of alternative energy ($):
The numbers are starting to look promising.
For years, the big criticism of alternative energy was cost: It was too expensive compared with energy based on traditional fuels like coal and natural gas.
Even though the fuel was often free -- such as wind or the sun's rays -- alternative-energy producers had to plow lots of money into finding the best way to capture that energy and convert it into electricity. Fossil-fuel producers, on the other hand, could draw on billions of dollars in infrastructure investments and decades of know-how.
Now the equation is showing significant signs of change. Costs are falling for some alternative-energy sources, driven by new technology and renewed development interest.
Alternative energy still can't compete with fossil fuels on price. But the margins are narrowing, particularly since oil and gas prices have been rising. The math looks even more favorable if you consider the environmental cost of fossil fuels -- which most purely economic calculations don't.
As the WSJ says: "Easily Integrate These Wall Street Journal Articles in Your Class." The summary and discussion questions from James Deardon are below the fold.
SUMMARY: In the power business, the more electricity you sell, the more money you make. Now state officials and electric utilities -- backed by environmental groups -- have begun to change that equation. Faced with growing demand for electricity and the environmental consequences of generating it, states and utilities are considering new regulatory regimes that remove the incentive for selling more power -- and give utilities a financial stake in saving energy. The ultimate goal is to eliminate the need for new power plants. To reduce the generation of electricity and the need for new power plants, state governments are considering two regulatory mechanisms. The first is "decoupling," in which utilities receive a predetermined profit each year, thereby eliminating the incentive of power companies to sell more electricity. Decoupling, however, does not give power companies the financial incentive to cut electricity generation. In the second proposal, states offer financial incentives to power companies to improve efficiency of their operations.
QUESTIONS:
1.) Do power companies have the incentive to sell more electricity?
2.) Why does the "decoupling" regulation remove the incentive of power companies to sell more electricity? Does decoupling provide power companies with the incentive to promote the efficient use of power?
3.) Evaluate the statement: "Decoupling and incentives often lead to increased energy-efficiency investments by utilities, increasing customer and societal benefits."
Reviewed By: James Dearden, Lehigh University
