Of far greater concern, if only because it creates an additional layer of complexity, was a report from Moody’s Investors Services on the credit worthiness of the European thermal power industry.
In a few words, Moody’s found that traditional coal and gas-burning power plants faced a future of falling revenues as government-subsidised renewables snatched a bigger share of the electricity market.
If the rise of renewables such as wind and solar continues, then some of Europe’s biggest thermal power utilities could be driven out of business.
The Moody’s report makes for sobering reading – not just because of what is happening to an industry that is the major consumer of thermal coal and not just because what happens in Europe has a habit of spreading worldwide.
The more disturbing aspect to the Moody’s report was that it suggests that a solution to the challenge of subsidised renewables is to subsidise coal and gas-fired power stations.
At first glance, The Hog thought such a suggestion to be utter madness, but as he read into the document it became a little clearer that the European power sector has taken on the appearance of a Mad Hatter’s tea party as last seen in Alice in Wonderland.
Taxpayers in depression-hit Europe (it is no longer a simple recession) are already paying handsomely for the privilege of using electricity generated by the intermittent flow of power from wind turbines that only work when the wind blows and solar panels the only work when the sun shines.
So, and try to not laugh when you read this, the solution to this problem of unreliability is to make “capacity payments” to conventional power stations to keep them in business.
Decoded, a “capacity payment” is a government subsidy to a coal or gas-fired power station to keep them in business to ensure the integrity of the electrical distribution system by generating power when the wind isn’t blowing or the sun isn’t shining.
Other observers of the coal industry might disagree with how The Hog sees such a situation. They could argue that Obama is a bigger threat because of his anti-coal policies, such as encouraging the zealots in his environmental agencies to make life even harder for coal-fired power generators.
As was pointed out in yesterday’s story (Coal calamity: Obama wins) the twin threats to coal in the US are a rising tide of environmental regulation and a flood of low-priced natural gas.
Those policies in the US are, in turn, pushing more US coal into the world market which is, in turn, depressing the global coal price.
Europe, however, is a problem of a totally different sort. There power generators are falling into the debt-trap that has already wiped out the economic fundamentals of several governments.
It has taken the Moody’s report to highlight the problem of subsidised renewable power on conventional generators, best summed up in this comment from Moody: “What were once considered stable companies have seen their business models severely disrupted.
“Given that further increases in renewables are expected, these negative pressures will continue to erode the credit quality of thermal-based utilities in the near to medium term.”
Unsaid, or at least unreported by the handful of international news wires that recognised the significance of the Moody’s report is the subsidy issue, The Hog will attempt to explain.
Essentially, renewable energy in Europe has been growing because it is being subsidised by governments that are technically insolvent.
Those subsidies, extracted from hard-pressed taxpayers via high power bills, are ensuring ever-more renewable power is produced which is, in turn, driving the thermal power generators out of business.
The solution, which is hard to believe in whatever way it is dressed up, is to start subsidising the thermal power generators so they can stay in business to supplement the already subsidised renewable power generators.
The ultimate irony of this farcical situation is that subsidy-on-subsidy is not a sustainable business plan, even if it is in the name of sustainable power generation.
What must happen is that ever-higher subsidies for power pushes Europe ever closer to a financial collapse which, in turn, drives down demand for all forms of power which, in turn, pushes up the required government subsidies.
Perhaps The Hog is misreading the situation, but what he sees happening in Europe is a sort of perpetual motion machine built on government hand-outs that no-one can afford and which must eventually lead to a spectacular crash – at which point power generation reverts to the cheapest fuel source: coal.