WIND POWER AND SPAIN
Alternative power (wind & solar, primarily) survives because of subsidies that make it competitive with the traditional “base load” power sources of nuclear, coal, natural gas and hydroelectric power. These subsidies have to be passed on, in some form or another, to either the end user that pays the power bill or the taxpayer who funds it on behalf of all citizens.
Spain, in particular, offered incentives that led to a large investment in wind power facilities. Spain was viewed as a “model” country for alternative power by greens as a result of these policies.
Today’s WSJ had an article titled “Spain’s Cuts to Solar Aid Draw Fire” that summarized the situation:
In Spain, solar-PV plants (cost) roughly 10 times the price utilities pay for power produced from conventional sources such as gas and coal.
Since Spain is having financial problems, these subsidies are expected to be significantly reduced, by up to 30%. The developers of these wind farms are crying foul, saying that Spain is reneging on its commitments and offering up a form of the “expropriation” argument that often occurs over power investments of this type.
20 billion Euros had been invested in the solar-PV plants in Spain… the tariff changes could force many solar producers in default on their debts.
It is interesting that debt-holders assumed that citizens would want to pay ten times the rate of coal and gas power for “clean” wind power indefinitely. It doesn’t seem like a bet that is going to pay off for them.
Another infeasible and indefensible scheme is also beginning to show cracks towards its inevitable collapse. This article describes the situation in the city of Prichard, Alabama.
The financially troubled suburb of Mobile turned to bankruptcy court… when it simply ran out of money to meet pension obligations… Prichard proposed capping benefits to current retirees at $200 a month, down from monthly payments as much as $3,000.
The obligations of many, many municipalities are unsustainable. Prior politicians promised benefits that can’t be paid without seriously reducing and impairing existing services. The type of “haircut” that Prichard was proposing seems very onerous but they have to pay for existing salaries and benefits and then the costs of the retired staffing on top of it is apparently impossible.
At some point a new generation of politician will come into office and have to make the choice of either 1) raising taxes to unsustainable levels (and thus being thrown out of office) to pay for past pension promises 2) find a way to get out of the promises by either going bankrupt or somehow “cramming down” smaller payments.
It is a good bet that many of the politicians will balk at raising taxes and seriously look at bankruptcy or some other way to reduce these costs simply because raising taxes during a recession when citizens are hard up is political suicide. The same forces (conflict avoidance, pandering) that allowed unions to amass such favorable terms while the fiction of pensions and 10% returns on investments compounded forever existed works exactly in reverse when the situation becomes dire; why would the politician try to sacrifice everything (including current workers) for past worker pensions and health benefits?
In both these cases the fictions that citizens are willing to bear higher than market costs indefinitely for alternative power or to pay for lifetime pensions for people retiring in their 50′s is going to founder, and these consequences will ripple through the entire financial and governmental sector.
This is how it ends.
Cross posted at LITGM