Energy Market and Policy Revolutions: Regulatory Process and the Cost of Capital
Energy Law and Economics (Klaus Mathis & Bruce Huber, eds) (Springer, 2018)
11 Pages Posted: 19 May 2018 Last revised: 19 Sep 2018
Date Written: May 4, 2018
As the world embarks on a transition toward a low-carbon economy, one common characteristic of alternatives to fossil fuels has gone surprisingly unexamined: the cost of these alternative sources is disproportionately concentrated in capital expenses, rather than operating expenses. Solar, wind, and hydro power have very low operating expenses: the cost of these power sources is largely in their construction. Even nuclear power has low fuel costs compared to fossil fuel power sources. So as the world decarbonizes the power grid and electrifies the transportation sector, capital costs will grow increasingly important in the energy sector. At the same time, several trends in energy law have been conspiring to raise the cost of capital. First, privatization and deregulation of electric utilities mean that energy investors are less certain of recovering their capital investments. Second, a push for more public participation in decision-making on energy infrastructure has, at times, resulted in delays and uncertainty that make private companies even more wary of long-term capital investments in new energy facilities. Third, the drive for more careful and holistic environmental assessments of new energy facilities has, in some cases, further delayed new infrastructure, again making private investors wary of large, new investments. This Article considers how to manage these conflicting trends, describing how governments can achieve public participation and improved environmental assessment while, at the same time, ensuring the predictability that can support capital investment in a new energy economy. It also explores particular areas where these tensions may be irreconcilable, suggesting ways that governments may be able to serve the goals of expanded participation and assessment, while providing private capital with traction to achieve a transition away from fossil fuels.
Keywords: energy, investment, competition, climate, carbon, pipelines, electricity transmission
JEL Classification: K23, K32, K20, K30, Q20, Q28, Q30, Q33, Q35, Q38, Q40, Q48, Q56, Q58
Suggested Citation: Suggested Citation