For as long as I can recall, it has been amazing to see just how little the average reporter understands about basic economics. Another good example came across my desk today. It's an article in the New Republic in which environmental reporter Katie Aronoff explains why the collapse of fossil fuel prices may be a huge benefit for production of geothermal energy. For those who are unfamiliar with this energy source, it consists of using heat from underground magma or volcanic activity to warm water for use in power generation. Pipes take cool water down into the ground where the underground heat brings the water us to boiling temperatures. That superheated water is brought to the surface where the steam it generates is used to drive turbines that produce electric power.
The basic point of the article is that the collapse of oil and natural gas prices has left much unused drilling equipment that can now be put to use drilling for geothermal energy. The up front costs for geothermal energy will be lowered as a result. The reporter thinks this will finally make geothermal energy competitive with other power sources.
The whole premise of the article is moronic and it shows a basic misunderstanding of the economics of the power industry. Right now, the biggest source of electric power in the USA is natural gas. Something close to 40% of all electricity comes from natural gas fired power plants. In order for geothermal energy to compete with the natural gas plants, the power from geothermal has to cost less than the power from natural gas plants. Reduced up front costs from geothermal will bring the price more in line with gas powered plants. However, since the reduced costs for the geothermal plants is the result of a major decline in the price of natural gas and oil, the small cost decline for geothermal energy has to compete with the resulting major decline in the cost of gas powered electric energy production. In other words, the decline in the price of fossil fuels actually increases the cost advantage for the fossil fuel powered plants.
This is not a difficult concept. Nevertheless, the reporter and the editors of New Republic published this bit of nonsense without ever once thinking it through.
The basic point of the article is that the collapse of oil and natural gas prices has left much unused drilling equipment that can now be put to use drilling for geothermal energy. The up front costs for geothermal energy will be lowered as a result. The reporter thinks this will finally make geothermal energy competitive with other power sources.
The whole premise of the article is moronic and it shows a basic misunderstanding of the economics of the power industry. Right now, the biggest source of electric power in the USA is natural gas. Something close to 40% of all electricity comes from natural gas fired power plants. In order for geothermal energy to compete with the natural gas plants, the power from geothermal has to cost less than the power from natural gas plants. Reduced up front costs from geothermal will bring the price more in line with gas powered plants. However, since the reduced costs for the geothermal plants is the result of a major decline in the price of natural gas and oil, the small cost decline for geothermal energy has to compete with the resulting major decline in the cost of gas powered electric energy production. In other words, the decline in the price of fossil fuels actually increases the cost advantage for the fossil fuel powered plants.
This is not a difficult concept. Nevertheless, the reporter and the editors of New Republic published this bit of nonsense without ever once thinking it through.
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