The Germans (again) caught smoking Coal

For almost two days in a row

Because engineers don’t normally have a background in economics, we often struggle to understand the difference between cost and value.

Cost is what you give up or spend to obtain a product, while value is the benefit or satisfaction you derive from that product. Businesses strive to offer products or services that provide high value to customers relative to their costs.

It is true that the cost of solar and wind (based on the dodgy LCOE metric) might be less today than the other energy sources, but the value depends on availability, because again, electricity is a service and not a commodity.

The graph above is from the financing agency Lazard (the cost of nuclear is wrong, which I will explain in a different article), but it shows how easily people can mislead themselves by not making the distinction between cost and value.

Let’s look at Germany with a 148 GW installed Wind and Solar Capacity. It’s not unreasonable (based on the LCOE metric) to suggest that the cost of these plants might be less than the cost of new coal power stations.

But what is the value of coal when there is no wind and sun available (a phenomenon called Dunkelflaute)? Infinitely more than the value of solar and wind combined, which was close to zero, on December 1, December 2, and December 3 2023.

The value of “dirty” South African coal is so much higher today that Germany in the absence of it will sit with rolling blackouts. It’s like a child caught smoking, even though he knows it’s bad for his health, the value is derived from the naughty satisfaction.

If Germany were to restart its nuclear power stations then they would cost an estimated €25/MWh, but it would provide infinitely more value during the periods of no wind and no solar.