When governments rely on free-market forces for the shift away from fossil fuels, gains are left in private hands while the public is responsible for losses.
A technician of the electricity grid in France stands on a basket by an electric distribution pole in Salleboeuf, France, on November 7, 2023. (Christophe Arhcambault / AFP via Getty Images)
This summer is shattering world records for heat. The climate crisis is already here, and the need for a global shift away from fossil fuels is beyond urgent. The electric grid is a key factor in this shift: addressing the climate crisis means electrifying all our energy, then making sure that this energy is coming from renewable sources.
Unfortunately, the decarbonization of our electricity sector has been uneven. A February report from Rhodium Group pointed out that the US electricity sector is nowhere close to meeting its decarbonization targets as outlined in the Inflation Reduction Act. In New York, where I live, we are similarly off track to meet our renewable electricity goals, while Governor Kathy Hochul has mused in the press that the goals themselves may be unattainable.
One major problem that got us here is the reliance on the free market in attempts to deal with the climate crisis. When renewable electricity prices are consistently falling, competitive profits to investors fall. Many countries have attempted to reconcile this contradiction through public-private partnerships, such as agreements to publicly finance privately owned projects or purchasing agreements between public and private companies.
A new paper from the Climate and Community Project that I coauthored examines this vexed relationship between public goods and private markets, examining five case studies of public-private partnerships and deregulation in the electric grid. In case after case, we see how private ownership and financing runs the risk of concentrating gains in private hands while leaving the public responsible for liabilities — ultimately undermining the goal of a publicly owned renewable energy future.
A Brief History of Power
The electric grid consists of three components: generation, transmission, and distribution. Generation refers to the power plants, offshore wind turbines, and other assets that generate power. Transmission lines carry this electricity at high voltages to centers of demand. The distribution system brings this electricity to homes, businesses, and public institutions.
In America, the regulatory architecture that governs the electrical grid dates roughly back to the turn of the century, when British-born American business magnate Samuel Insull rallied distribution utilities to support the creation of demarcated utility territories and corresponding state regulatory bodies, which usually took the form of state-appointed bureaucrats whose job it would be to make rulings on utility profits and behavior. Insull shrewdly and correctly guessed that it would be easy to capture these regulatory bodies to serve the interests of private companies.
Let’s say you’re a utility company with a great deal of regional political influence and technical expertise. If the only check on your power is an appointed board, making rulings on the basis of information that is only held or understood by your company, odds are good that this board will tend to rule in your favor. Furthermore, there is an intense revolving door effect between the industry and the regulators; a 2023 study found that roughly half of all public service commissioners go on to work for the companies that they purport to regulate. The speedy spread of this model speaks to its enthusiastic buy-in from capital: from 1907 to 1913, Public Utility Commissions spread to two-thirds of all American states.
In America, as in many countries around the world, electricity companies were frequently “vertically integrated” utilities, meaning the same utilities controlled multiple components of the grid. But from the 1970s into the 2000s, in the United States and abroad, a wave of deregulation swept the world’s electric grids, which broke down previously vertically integrated utilities in order to allow private power generators access to utility customers.
At the same time, renewable energy development began taking off. The same policies that encouraged the growth of renewable energy — the allowance of private companies onto the grid to promote “competition,” the use of tax credits to spur renewable deployment beginning in 1992 — were all organized for the benefit of private renewable energy companies to reinforce a capitalist market model. This would prove to be a huge boon for private investors, but bad for the shift toward a renewable economy.
Who Benefits?
South Africa provides an example of how public-private partnerships in energy can leave the public responsible for financial risks while privatizing profit. In 1994, Nelson Mandela’s African National Congress (ANC) took power after the end of apartheid. One of their immediate priorities was the extension of electrical power to the black South African communities. Eskom, the public electric utility, had up until this point been run largely for the benefit of white elite business interests. The ANC’s effort was largely successful, and the electrification rate increased from 36 percent in 1994 to 85 percent in 2021.
However, the nascent government was hamstrung in its ability to finance major projects, which left it vulnerable to the predations of international finance institutions like the International Monetary Fund (IMF) and World Bank, which have historically provided poorer countries with the money needed for major developments at the cost of austerity, budget cuts, and other forms of austerity that hurt average citizens while bolstering corporate power. When the ANC took political power in 1994, the party was unable to secure control over the country’s central bank and found themselves enmeshed in free trade deals that curtailed their redistributive agenda.
This meant that foreign capital was well-positioned to dictate the terms for the country’s development, and the ANC started down the path of corporatizing Eskom in 2001. This turn would ultimately set South Africa down a disastrous road. A lack of investment in Eskom guaranteed that rolling blackouts would become the norm by the decade’s end.
The government’s solution to this problem has been public-private partnerships, starting in 2011 with the Renewable Energy Independent Power Producer Procurement Program (REIPPPP) and now taking the form of the Just Energy Transition Partnership (JETP), both of which secure expensive public purchasing agreements for private developers while deliberately curtailing possible competition from public sector generation that could provide power more cheaply. This is a classic playbook under neoliberalism: cause a crisis for the public sector in order to undermine trust, then solve an artificially created problem through the private market, resulting in higher profits for private firms at the expense of reliability and affordability for the country as a whole.
Political Economy
This privatization of profit has consequences for public support for renewables. In France after World War II, communists and socialists were at the apex of their political power, and the Fourth Republic took over the electric grid and ran it as a single publicly owned company. Électricité de France (EDF) still supplies the majority of the country’s power and owns the majority of the distribution system as well through the company Enedis.
By the 1990s, the pressure to deregulate that swept across the world arrived in France, made worse by the country’s membership in the European Union. Across its territory, the EU’s preferred method for bringing renewables online in the 1990s and 2000s was through the institution of a policy of “feed-in tariffs.” These tariffs preserve the overall market structure of the electricity market but create security for private capital by guaranteeing customers and prices for renewable projects — meaning that once again, private developers are in effect receiving a guaranteed profit through government intervention, at the expense of existing public power institutions.
Coming in the wake of EU-mandated electricity deregulation, these newer entities are largely independent of France’s public company, which means that the highly unionized public sector workers do not have any immediate reason to support their growth. The sectors that developed pre-liberalization — hydroelectric, gas, and nuclear — developed within a framework that offered strong employee protections and gave a great deal of power to trade unions. In contrast, private renewable development is a relatively precarious sector with low unionization rates.
This means that private capitalists are the only ones with a structural interest in growing renewable energy, which makes support for renewables dependent on the profitability of those renewables — a profitability that is necessarily oppositional to the interests of ratepayers.
In 2021 and 2022, the war in Ukraine sent gas prices skyrocketing across the European Union. Under EU wholesale market rules, all generators are awarded a price based on the marginal cost, meaning that the most expensive power in the generation mix sets the price for the entire market. That had disastrous results for average electricity consumers: in 2022, 27 percent of respondents to a survey from the National Energy Mediator in France said that they struggled to pay their electric bill. You could hardly ask for a clearer illustration of the divergent interests between these respondents and the private renewable energy developers, who walked away with windfall profits.
Similar price shocks occurred during this time in the UK. Melanie Brusseler from Common Wealth notes how this could have been avoided:
Our analysis in March 2023 indicated that pricing non-gas electricity at average cost within a public ownership framework — using pricing flexibility not feasible under market coordination — could have slashed average 2022 wholesale electricity prices by almost 40 percent, amounting to nearly USD$26 billion or USD$930 per household.
This points to another problem with the private model: the inability to plan. If the market model for electricity is considered sacrosanct, then it becomes impossible to plan pricing and development based on anticipated need, with consequences for every ratepayer.
Amplitude and Resistance
The fossil fuel industry is one of the wealthiest and most powerful sectors on the planet — and overthrowing it will require organizing a massive base of political support. Policies that enable a broad base to benefit from renewable energy must be a critical priority for organizers and policymakers.
New political constituencies for public renewable energy can be built through careful policy and organizing. In New York, this was one of the explicit goals of the Build Public Renewables Act, which contains provisions to both provide cheap renewable power to everyday New Yorkers and build new renewable generation assets with gold-standard labor protections. Meanwhile, Thomas Marois shows how public finance is currently underused in its potential for large-scale industrial development, potentially showing a path forward that avoids the trap of private capital.
The fossil fuel industry’s stranglehold on both political and financial capital can be broken, but not without building a much stronger public sector. Organizers must be careful to guard against public-private partnerships that turn out to be a poison pill.
This work has been made possible by the support of the Puffin Foundation.