The general definition of economic sustainability is the ability of an economy to support a defined level of economic production indefinitely - Thwink.org
Able to be maintained at a certain rate or level e.g. "sustainable economic growth" - Definition of Sustainability, Oxford English Dictionary
Traditionally, when you wanted to build a new gas plant, you obtained a bank loan on the basis that the output and hence income of the plant could be determined in advance and was at a price linked to the wholesale cost of gas. There would be a certain amount of downtime for maintenance but your plant would be running for most of the year. This meant that the bank was satisfied that you could meet your repayments.
Total generation capacity in the country was linked to demand for electricity in the economy with some spare capacity for reserve. This meant that the cost of your electricity bill was pretty much directly linked to the amount of electricity you consumed with a few added extras to keep the system running and of course, profitable.
During the last decade, with the advent of intermittent renewables, most notably wind generation, both of the above sound economic principles began to be unwound.
Wind generation requires a subsidy because the output of wind is uncertain and therefore banks would be wary of funding such intermittent generation. The wind might blow, then again it might not. If your 20MW wind farm is only generating at half output i.e. 10MW, the subsidy you receive in effect brings your output up to 16MW (10MW multiplied by € 80 / €50 ). In otherwards you would only have received 10MW * €50 = € 500 MWh but instead you will receive 10MW * 80 =
€ 800MWh. Now the bank will be much happier.
If we now go back to our gas plant that has received bank funding, its output is starting to become more uncertain as intermittent wind is pushed onto the grid. Therefore, its income which was once fairly regular becomes staggered and less certain. Now, the banks will become worried, how certain are the loan repayments ?
So once we introduce alot of intermittent generation such as wind and solar into the system, all forms of generation, which were once dispatchable and reliable, become intermittent. This means that some form of subsidy needs to be introduced for the gas plant either in the form of a REFIT style subsidy on the market price or a capacity payment to ensure the plant remains financially viable throughout periods of high wind and solar penetration. So now, we enter into a new era of electricity generation economics where subsidies are required to maintain all generators, not just the renewables. We reach a stage where the gap between supply and demand is so large that there is simply not enough peanuts to go around for everybody and so subsidies are required for all. This differs from the heavily subsidized farming industry because demand for farming products is always equal to or above supply.
This situation that we then have is the exact opposite of the free competitive electricity market we were promised by the Fianna Fail government, when in 2006 they broke up ESB's monopoly on the market and set up Eirgrid to run the national grid. The fact is that when ESB controlled the electricity market, electricity was much cheaper (and no, I don't work for them).
The housing bubble evolved in exactly the same manner - there was a huge over-supply of houses, developers required subsidies in the form of tax reliefs and cheap credit (we now know that all that cheap credit was in effect a taxpayer funded government subsidy) and there simply was not and never could have been enough demand to maintain that level of supply indefinitely.
So the question is how long will it take for the levels of over investment in the electricity market to begin to become unsustainable and the bubble bursts ? It will most likely happen when the level of electricity bills becomes so high that more and more consumers fail to pay the bills on time or at all. Disconnections will rise. Quite a large proportion of the hikes in energy bills are loaded on industry. When most of them decide to jump ship to more competitive countries, as in the case of Cadburys, we are deep trouble, not just because of the resultant job losses, but because there will be a significant hole in the funding of the electricity bubble. When holes begin to develop at the bottom of a pyramid, the whole pyramid eventually collapses.
When this happens, subsidies to generators will be slashed, loan repayments will no longer be met, and the banks will be facing another hole in their balance sheets. In effect, this means that today, the electricity generation assets on the balance sheets of banks are significantly overvalued. Their current valuation is only as good as the ability of the electricity consumer to continue funding indefinitely the ever wider gap between electricity supply and demand (and the supporting grid infrastructure required to support it).
It may turn out that because electricity is a necessity good, the bubble will continue for longer than the housing bubble. This then means that people will have less discretionary spending in direct proportion to the increasingly higher electricity bills. So there will be a period where the electricity bubble will impact other sectors in the economy, themselves already impacted by the higher bills (e.g. a designer clothes shop will be impacted twofold with less customers and higher bills).
There are alot of industries dependent on discretionary spending in Ireland and along with the water charges (water is another necessity good), the hikes in energy bills will put a squeeze on them. Cold weather will also increase the demand for coal and oil - necessity goods which are now heavily taxed. With government policy, and the majority of investment, focused almost solely on electricity generation and windmills, people have little choice when it comes to heating their homes e.g. the investments into retrofitting and energy efficiency are tiny compared to wind energy.
In this scenario, different sectors in the economy will start to feel the squeeze and we will see another recession. This will be the beginning of the bottom sections of the pyramid collapsing. On top of this will be the disappearance of large industry - another section at the bottom of the pyramid gone. The electricity bubble will have collapsed but, like the housing bubble, will have brought down alot of other industries with it.
But whatever the sequence of events - one thing economists know for certain is that an economic bubble will eventually collapse.
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