Why “cheaper” wind and solar raise costs. Part I: The fat tail problem
Posted on May 13, 2025 by curryja | 183 Comments
by Planning Engineer (Russ Schussler)
Wind and solar power are often touted as the cheapest sources of electricity in many regions, capable of delivering low-cost energy for the vast majority of the time. At first glance, this might suggest that an energy mix heavily weighted toward renewables would be the most economical choice. However, this assumption overlooks a critical issue: the fat tail problem. Just because a resource is cheaper most of the time does not mean it reduces overall system costs. This post, the first in a series, explores why prioritizing wind and solar can lead to higher costs, starting with an analogy from the financial world.
The Fat Tail in Finance: A Cautionary Tale
To understand the fat tail problem, let’s consider a financial scam once common in late-night infomercials: “Make money on over 90% of your trades—guaranteed!” These ads promised that with their trading strategy, you’d win on 90% of your trades and lose on less than 10%. Sounds like a surefire path to wealth, right?
Not so fast, this is too easy. The flaw lies in the magnitude of the wins and losses. Investments often rise gradually but can plummet dramatically. If you make small gains 90% of the time but suffer massive losses the other 10%, the overall result can be catastrophic. The percentage of winning trades is a poor metric for profitability when the losses are disproportionately large. This is the fat tail problem: rare but extreme events drive the economics.
The Fat Tail in Power Systems
https://judithcurry.com/2025/05/13/why-cheaper-wind-and-solar-raise-costs-part-i-the-fat-tail-problem/
