The Economist - USA (2020-08-29)

The EconomistAugust 29th 2020 Business 51

D

epending on whomyou ask, Califor-

nia is a leader in clean energy or a cau-

tionary tale. Power outages in August

prompted stern critiques from Republi-

cans. “In California”, Donald Trump

tweeted, “Democrats have intentionally

implemented rolling blackouts—forcing

Americans in the dark.” In addition to pro-

voking outrage and derision, however, the

episode is also likely to inspire investment.

The Golden State has long been Ameri-

ca’s main testing ground for green compa-

nies. Californians buy half of all electric

cars sold in America. Theirs is the country’s

largest solar market. As California deals

with heat waves, fires and a goal of carbon-

free electricity by 2045, the need for a reli-

able grid is becoming ever more obvious.

For years firms competed to generate clean

power in California. Now a growing num-

ber are vying to store and manage it, too.

August’s blackouts have many causes,

including poor planning, an unexpected

lack of capacity and sweltering heat in not

just California but nearby states from

which it sometimes imports power. Long

before the outages, however, electricity op-

erators were anxious about capacity. Cali-

fornia’s solar panels become less useful in

the evening, when demand peaks. In No-

vember state regulators mandated that

utilities procure an additional 3.3 gigawatts

(gw) of capacity, including giant batteries

that charge when energy is abundant and

can sell electricity back to the grid.

Too few such projects have come online

to cope with the surge in demand for air-

conditioning in the scorching summer. But

more are sprouting across the state. On Au-

gust 19th ls Power, an electricity firm

backed by private equity, unveiled a 250-

megawatt (mw) storage project in San Die-

go, the largest of its kind in America. In July

the county of Monterey said Vistra Energy,

a Texan power company, could build as

much as 1.2gwof storage.

The rooftop solar industry stands to

benefit from a new Californian mandate

that requires new homes to install panels

on their roofs from this year. Sunrun, the

market leader, is increasingly pairing such

residential installations with batteries. In

July, for instance, the company said it had

won contracts with energy suppliers in the

Bay Area to install 13mwof residential solar

and batteries. These could supply power to

residents in a blackout or feed power into

the grid to help meet peak demand. Sunrun

issoconfidentinitsfuturethatithasbid

$3.2bnforVivintSolar,itsmainrival.

Anotherwaytostaveoffoutagesisto

curb demand. Enel, a European power

company,hascontractswithlocalutilities

toworkwithlargecommercialandindus-

trialclients.Whendemandrises,Enelpays

customerstoreduceenergyconsumption,

easing demandonthegrid. A company

calledOhmConnectofferssomethingsim-

ilarforhomeowners.

Even as suchofferings scaleup, the

needforreliabilitymeansthatfossilfuels

willnotdisappearjustyet.OnSeptember

1st California’s regulators will vote on

whetherto delaytheretirementoffour

natural-gasplantsinlightoftheoutages.

Thestateremainsintentondecarbonising

itspowersystemoverthenext 25 years.But

progressmaynotmoveina straightline. 7

NEW YORK

Businesses compete to battle

California’s blackouts

Energy utilities

Lit

M

any bigcompanies may be struggling

with depressed sales, but these are

busy times for bribery-busters. Mexico is

abuzz over allegations by an ex-boss of Pe-

mex, the state oil giant, that several senior

politicians received bungs from compa-

nies including Odebrecht, a Brazilian con-

struction firm (see Americas section). The

scandal is the latest in a string of graft cases

to make headlines this year, starting with

Airbus’s record $4bn settlement in January

over accusations of corruption for making

illegal payments in various countries.

Corporate bribery is hardly new. In sur-

veys, between a third and a half of compa-

nies typically claim to have lost business to

rivals who won contracts by paying kick-

backs. But such perceptions-based re-

search has obvious limitations. A new

study takes a more rigorous approach, and

draws some striking conclusions.

Raghavendra Rau of Judge Business

School at the University of Cambridge, Yan-

Leung Cheung of the Education University

of Hong Kong and Aris Stouraitis of Hong

Kong Baptist University examined nearly

200 prominent bribery cases in 60 coun-

tries between 1975 and 2015. For the firms

doing the bribing, they found, the short-

term gains were juicy: every dollar of bribe

translated into a $6-9 increase in excess re-

turns, relative to the overall stockmarket.

That, however, does not take account of

the chances of getting caught. These have

risen as enforcement of America’s 43-year-

old anti-bribery law, the Foreign Corrupt

Practices Act (fcpa), has been stepped up

and other countries have passed similar

laws. The number of fcpa cases is up

sharply since the financial crisis of

2007-09, according to Stanford Law School

(see chart). It has dipped a bit under Presi-

dent Donald Trump, who has criticised the

fcpafor hobbling American firms over-

seas, but remains well above historic lev-

els. Total fines for fcpaviolations were

$14bn in 2016-19, 48 times as much as in the

four years to 2007.

The authors also tested 11 hypotheses

that emerged from past studies of bribery.

They found support for some, for instance

that firms pay larger bribes when they ex-

pect to receive larger benefits, and that the

net benefits of bribing are smaller in places

with more public disclosure of politicians’

sources of income.

But they punctured other bits of re-

ceived wisdom. Most striking, they found

no link between democracy and graft. This

challenges the “Tullock paradox”, which

holds that firms can get away with smaller

bribes in democracies because politicians

and officials have less of a lock on the sys-

tem than those in autocratic countries, and

so cannot extract as much rent. Such find-

ings will doubtless be of interest to corrup-

tion investigators and unscrupulous exec-

utives alike. 7

Bribery pays—if you don’t get caught

Bribery

A closer look at

greasy palms

Brown envelopes, big cheques

UnitedStates,ForeignCorruptPracticesAct

Sources:StanfordLawSchool;Sullivan& Cromwell *Investigationsandenforcementactions †ToAugust

6 5 4 3 2 1 0

60

50

40

30

20

10

0

851977 90 95 2000 05 10 15 20†

Enforcement actions Sanctions, $bn

Utilities

Transport

Communications

Basic materials

Financial services

Consumer goods

Aerospace & defence

Technology

Industrials

Health care

Oil& gas

100806040200

Number of cases* by selected industry

1977-2020†