Consumers and the ‘Smart Grid’
The drive to let consumer-level electricity prices float as prices do in innumerable other markets has been stunted by complaints about so-called “smart meters” that would give consumers the ability to respond to fluctuations in the realtime price of electricity.
When the California Energy Commission attempted to put these kinds of meters into new buildings, the knee-jerk reaction consisted largely of complaints about the government “taking over” consumers’ electricity consumption in the case of a looming blackout. For more on why these concerns lacked some essential context, listen to the podcast with Peter Van Doren on the case of the CEC.
As I discussed with economist Lynne Kiesling at Cato University, consumer-side responses to varying electricity prices could take many forms, from smarter appliances plugged into the same pricing information to battery technology to take advantage of times of low electricity demand. What’s more, dynamic pricing could someday let consumers turn the product of electricity into the service of electricity by allowing consumers to pay a premium for costlier but “greener” methods of electricity generation.
Here’s more from Kiesling on smart meters.
Preparing for Life as a Light Bulb Black Marketeer
I’ve decided the time has come to become an entrepreneur — as a black market operator.
Come next January, 100-watt incandescent light bulbs will be illegal, courtesy of Congress and President George W. Bush. Lower wattages will be banned the following year. As usual, politicians in Washington believe they know best and are determined to inconvenience the public in the name of saving energy.
No matter that incandescent lights offer a softer light and are a better value than fluorescent bulbs if turned on only briefly. And no matter that breaking a fluorescent light will spill mercury, creating what in any other circumstance would be considered to be a biohazard.
There are other consequences of the coming prohibition. Notes Tim Carney of the Washington Examiner:
- Citing this law, GE has closed its incandescent light plant in Virginia. For the coming years, while they’re still legal, Americans will be buying their GE incandescents from Mexico. This probably means less efficient manufacturing and more shipping.
- GE makes its CFLs in China. The factories are likely dirtier and less efficient, and certainly there will be more shipping costs.
- Because of the warm-up time for CFLs and the knowledge that they use less energy, people are more likely to leave them on for longer, I imagine.
- In northern latitudes, incandescents’ inefficiency is not wasted. Think about it: in Alaska, summer nights are very short and winter nights are very long. That means a vast majority of light-bulb time happens in the winter. The incandescents waste energy in the form of heat, but if it’s cold, that added heat slightly reduces your need to use a furnace.
And why stop there? I could become an incandescent bulb pusher once the prohibition takes effect. I don’t think drug prohibition makes any sense, but I have no desire to get into that market. Customers and competitors are an ugly lot and I really don’t want to go to prison. But selling light bulbs — now there’s something I could do!
I’d be even happier, however, if the new Congress dropped the coming prohibition. Fluorescent bulbs often are a wise choice, but not always. A supposedly free society should leave at least a few choices to people — like deciding which light bulbs to use.
Radioactive Corporate Welfare
A good default proposition regarding the government’s role in the economy would state that the government should not loan money to an enterprise if the enterprise in question cannot find one single market actor anywhere in the universe to loan said enterprise a single red cent. It might suggest – I don’t know – that the investment is rather … dubious.
Alas, like all good propositions regarding the government’s role in the economy, this one is being left by the roadside by the Obama administration. Unfortunately, the only complaint being made by a not insubstantial segment of the political Right – frequently, the political crowd that is busy decrying “Bailout Nation” – is that the loan guarantees are not fat enough.
I write, of course, about the $8.3 billion federal loan guarantee announced by President Obama this week for Southern Company to build two new nuclear power plants. The money will be used to guarantee the loans being made by the federal government (via the Federal Financing Bank) to partially cover the cost of Southern’s projected $14 billion nuclear construction project at their Vogtle plant near Waynesboro, Georgia. The loan guarantees were authorized by Congress in the 2005 Energy Policy Act and, we are told, are the first installment on a total package of $54 billion that the President would like to hand out to facilitate the construction of 7-10 new nuclear power plants (Congress, however, has only authorized $18.5 billion to this point).
The claim being made by some – that the loan guarantees are necessary to jump-start investor interest in new nuclear power plant construction – is not quite correct. Even these lavish loan guarantees aren’t enough to do that. In a letter to the U.S. Department of Energy dated July 2, 2007, six of Wall Street’s s then-largest investment banks – Citigroup, Credit Suisse, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley – informed the administration that, contrary to the government’s expectations, anything short of a 100 percent unconditional guarantee would be insufficient to induce private lending.
Why is it risky to build nuclear power plants? Because new nuclear projects tie up more capital for longer periods of time than its main competitor, natural-gas fired generation. Nuclear power makes economic sense only if natural gas prices are very high. Then, over time, the high initial costs of nuclear power would be offset by nuclear power’s lower fuel costs. Moreover, as noted by Moody’s in an analysis published in July of last year, there is uncertainty associated with construction costs, regulatory oversight, technological developments that might reduce the cost of rival facilities, and the ability of utilities to recover costs and make a profit over the lifetime of the plant – a risk tied up in the economic prospects of the region being served by the plant. And those risks have been increasing, not decreasing, as time has gone on.
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