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The Smart Grid and the Fiscal Stimulus
Earlier I pointed out that a) regulatory problems have prevented investment in the smart grid and b) subsidies to wind power in some states have driven prices to negative levels (yes, people are being paid to consume power). These two problems are closely related.
The states control whether transmission lines get built but states with a lot of wind energy don't have an incentive to build transmission lines to move the power out. In effect, states with a lot of wind energy are preventing exports which lowers their own internal price of electricity but raises everyone else's price and reduces the use of wind power.
A new article in Technology Review makes the point.
One effect of these regulatory moves was that companies had less incentive to invest in the grid than in new power plants, and no one had a clear responsibility for expanding the transmission infrastructure. At the same time, the more open market meant that producers began trying to sell power to regions farther away, placing new burdens on existing connections between networks. The result has been a national transmission shortage....
[Many states have a lot of wind potential]...But the existing transmission system doesn't have the capacity to get that much electricity to the parts of the country that need it. In many of the states in the [wind] region, there's no particular urgency to move things along, since each has all the power it needs. So most of the applications for grid connections are simply waiting in line, some stymied by the lack of infrastructure and others by bureaucratic and regulatory delays.
Hat tip to Andrew Samwick who writes:
The federal government is the entity that can resolve that failure, by taking the lead and making those expansions itself. It can recoup its costs by levying a fee on subsequent power consumed through the grid. I hope the fact that we need this investment isn't a reason for it to be excluded from plans for fiscal stimulus.
Posted by Alex Tabarrok on January 8, 2009 at 07:38 AM in Current Affairs, Economics, Science | Permalink
Comments
I hope the fact that we need this investment isn't a reason for it to be excluded from plans for fiscal stimulus.
Best sentence I've read so far today. But with our "leadership" in DC, we need prayers in addition to hope.
Posted by: at Jan 8, 2009 8:06:43 AM
"I hope the fact that we need this investment isn't a reason for it to be excluded from plans for fiscal stimulus."
The question is, are there any senators/congress critters that could personally gain (receive bribes) to subsidize such investments. I have my doubts.
Posted by: Jay at Jan 8, 2009 8:20:09 AM
Forgive my ignorance - I'm not familiar with the details of the US power industry - but why can't the market solve this problem itself? Are the power companies not private? Or are there regulations that prevent power companies negotiating with private owners of land to transfer power from one place to another?
Posted by: Barry Kelly at Jan 8, 2009 8:54:39 AM
I am an active participant in the power industry. This is one of those issues that everyone sees a solution to on the macro level, but the micro decisions don't work.
Electric transmission is a complicated mix of regulation, politics, and market forces. First you need to seperate high voltage transmission from local distribution. HV trans is regulated by FERC, and controlled by Regional Transmission Operators (PJM, NYISO, SPP). Transmission owners (private or public) join an RTO, and the RTO controls the economics of grid dispatch. This is where a renewable transmission grid would be controlled/regulated.
Local distribution is a regulated monopoly controlled by state regulators. This is the arena for Real Time pricing (wholesale prices are computed by the RTO) and hyperfleets/smart cars.
High Voltage Transmission needs environmental studies and the property to build. Who wants a 500kV line humming in their back yard? Next, the states will realize that if the export their lower priced power (which is implied for the transmission to be economic), the exporting state will pay higher wholesale rates. Why would Ohio want to lower the cost of power in Washington DC at their own expense?
FERC already has backstop siting authority in HV Trans citing. Follow the Palo Verde-Devers 2 story in the Southwest to see if the Feds can get it done.
Posted by: Kevin at Jan 8, 2009 12:33:24 PM
Within Texas there are pretty strong incentives to build transmission to get low cost power (in the West part of the state, with lots of wind power generation) to markets (but only those within the state itself). The state government has pursued a relatively pro-active approach to getting the necessary transmission built, but the transmission owners still face the usual siting problems. So even with the state pursuing a half-way reasonable infrastructure policy in this case, it will take a few years to get the necessary transmission built.
Elsewhere, interstate commerce in electric power remains mostly hostage to the cooperation of state interests. (And, of course, even the Texas state government is not particularly interested in ways to get low-cost power out of the state-regulated ERCOT market and into the federally-regulated rest-of-the-country, they just want to build the infrastructure needed to support intrastate commerce.)
Posted by: Mike Giberson at Jan 8, 2009 2:07:21 PM
is there a good source of information about smart electrical grids on the web? (i am looking for something factual and not dreamy or salesy or opinion-driven.) maybe someone in the power industry could point me?
Posted by: babar at Jan 8, 2009 4:12:41 PM
Babar: to tell you the truth, there's little agreement as to exactly what constitutes a "smart grid," other than that it is supposed to use improved computer management to make more efficient use of grid resources. I personally think that the term is not particularly meaningful as it is usually employed, since visions of what a "smart grid" vary considerably from person to person.
As for a link, I think that this summary of possible EU grid modernization plans is probably as good a place to start as any.
Posted by: Sovietologist at Jan 8, 2009 11:09:11 PM
"Hat tip to Andrew Samwick who writes:
The federal government is the entity that can resolve that failure, by taking the lead and making those expansions itself. "
Agreed, as long as those expansions are performed by the private sector that is required to follow a comprehensive detailed plan. It is imperative that those expansions are given out by bids and not controlled by a corrupt excessive spending federal government and senators and representatives that pickle the pork.
Posted by: B S at Jan 9, 2009 2:15:16 AM
Very well written and thoughtout post. I feel that the overall economy is going to get worse before it gets better. The Fed
has thrown just about everything it has at the economy to stabilize it. I believe that you will see the real estate market
start to recover before the rest of the economy can recover. In the Tampa real estate market I have started to see some
recent activity on some of our properties. There are even a couple of properties getting multiple offers. Prices are still
dropping a little bit but hopefully we are nearing the end. I choose to look at the glass as have full although I am
realistic that we do have some pain ahead of us.
Posted by: Minthis Hills at Jan 10, 2009 4:34:32 AM
