New at Reason: Ron Bailey on Why Investing in Smart Grid Technology Isn't So Smart

February 3, 2009

Smart grid energy technology is all the rage. But as Science Correspondent Ronald Bailey writes, it makes little sense for the government to pour billions of dollars into America’s electric power infrastructure.

Read all about it here.

Comments

|2.3.09 @ 3:34PM|#

Seems like a much easier solution would be to allow power companies to jack rates to the moon during peak hours.

Seward|2.3.09 @ 3:40PM|#

Ron Bailey,

Some pilot projects report that consumers using this technology have cut their energy bills by an average of 10 percent.

And does anyone know if they are scalable?

Do proponents of these projects tackle the Jevons paradox?

Kolohe|2.3.09 @ 3:42PM|#

it makes little sense for the government to pour billions of dollars into America's electric power infrastructure.

As someone with a Bachelor's of Science in Electrical Engineering, it makes perfect sense to for me. But now I'll go and read the article.

.|2.3.09 @ 3:57PM|#

http://smartgridcity.xcelenergy.com/

The Anti-Luddite|2.3.09 @ 4:04PM|#

When Xerox first came out with copiers (post-mimeograph) people laughed and said, "What a useless machine! Why would anyone want to make copies of a letter?"*

Technology has a way creating value where none existed before.

*Told to me by Barry Rand, former President, Xerox USA

Egosumabbas|2.3.09 @ 4:06PM|#

It won't matter anyway. In 20 years we'll have solar wall paper, solar windows, rooftop quiet windmills, and bathtub-size nuclear power generators. In fifty years we'll have a polywell fusion generator on every street corner.

Kolohe|2.3.09 @ 4:09PM|#

Now that I've read the article two points:

1)

Here's another question: Why haven't utility companies and electric generation companies already started invested in a smart grid? One word: incentives. The chief problem is that power companies make more money when they sell more electricity to consumers. Building a smart grid means utilities would pay for infrastructure that could reduce the amount of electricity they sell. In other words, given the current regulatory system, utilities would be spending money so that they would make even less money. Obviously, this incentive scheme won't work.

Even without the decoupling reforms you discuss in the next paragraph (which I don't know enough about to comment on), the incentives you cite in this paragraph are, if I may, not so 'Econ 101' simple. (could be it had to be written that way just for the sake of brevity though - I, however, don't have that problem).

Specifically, it's not always true that 'that power companies make more money when they sell more electricity to consumers.' There is a complex relationship between power suppliers and power producers which has been made more so by (maligned by the California implememtation but overall a good thing) deregulation. If your operating close to capacity, you'll be spending a good bit when demands peak, either on your own backup generators or buying it from someone else, but mostly are still selling it at the same base rate.

So this is why utilities are so eager to get people to conserve; the marginal cost to them for that last kW of power can be rather high, and they may not be able to pass it on. Plus, it's tougher and tougher to build new power plants, so plans to increase production capacity habitually cost more and take longer than expected. Now, of course, if the utilites can get the govt to pay some of their bills they will - and I wish they not do this - but it's no different than everyone else with their hand out these days.


2)
the other big part of the grid, smart or no, is to build new high voltage capacity in other parts of the country than where it currently is. Especially if a carbon tax or the like makes the coal producing and consuming regions of Appalacia not economically viable anymore for electicity generation.

Just about all the 765 KV lines are currently located between the Virginia piedmont and lake Erie, and really nowhere else - because this is where all the nuc, hydro and coal plants are. If we do wind up building vast wind or solar plants or whatever in the midwest or the desert west, we're going to have to significantly add capacity to carry this electricity to where people are. Or else move the people there.

johnl|2.3.09 @ 4:10PM|#

This is not all about global warming, it's about capacity. If there are no signals (price or otherwise) to encourage demand shifting, we need to invest in enough capacity to satisfy peak demand. That means a lot of slack capacity most of the time, which is expensive. Sometimes it means there is no way to satisfy demand, so there are regional blackouts. Maybe the sales pitch is about global warming because it's easier to tell a boogeyman story than to try to explain why idle NG peaker plants make electricity expensive.

|2.3.09 @ 4:36PM|#

Seems like a much easier solution would be to allow power companies to jack rates to the moon during peak hours.

The same thing applies to states where water is "scarce". But instead of allowing the utilities to price water at its true cost utility regulators force people to ration consumption using things like watering restrictions. I suppose the argument is that everyone is "entitled" to water and electricity, but ultimately refusing to allow the pricing mechanism to work encourages frivolous consumption.

This is not all about global warming, it's about capacity.

Ultimately I think it is about control.

|2.3.09 @ 4:56PM|#

When Xerox first came out with copiers (post-mimeograph) people laughed and said, "What a useless machine! Why would anyone want to make copies of a letter?"*

Technology has a way creating value where none existed before.

And, of course, that new technology would never have been developed without government implementing a carbon paper tax.

|2.3.09 @ 5:06PM|#

But why is there such a push to conserve energy, especially electricity? After all, the U.S. has plenty of coal, natural gas, and uranium to generate power and, if promoters of renewable fuels are right, there'll be plenty of those, too. The answer, of course, centers on concerns about man-made global warming.

That's about where my hyperbole detector went off. I'm sure you'll get ripped on the technical omissions later in the article, but seriously? Your Socratic dialogue went veering off the cliff right around that paragraph.

Ron, do you really believe that the only justification those wackjob environmentalists use to promote the conservation of fossil fuels is global warming? There's no other down side to the mining, refining, transport and combustion of coal, natural gas, oil and uranium? That's a staggering assertion. Honestly, every rock you turn over isn't going to reveal another global warming scam. There really are issues that need to be tackled in the world that are not somehow linked to whatever conspiracy theory you've attached to.

All of that said, the inclusion of the scarecrow image was a great move. Probably not for the reasons you chose it, but nevertheless...

economist|2.3.09 @ 5:10PM|#

"About 50 percent of our electricity is produced using coal and 20 percent more is generated by burning natural gas, both of which emit carbon dioxide that contributes to raising the earth's average temperature."

One word. Say it slowly, and then quickly: nu-cle-ar. Now say it quickly: nuclear. It's not difficult. The technology and resources exist not only to significantly increase energy production significantly with nuclear power, but to increase the effective nuclear fuel supply through reprocessing.

Nuclear.

economist|2.3.09 @ 5:14PM|#

If we're really, really worried that much that greenhouse gases will cause the apocalypse, surely the risks of nuclear are tolerable in comparison?

|2.3.09 @ 5:18PM|#

You nuclear people don't get it.

The whole enviro/CO2 thing isn't about power at all. Its about control.

|2.3.09 @ 5:21PM|#

PBrazelton: First, I did not say it was the only justification, but it is manifestly the chief argument now. Rehearsing the entire history of non-renewable energy shortage arguments would take far too long. The reason to conserve energy that took over public policy debates in the 1970s was that the world was running out it, not global warming. Now most activists acknowledge there is plenty of energy, but worry as I believe Obama's new science advisor John Holdren argues, "we're not running out of energy, we're running out of environment." By which he mostly, but not only, means global warming.

Energy efficiency would of course mitigate other pollution concerns, e.g.. SO2, NOXs, etc., but other generators can use other technologies (which do raise energy prices) without needing to get customers to conserve.

johnl|2.3.09 @ 6:16PM|#

Ron if we were talking about roads then reason would be all over how it makes no sense to plow through cities with 12 lane megaroads so that everyone can all drive the same way at the same time. There the libertarian story is all about how bad regulation crushes jitneys and hides the costs from drivers that would signal them to drive at different times of day and all that.

It's similar here. We're paying too much for generating capacity, getting blackouts anyway, and it's reason's job to explain how that's the government's fault.

|2.3.09 @ 7:14PM|#

John: Agreed we need to do more, but my colleagues at the Foundation have been trying. See Reason reports and studies on various energy topics here.

johnl|2.3.09 @ 10:26PM|#

Thanks Ron. What I was trying to say is that your position here is counter to the reason position on transportation. Long ago you guys have long advocated putting expensive gizmos in cars and billing to charge drivers for the scarce roadspace they use so that, wham, the magic of the market can provide high density housing near the Metrolink station, schools that start after rush hour, jitneys, and flying cars (jk). Now BHO is advocating putting expensive gizmos in houses to provide price signals so the market can provide blackout volunteers, fridges that make extra cold at night, and whatever, but you are against it.

mark|2.4.09 @ 3:20AM|#

As higher carbon prices cause electric bills to increase, consumers themselves will start installing smart meters and appliances while seeking out relatively cheaper low-carbon power.

Or starve?

mark|2.4.09 @ 3:26AM|#

Seriously. I hate being on the side of Republicans but when they called Democratic climate-change legislation "the largest tax increase in history" they were not far off.

In fact, if we tap into our vast coal reserves, perhaps bring online a few extra plants, we can rid ourselves of this darn oil addiction and start rolling back our military. And balance the budget and so on.

|2.4.09 @ 10:24AM|#

johnl: Hmmmm. I have obviously not been clear. I am not against smart meters at all. I am in favor of smart meters and a distributed information network. I tried to explain that the current policy of having utility companies create such a system through top down regulation is a bad idea. The real model should be the internet.

I repeat--the push for energy conservation has now been transformed from the old claim that we had to do it because the world was running out of non-renewable sources of energy to the claim that energy use is causing global warming. Energy conservation is now chiefly carbon conservation. If that is the case, then the simplest and least interventionist way to encourage the deployment of smart meters and smart appliances is to put a price on carbon.

|2.4.09 @ 10:27AM|#

Seems like a much easier solution would be to allow power companies to jack rates to the moon during peak hours.

That's what smart meters allow power companies to do. Utilities need rate approval for charging higher prices and fee structures. As long as consumers have no way of knowing when or where prices move. For example, gas is more expensive in the summer than it is in the winter because demand is higher. People can see the prices and make a purchasing decision then. ConEd never lets you know (because they don't know much in advance) that the peak power consumption is going to be from 2-5 PM on a Wednesday in July. Prices convey information and if people don't know the prices, they can't adjust their demand. Smart meters allow customers to gain the info necessary.*

My buddy at ConEd said that they actually want people to conserve energy right now because they don't want to be forced to increase infrastructure spend necessary to increase production. Their profits are largely determined in advance, so selling more doesn't necessarily mean more money.

* There's a joke that says if Alexander Graham Bell woke up today and saw today's telco environment he would have no idea what's going on because of the advance of wireless, data and video. If Thomas Edison woke up today, he could run a power plant.

|2.4.09 @ 10:53AM|#

I repeat--the push for energy conservation has now been transformed from the old claim that we had to do it because the world was running out of non-renewable sources of energy to the claim that energy use is causing global warming.

Just so. This is exactly the kind of thing that makes me suspect whole AGW thing is little more than a convenient pretext for pursuing a pre-existing agenda.

johnl|2.4.09 @ 11:45AM|#

Thanks Ron. Agreed that the Internet is a good model. I think this is an opportunity to hijack an agenda to accomplish something useful. The most dangerous parts of the anti-GW agenda (solar and wind), in addition to being just plain batty, have built-in left-wing opposition we can make an alliance with. So smart stuff might be the only thing to get implemented, and the fact that some of the motivation for it is misguided isn't so bad.

A tax on energy might be more sound than a tax on carbon. Hydro, solar, and wind in their own ways damage the environment so we don't want tax policy to favor them. And NG and oil contain more Hydrogen than coal, but does anybody really think tax policy should favor those on account of that?