RSS Feed MenuIf Americans are serious about ever truly launching a green energy revolution, they will need to agree to bust up some very entrenched monopolies and special interest groups.
Perhaps the most glaring example of state-sanctioned monopoly is the public utility. You likely have one of your own. Or rather, you have one water utility, one gas utility, and one electric utility. Once upon a time, you had only one phone-service provider as well. It was a monopoly known as AT&T, created and sustained by the government. These monopolies control the generation, distribution, and prices of our most basic necessities. They are tightly regulated, and their prices are fixed.
Somehow all this government regulation is supposed to protect consumers. But a much better protection would be to give consumers choice. In a free market, consumers would be able to move from one energy provider to the next, much like people do now with cell phones or supermarkets.
Of course, many see this sort of deregulation as a threat. The infrastructure demands are simply too great, the argument goes, the stakes too high. Who would lay all those water pipes and gas lines? And, of course, what about Enron? Won’t those greedy corporations take advantage of people if left to their own devices?
In Texas they found an answer to these questions. Texans can choose their own electric provider, and providers compete heavily for customers. The state lays the power lines – the “natural” monopoly – and then private retailers compete for customers. Customers can go to the Texas Electric Choice website to compare competing electricity retailers, shop rates, and switch to a new provider if they’re unhappy with their current one. This creates competition, and reduces administrative costs. Consumers benefit from lower prices and better service. Likewise, barriers to entry in the energy sector are far lower, allowing anyone with some capital and a business plan to start up their own energy retailer or wholesaler.
Perhaps not surprisingly then, it is Texas, not California, which has the largest installed base of wind generation capacity in the country. This isn’t just because of all the flat, windy Texas plains either. It’s because Texans are able to sell their wind energy to competing buyers on the market rather than simply back to their local utility.
Currently most utilities will buy back solar or wind energy at a dictated rate. This may be better than nothing, but it’s hardly likely to inspire a future generation of green entrepreneurs. In a green energy market, people could sell back their energy to the highest bidder. They could even hop on the grid and sell to individual consumers instead of utility companies. What better way to promote innovation and green job growth than to make energy profitable and competitive?
Indeed, the entire green revolution rests on our ability to put power generation back in the hands of private entrepreneurs. Electric cars require power wherever they go, and unless private sellers can offer electric “pumps” for green vehicles, consumers of electric transportation will have a hard time finding locations to “gas up.” Markets need to be able respond to the new demand generated by green vehicles, and in our current system this is all but impossible. Utilities were never meant to handle the complexity of a national, green energy market, let alone the demands of national transportation.
Just as importantly, markets are better gauges of scarcity than central planners. When power supplies fall, prices rise in response. If prices stay high, then demand falls accordingly. This allows consumers to self-ration. If we let consumers understand the real cost of their power consumption, they’ll be much more likely to turn off their lights when they aren’t being used, and much more inclined to look into alternative forms of energy when traditional energy sources become too expensive – especially if their investment in green technology could make them a buck or two down the road. Conversely, when energy is cheap, there’s no reason people should pay more simply because the local utility monopoly says they should.
Obviously the government will have its role to pay in the green revolution, but we should limit that role to laying pipes and power lines, and ensuring that when laws are broken, the perpetrators are punished. The government needs to establish fair-play rules and create a grid, but beyond that they need to let markets work, and allow competition to flourish. A lasting green revolution needs to benefit not only the earth, but the people who live on it as well. Too often the economic costs of environmentalism are overlooked, and too often it is the poorest among us who bear the brunt of those costs. Real cost-saving competition can help change that.
In the end, energy markets can spur a green revolution with real, lasting economic benefits and without the corresponding tax burden or loss of jobs so many traditional environmentalist solutions would require. The same entrepreneurial spirit that led to the Texas oil boom will lead us to a greener future, and competitive free markets, not state-sanctioned monopolies, will be the driving force behind this change.
sinz54 // Oct 15, 2009 at 9:29 am
sftor1: I have a basic problem with the assertion that government should play no role or a minor role in development of science and economic sectors. It is a driving force in it.
Yep.
It’s been a driving force for centuries. Long before the United States existed, European governments were doing it. For example, the German government with their chemical industry, which became a world leader.
ryanbuck // Oct 15, 2009 at 9:33 am
I know its a repost, but the original got lost in the fray.
What do you consider a “Green Revolution”? Is there a benchmark on the amount of load capacity that should be taken up by wind/solar/geothermal/etc.?
One big hang up I have with your argument is that competition will naturally lead to a Green Revolution, but I only see it being put off. Looking at costs per kilowatt-hour or kilowatt-hour per land area used, wind and solar lose to natural gas and coal by a wide margin. The capital costs are double for wind what they are for nuclear per kW installed. Even though wind has no fuel costs, it currently is more expensive to maintain and operate compared to the big plants.
https://oa.doria.fi/bitstream/handle/10024/39685/isbn9789522145888.pdf
I know that the idea is to get other small players on the market and that no start up has the chance to build a big nuclear plant, but with issues like cost/kW installed, intermittantancy, and need for large tracts of land, how can small companies that renewables be expected to take a bite out of the much larger portion that is taken up by coal? These small companies would be able to serve a local population, but more and more people are flocking to cities which are away from these dense wind areas or ultra sunny spots.
All things considered, why would a deregulated market lead to a “green revolution”? Are you assuming that the dereg would be accompanied by government incentives that make renewables more competitive with fossil fuels? Are you assuming that there will be loan guarantees for large scale nuclear projects and ease of restrictions so that smaller reactors can be design and built without fronting a massive bill to get it past the NRC? What are the roles of national labs?
Free market theory would seem to dictate that natural gas and coal would continue to be primary source of electricity for next few decades, assuming no unexpected spikes in fuel prices.
Also, I’m not entirely assuaged about another Enron situation and energy traders cornering a market, either.
balconesfault // Oct 15, 2009 at 10:45 am
Ryanbuck: Even though wind has no fuel costs, it currently is more expensive to maintain and operate compared to the big plants.
https://oa.doria.fi/bitstream/handle/10024/39685/isbn9789522145888.pdf
Ummm … ok. This somehow brings to mind the old bad joke “Aside from that, how was the play, Mrs. Lincoln?”
If you read the critical table in the link you keep writing:
FUEL COST OF ELECTRICITY PRODUCTION [€/MWh]
Nuclear 5
Gas 40
Coal 26
Wind 0
OPERATION AND MAINTENANCE COSTS, WHEN 8000 h/a [€/MWh]
Nuclear 10
Gas 5
Coal 8
Wind 11
So yeah … wind may be the most expensive to maintain … but when you add the cost of fuel to the cost of maintenance, you get [€/MWh]:
Nuclear 15
Gas 45
Coal 34
Wind 11
Thanks for playing.
balconesfault // Oct 15, 2009 at 10:50 am
sinz: “The notion that the U.S. economy was laissez-faire till FDR came along is a false myth.”
“What you are pointing out is that the game of FINANCE–whether with derivatives based on subprime mortgages or whether with Enron’s commodity futures trading–needs regulation to prevent fraud. ”
(government investment in technology has) “been a driving force for centuries. Long before the United States existed, European governments were doing it. For example, the German government with their chemical industry, which became a world leader.”
Bravo. I even learned some stuff in there, which is more than I can say from most of the headline posts at this site.
ryanbuck // Oct 15, 2009 at 11:08 am
balconesfault,
You forgot about adding the capital costs associated with construction and installation. In the report they are:
Nuclear 20
Gas 6.2
Coal 11.5
Wind 41.9
When added to the math you did, you get:
Nuclear 35
Gas 51.2
Coal 45.5
Wind 52.9
Don’t cherry pick data. If you are assuming that a start-up will have to build new turbines, then these real costs will have to be accounted for. For small start-ups, capital costs might be mitigated since they are not aiming for the installed base of a nuclear or coal plant, but then how can wind be expected to take on a large portion of the electrical generation capacity?
Also for these small players dealing in intermittent power sources, won’t they have costs associated with needing to purchase electricity from bigger utilities so that their customers won’t experience outages? It would seem that smaller players would lost customers, assuming that they’re customers are incredibly idealistic and sacrifice base load for being on wind.
I’m not arguing for the coal, I’m just skeptical about the idea that the free market will lead to a supposed “Green Revolution”
balconesfault // Oct 15, 2009 at 11:16 am
You forgot about adding the capital costs associated with construction and installation. In the report they are:
I didn’t forget that at all. This is why there is a need for governmental involvement if we want to stimulate the renewable energy sector. If we followed the author’s prescription for governmental involvement – limit that role to laying pipes and power lines, and ensuring that when laws are broken, the perpetrators are punished. – we wouldn’t have any sizable wind/solar industry in
America right now.
If your point is to emphasize your scepticism about the idea that the free market will lead to a supposed “Green Revolution” I’m with you, however. And that is a major problem with the free market – and a major reason why people form governments, to do things that build for the long-term prosperity of the people which the free market just won’t do on its own.
ryanbuck // Oct 15, 2009 at 11:34 am
balconesfault,
I never thought we we’re in disagreement. My questions are targeted toward the author and other free market deifiers that would reach the conclusions that the free market is the best path to greener technology. Public investment is essential for renewables if one wants them to make up more than the minute sliver in the capacity pie chart.
Also, It’s best not to slight people who argue the point that you agree with.
balconesfault // Oct 15, 2009 at 11:37 am
My apologies – I thought you were trying to make the point that since non-fuel O&M costs for wind/solar were less than for conventional plants, it meant that we should not be investing in them. Tough to tell the reality based from the Randians sometimes.
SFTor1 // Oct 15, 2009 at 12:08 pm
Sinz: thank you for providing a more vivid picture of the private/public interface.
E.D. Kain // Oct 15, 2009 at 4:18 pm
So – after all these very thoughtful comments, plus some emails, I realize that this piece was no nearly well-researched enough, and that it is marred by some of the not-so-well-researched statements. My apologies for this. I still hold to the idea that freer energy markets would be a good thing, and that where monopoly exists and where regulations are too strict and prices are too controlled, we need to deregulate. To the question of Enron, you have to understand that there was actual criminal behavior going on. It was an abuse that should not warn us away from the act of deregulation, but that should help point us toward doing it better in the future.
Thanks for all the feedback!
E.D. Kain // Oct 15, 2009 at 4:19 pm
“not” nearly well-researched enough… (typos!!!)
balconesfault // Oct 15, 2009 at 4:23 pm
E.D., if you’re ever in Austin, let me buy you a beer.
E.D. Kain // Oct 15, 2009 at 5:20 pm
That’s one city I’ve always wanted to visit. A free beer is always a good incentive…
Cheers!
SFTor1 // Oct 17, 2009 at 1:23 am
ed,
You are handling yourself like a stand-up guy. Kudos to you.