The Smart Way to Provide Power

It’s not often I disagree with Ron Bailey, but his article about the “Smart Grid” today glosses over the main reason why electric companies aren’t investing in it now.

It’s not because they’ll be selling less electricity and that means reduced profits. One of the main points about a smart grid means that you can charge more when there is a strain on the system caused by peaking and less when there isn’t. So your income stream takes on a different character. Yes, people tend to use less electricity on the whole, but this is made up for by the fact that you don’t have to generate extra electricity to supply the concentrated demand, and you are getting more revenue for electricity you generated that would otherwise be wasted. Most companies would prefer this, but there’s a lot of regulation out there, aimed at keeping prices “fair,” that prevents it. Why build a grid if regulation prevents you from utilizing its main benefit?

Moreover, there are massive regulatory barriers to construction. The presence of NEPA requirements, for example, which provide a pretext for environmental organizations to bog new infrastructure projects down in court action as well as red tape. That is one reason why three former California governors just complained about environmental regulations stymieing infrastructure projects.

There are two ways for government to incentivize investment in a smart grid. One way is to pony up taxpayer cash, to cover the costs of the regulations it has imposed. The other is to suspend or get rid of those regulations – and then they won’t have to take money out of our pockets (and our children’s pockets). Liberate is the best way to stimulate.

Alex Tabarrok has more on the reasons why grid upgrades just aren’t happening. See also here (this is not an endorsement of all those policies).