By Paolo von Schirach
May 29, 2013
WASHINGTON – The WSJ reports about an ambitious, large scale wind farm project promoted by billionaire Philip Anschutz. He want to be build a mega wind farm on land he owns in Wyoming and then sell the power generated to California. This makes sense. Wyoming has a lot of wind. Therefore this future wind farm would be very efficient. But the Western state is only sparsely populated. Very few customers for additional supply. Hence the need to construct transmission lines that bring abundant new electricity to California, a large state with a lot of demand for electricity.
Power to California?
On the surface, this is a good idea. In reality, this is yet another major infrastructure project whose viability rests entirely on favorable or not so favorable regulations, mandates and subsidies. California is an ideal customer mostly because the state requires utilities to buy 30% of their power from renewable sources. Hence wind. Still, California also stipulates that renewable energy produced in California should get preferential treatment, because this means more investments and more jobs created in California.
Political decisions
As of now it would appear that existing suppliers can satisfy the 30% renewable energy quota. Therefore Wyoming does not have much of a chance to sell its future electricity generated by wind power to California. Of course, if the mandate would go from 30% to, say, 40% then the picture would change, as the demand for additional electricity generated by renewable sources would suddenly increase. In all this “economics” does not even appear to be a factor. “Demand” for additional renewable energy will not be determined by “markets” and old fashioned “demand and supply”. It is all about regulations and therefore politics.
Projects win because of mandates
If you believe in a market economy, none of this looks particularly good. This Wyoming case is yet another example of large scale infrastructure projects (possibly) taking place in a hyper regulated environment ruled by different jurisdictions in which the boundaries between private gain and the public interest are questionable. In the end the project rationale for such a large scale project that would include a significant allocation of scarce capital and talent would depend entirely on politically stipulated mandates, as opposed to sound economic reasons.
Look, pushing renewable energy is not a silly idea. Whatever your views on global warming and cost effective actions to fight it, sooner rather than later we want to have viable power generation technologies that will replace (now abundant but eventually finite) fossil fuels.
Hyper regulation leads to bad choices
But this way of going about it: scores of ad hoc regulatory regimes, without an overarching national energy strategy, is far less than optimal. In a non existent Fantasyland of unregulated energy markets, renewable power should be considered viable only when its costs will be lower than coal, gas or nuclear.
But in the real world things go differently. In the existing thicket of super regulated everything, (utilities, power grids, variable rates and what not), with different rules, mandates, often overlapping and sometimes conflict jurisdictions, federal and state subsidies, and diverse rates regimes in different states, it seems that the value proposition of renewable energy as of today rests mostly with the skills of its lobbyists, rather than with the inventiveness and creativity of its engineers. Somehow, I believe that we could devise a better system to determine the future of America’s power supply. This way of going about it is inefficient –and not at all smart.