Infrastructure: Roads and The Smart Grid

by on December 9, 2008 at 7:35 am in Economics, Science | Permalink

The first thing people think about when someone says "infrastructure" is roads and bridges.  That’s unfortunate because we already spend over $100 billion a year on transportation infrastructure and the truth is we don’t need that much more.  Peter Orzag, President-Elect Obama’s choice for OMB estimated – when Director of the CBO – that an additional $20 billion in spending, mostly to maintain current transportation infrastructure, would achieve 83% of the net benefits to be had from more transportation infrastructure spending.  Moreover, in many cases, congestion pricing would be both greener and more efficient than greater spending.  A better program would be to follow Germany and several innovative state programs to get congestion pricing using GPS technology up and running, especially for trucks.

Even more valuable than transportation infrastructure would be greater investment in  electricity infrastructure, a smart grid.  Consider that in 2003 a massive, widespread, power outage threw 50 million people in the Northeastern states and Ontario, Canada out of power – disrupting lives and the economy.  Why did this happen?  Because of a failure to "trim trees" in Eastlake, Ohio – now that’s a dumb grid.  And remember that only a few years earlier, the most innovative, high-tech industries in the world were shut down by blackouts caused by our primitive electricity grid.  Overall, blackouts cost the U.S. on the order of $100 billion a year.

The smart gird is a not one idea but many technologies such as real-time pricing (smart meters), superconductive smart cable, and plug-n-play architecture that combine to produce a grid that is decentralized, self-healing, robust, and smart for both producers and consumers.  Decentralized power, for example, makes it easier to isolate problems, "route" power to different areas, and maintain robustness in the face of falling trees and other problems.  Plug and play architecture means that new technologies such as electric cars can be automatically used as both consumers and producers (via storage) of electricity, as needed, on the fly.  Plug-n-play, the open-source of electricity infrastructure, will also open the field of electricity generation and storage to far greater innovation than is possible now.

Useful references include the Department of Energy’s somewhat breathless introduction for the layperson, The Smart Grid, The National Energy Technology Laboratory’s The Modern Grid Strategy, the Smart Grid newsletter and papers by Kiesling and also Dismukes in Electric Choices (a book I had a hand in).

The smart grid did not receive prominent attention in Obama’s infrastructure speech but the campaign called for matching grants to investment in smart grid technology and support for smart meters and real-time pricing.  An investment tax credit for smart grid technologies and more foresighted regulation (price regulation has limited investment in needed infrastructure) could encourage the construction of much-needed electricity infrastructure while maintaining private investment incentives and promoting innovation.

Nigel December 9, 2008 at 8:02 am

And build a few more of these:
http://en.wikipedia.org/wiki/Pacific_DC_Intertie

Slocum December 9, 2008 at 8:47 am

Because of a failure to “trim trees” in Eastlake, Ohio – now that’s a dumb grid.

Actually, that couldn’t happen in a dumb grid, just as a sudden global recession couldn’t happen in a simple, primitive economic system with few financial and trading links. It was only because the electrical grid was highly interconnected and interdependent and had had redundancies squeezed out to increase efficiency was it vulnerable to a ‘global’ catastrophe (no surprise that the rural electric co-op that supplies power to our cottage had no problems during the outage).

That’s not to say that spending on energy infrastructure is a bad idea, but we do need to recognize that “smarter, more complex, and more efficient” may work against “more robust and fault tolerant” — and because of the complexity, experts may not recognize the vulnerabilities that have been created until the system-wide fault occurs (sound familiar?)

John: City mass transit needs to be improved in many of the large metropolitan cities that have wide sprawl such as Atlanta, Los Angeles, and Houston. If energy prices rise, these cities could face a very challenging future.

That’s my biggest fear — that we’re going to end up with enormously costly light-rail white elephants. In areas with ‘wide sprawl’, mass transit is not the right solution, even in an expensive energy future (plug-in hybrid vehicles make much more sense). There are people agitating for a light rail system here where I live, but if it were up to me, I wouldn’t take it if the construction was free (because I’m sure that even apart from the astronomical construction prices, it will require a huge operating subsidy besides).

Robert Searle December 9, 2008 at 9:12 am

There is in development a new paradigm. It is called Transfinancial Economics.

http://www.p2pfoundation.net/Transfinancial_Economics

Bob Murphy December 9, 2008 at 9:17 am

Heh typo: “…it is no surprise that we CAN point to obviously dumb outcomes…”

David Thompson December 9, 2008 at 9:19 am

Ours is a service economy, and it won’t be effectively stimulated if infrastructure for human services isn’t included in the stimulus package. Many of the unemployed possess skill sets that are better matched to service jobs than to construction, and it will be difficult to rejuvenate the economy if these people are not put back to work effectively, as argued at:

“Stimulus Should Include Essential Services”
http://calibansmarket.blogspot.com/2008/12/stimulus-should-include-essential.html

Further, our nation’s social, educational, health and other systems of human infrastructure are in need of renewal. If younger workers and families are struggling financially, just imagine the problems for the elderly who have seen the value of their homes and their retirement accounts dwindle, with little prospect of having the time or the means of making up the deficit. Poverty, chronic illness, and other problems are also placing a heavier burden on both yound and old at this time of economic downturn, as noted at:

“Policy for Financial Crisis Should Target Those Most in Need”
http://calibansmarket.blogspot.com/2008/11/policy-for-financial-crisis-should.html

Some portion of the infrastructure stimulus should be directed to where it will meet immediate human needs, stimulate large sectors of the economy, and provide for building the human capital that this nation needs for its future growth.

jimbo December 9, 2008 at 10:28 am

The California electricity crisis is an odd thing to choose as an example of failure of our “primitive” grid. It was pretty much a shakedown of the state by Enron and others prompted by ill-advised deregulation.

odograph December 9, 2008 at 10:51 am

I think a smart grid is less “centally managed” – if that helps.

Organic George December 9, 2008 at 11:15 am

Germany is not the Western US, nor is it rural America.

Maybe congestion theory will work in the NE corridor but it’s punitive elsewhere.

NE1 December 9, 2008 at 12:09 pm

Bob Murphy, Alex; expanding upon jimbo: Smartest Guys in the Room [Enron documentary] makes it clear that immediately after deregulation, Enron moved to maliciously control energy supply, causing the meltdown themselves. They had codenames like “The Wheel” to describe routing the power in and out the state creating fluctuations and scarcities. It wasn’t the dumb grid, it was the dumb traders.

Andrew December 9, 2008 at 3:45 pm

In news totally unrelated to featherbedding and the ability of the government to base decisions on rational cost/benefit analysis, from the markets in everything department, Senate seats are now available on Ebay.

floccina December 9, 2008 at 5:12 pm

BTW IMO safer motor cycles/scooters like the BMW c1 200 might be a much better solution than mass transit along with car pooling and ride sharing, samller lighter cars etc. We use so much petroleum becuase it is so cheap.

mravery December 9, 2008 at 5:35 pm

floccina-

Which is why a gas and/or carbon taxation is the way to go. People will start to buy those scooters and demand that they be safe on the road on them if had the right incentives.

Dave December 9, 2008 at 8:08 pm

Very good post – the electricity infrastructure needs a thorough look.

“That’s unfortunate because we already spend over $100 billion a year on transportation infrastructure and the truth is we don’t need that much more. ”

Well, not especially. Our roads are not really all that great. Having two major changes – increasing construction standards to near Autobahn quality, and forcing a Surety Bond by the bidders of 40 years (to encourage the building of superior roads) – would increase this cost, though give us a better system.

In addition, identifying where to improve public investment in freight rail, to transition from trucks, would cost a bit more too. Given the very large constraints constructing new rail systems, both financial and regulatory, it’s a good time for this.

PQuincy December 9, 2008 at 8:17 pm

(apologies if a repost: getting weirdness from typepad):

PS: the points about investment in the services infrastructure also seems plausible, though I confess I’m interested (being in the education industry).

Spending money on education — again, if done intelligently — provides immediate stimulus, and also gets job-seekers off the streets and into classrooms, resulting in a potential indirect as well as direct benefit to the job market by lowering unemployment. It also CAN be — if monitored using existing oversight mechanisms (accreditation of schools, maintenance of GPA requirements, etc.) that are imperfect but not useless, a good investment.

My favorite quick stimulus-investment: increased research support to the NSF and NIH. Uses existing evaluation and distribution mechanisms, educates smart people, spurs demand in high-tech industries, and as a side-benefit, may lead to world-changing discoveries. What’s not to like?

save_the_rustbelt December 10, 2008 at 12:26 am

Most areas of this country are too spread out for mass transit, and I do not think a scooter would work in mid Michigan, seeing as how we have 8 inches of snow on top of a nice coating of ice.

Rail freight is strong and improving, but most loads have to be transferred to a truck eventually.

We will need a robust highway network for the long term future and beyond.

Improving the electric grid is long overdue.

Rex Rhino December 10, 2008 at 1:46 am

People are missing the point. Road building allows you to employ masses of unskilled workers doing tasks like digging ditches and whatever.

Real-time pricing, superconductive smart cable, and plug-n-play architecture? Other than a few highly skilled technically people, how many people will that employ?

No folks, what we can expect is a brand new WPA and a lot of broken windows!

Ken December 10, 2008 at 10:26 am

Anti-light rail transit comments like those of Slocum were typical here in the Dallas area prior to the opening of the first LRT line here in 1996. They evaporated immediately once the first line open. It is as if all the negativity had instantly been sucked from the air. Since then, all the talk has been how to build out faster. A bond election to speed up the project passed with over 60% of the vote here in Republican, tax-phobic Texas. LRT produces no pollution directly, and once we transition to renewable power, will produce none indirectly either. Rail commuters face no traffic jams, and can get to work successfully regardless of weather conditions. The city is now more accessible to teenagers, seniors, and the sight- and hearing-impaired. LRT has brought about a revitalization of our downtown into a 24-hour center of activity, and has made our downtown attractive to corporate relocations. The most recent of these is AT&T. It is relocating from downtown San Antonio. Although San Antonio has a more entertaining town center, a referendum there turned down LRT some years back, so its easier to get around now in Dallas. When oil and natural gas prices spiked recently, LRT saw a surge in ridership, with no corresponding increase in operating costs. While auto transportation is ideal for rural America, the more our population becomes urbanized and congested, the better LRT works.

Alan Brown December 10, 2008 at 11:28 am

It seems that every boondoggle rejected when times were fat is now lining up for their share of the pork when there’s no money to be had and state governments everywhere have collapsing revenues.

Yes, by all means, lets borrow as much as possible to build things that would never make it if people were to decide for themselves whether these things were worth the expense. Nobody would take light rail if their ticket covered ALL of the costs of building these things.

Buses are much cheaper and don’t require dedicated roads. But, alas, they don’t have the pseudo-environmental glamor that light rail does.

None of these extravagances address the fundamental problem in the economy: deflation. The Fed needs to stabilize the dollar.

People seem to forget that FDR spent like a drunken sailor on public works too and it did not pull the country out of the Depression. Only WW2 did that. Perhaps if he had truly understood economics he might have succeeded.

aaron December 10, 2008 at 1:45 pm

I wonder if it would be economically viable to turn a bunch of intersections into over-under passses.

tower defense May 10, 2009 at 1:09 am

There seems to be considerable debate, much of it at levels of expertise far above my own, about the relative efficiency of various kinds of mass transit compared to the current fleet of cars. Perhaps, rather than a blanket claim you could provide some instructive links?

diyet September 4, 2009 at 11:57 pm

improbable to claim that many of them would also be boondoggles of the kind that (b) needs to avoid. The lead time of smart projects is considerable, so there wouldn’t be much stimulus, and right now is the worst time to expect smart choices about where to invest, since everyone will clamor for maximal solutions in their local area of interest.

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