The Smart Grid and the Fiscal Stimulus

Earlier I pointed out that a) regulatory problems have prevented investment in the smart grid and b) subsidies to wind power in some states have driven prices to negative levels (yes, people are being paid to consume power).  These two problems are closely related.

The states control whether transmission lines get built but states with a lot of wind energy don’t have an incentive to build transmission lines to move the power out.  In effect, states with a lot of wind energy are preventing exports which lowers their own internal price of electricity but raises everyone else’s price and reduces the use of wind power. 

A new article in Technology Review makes the point. 

One effect of these regulatory moves was that companies had less incentive to invest in the grid than in new power plants, and no one had a clear responsibility for expanding the transmission infrastructure. At the same time, the more open market meant that producers began trying to sell power to regions farther away, placing new burdens on existing connections between networks. The result has been a national transmission shortage….

[Many states have a lot of wind potential]…But the existing transmission system doesn’t have the capacity to get that much electricity to the parts of the country that need it. In many of the states in the [wind] region, there’s no particular urgency to move things along, since each has all the power it needs. So most of the applications for grid connections are simply waiting in line, some stymied by the lack of infrastructure and others by bureaucratic and regulatory delays.

Hat tip to Andrew Samwick who writes:

The federal government is the entity that can resolve that failure, by taking the lead and making those expansions itself.  It can recoup its costs by levying a fee on subsequent power consumed through the grid.  I hope the fact that we need this investment isn’t a reason for it to be excluded from plans for fiscal stimulus.


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