Common Tragedies

Thoughts on Environmental Economics

Infrastructure

Posted by Daniel Hall on August 27, 2008

There are two articles in today’s New York Times that you should read.  First, Matthew Wald discusses the limits of our current electric grid:

The dirty secret of clean energy is that while generating it is getting easier, moving it to market is not.

The grid today, according to experts, is a system conceived 100 years ago to let utilities prop each other up, reducing blackouts and sharing power in small regions. It resembles a network of streets, avenues and country roads.

“We need an interstate transmission superhighway system,” said Suedeen G. Kelly, a member of the Federal Energy Regulatory Commission.

While the United States today gets barely 1 percent of its electricity from wind turbines, many experts are starting to think that figure could hit 20 percent.

Achieving that would require moving large amounts of power over long distances, from the windy, lightly populated plains in the middle of the country to the coasts where many people live. Builders are also contemplating immense solar-power stations in the nation’s deserts that would pose the same transmission problems.

The grid’s limitations are putting a damper on such projects already. Gabriel Alonso, chief development officer of Horizon Wind Energy, the company that operates Maple Ridge, said that in parts of Wyoming, a turbine could make 50 percent more electricity than the identical model built in New York or Texas.

Jenny Anderson then surveys the trend towards privatizing infrastructure investment.  I won’t quote from the article (just go read it!) but the figure that pops out is the $1.6 trillion that the U.S. needs in infrastructure investment in the next 5 years.  The article is focused on infrastructure like roads, bridges, and airports, but it is easy to draw links to the need for investment in the electric grid.  Can we get private investment in the electric grid?  I think T. Boone Pickens has discussed building his own transmission lines to support his proposed wind farms in Texas, but I wonder whether he can solve the NIMBY issues.

Here is Felix Salmon arguing that private investment in infrastructure is a good thing and will be more efficient over the long run.

Update: Please read Mike Giberson’s comment below about how T. Boone is (was?) working the NIMBY angles.  Funny stuff.

More update: Ryan Avent has some very smart thoughts about the incentives for private investors in infrastructure.  I’ll add that the experience with BAA and London airports suggests that even when it appears that private investors have properly aligned incentives to invest in infrastructure the actual outcome can be suboptimal. Is this a moral hazard problem arising from implicit government backing of the arrangement? Competition from other firms whose infrastructure is subsidized? Strategic behavior to maximize revenue rather than welfare?

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2 Responses to “Infrastructure”

  1. Pickens had a plan to solve the NIMBY issue, but it may be falling apart. He started a water company intending to ship water from the Texas panhandle to the Dallas-Ft. Worth area. A county government commission was set up to handle the water supply development issues, and it happened that the commission was staff mostly by employees or associates of Pickens, and as a government entity it could use eminent domain to lay water pipe.

    Subsequently a state law was passed permitting a company already using a right of way for pipeline, to build electric transmission along the same right of way. NIMBY problem solved!

    Or almost. Apparently there is some dispute over the rules governing selection of commissioners for the county water supply commission involved, so that part of the plan may come undone.

    By the way, I’m summarizing from memory based on a handful of news stories from the past few weeks. Some of my details may be wrong, but I think the essential story is as presented.

  2. [...] Hall helpfully gathers together the links to which I’ll be referring on this post. Go read them, please, but [...]

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