“I am fearful that electricity will be turned from an affordable, thoughtless necessity into the opposite.”
“Electricity would/should be inexpensive enough where folks don’t want to hassle with saving a dollar here or there [via a ‘smart’ meter] if it requires any sort of thought or potential inconvenience.”
The wolf is at the door with electricity–and it has virtually nothing to do with the free market but a lot to do with government intervention guided by experts/regulators, and planners. Call it analytic failure and government failure, not market failure.
Background: Forcing intermittent renewable energy on the grid has compromised reliability directly and indirectly. Directly, wind and solar disappear at the peak. Indirectly, renewables with the lowest marginal cost (but highest average cost) displace the reliables, natural gas but also coal and ruin profitability margins otherwise.
The double whammy is why Texas’s grid failed in historic, spectacular fashion in February and is iffy otherwise. (I have briefly summarized the government problem and classical liberal alternative here and here.)
Incentives matter. Cause and effect. Atlas Shrugged.
The ‘Wolf” above is the next step in government intervention with electricity. With the supply-side failure creating shortages (and price spikes!), government intervention now turns in spades to the demand side. The process has already begun.
Today, the smart-meter complex is having a field day with plans to shave usage at the peak to “rescue” the supply-side intervention. The meters will know what your uses are and what to cut and when. Scary?
It will begin voluntarily, of course, with opt-in programs where the participant saves money in normal times in return for the discomfort at the system peak (no A/C or appliance usage, etc.)
But what if this does not catch on? “Blackouts for all,” they will say! Or if just poorer people ‘save’ money and are discomforted, while ‘rich’ people party at the peak? (“Social injustice,” they will say!)
So what might be next? CO2 ration credits for monthly power usage?
Here is a verbatim discussion I had with Matthew Kahn, Provost Professor of Economics at USC (on a LinkedIn post by Lynne Kiesling) on these questions. I asked some hard questions with replies (thank you, sir) … and then he disappeared. Maybe there is a policy wolf at the door that he and others do not want to think about right now….
Kahn: Back in February 2021, I wrote this blog post on how to use an opt in incentive design to encourage more price elastic electricity customers to sign up for critical peak pricing. Such an incentive regime would help to avoid blackouts as more consumers would invest in weather resilient durables (i.e insulation) to avoid extreme expenditure on wild weather days. After the Texas Freeze, most of the attention has been on the supply side while the demand side features diverse customers who can be encouraged to economize.
Bradley: So price spikes and ‘greenouts’ result from a wounded grid (like in my Texas and your California). And in response, ‘green price gouging’ occurs where those that can afford it stay comfortable and the rest are discomforted. Or to avoid this ‘climate injustice,’ the smart meters would just cut demand for everyone. Big brother in the home…. Is this a ‘road to serfdom’?
Kahn: Rob, I used the words “opt in”. Each customer is free to choose (in the Milton Friedman sense) to elect to face critical peak pricing. They will receive a $ incentive to do so. Each electricity consumer has private information about whether he/she can cut back on consumption if they face a higher price. My incentive scheme rewards those who are “price elastic” to step forward. Please note that there is no coercion in my proposal. Opt in! Such a plan would use free market incentives to minimize the probability of a blackout during wacky weather. Is that a bad thing?
My new book; Adapting to Climate Change: Markets and the Management of an Uncertain Future builds on these themes.
Bradley: Sounds innocent, but putting it in current political context and knowing a lot more renewables are on the way, I see my scenario more than yours.
Renewables have created a price spike problem for the demand side, and with more, it is going to either be very expensive electricity or rolling outages.
So a very negative supply-to-demand loop. And gov’t-created shortages lead to allocation controls….
Without renewables taking over the grid, in a true free market situation, sure, that could be part of the market discovery process from a provider–but maybe for geeks.
Electricity would/should be inexpensive enough where folks like me really don’t want to hassle with saving a dollar here or there if it requires any sort of thought or potential inconvenience.
In the same way, I would not seek out a hamburger restaurant that has a lower base price and charges for condiments. Maybe geeks would, but not me.
Bradley: One other question: If a person allows a ‘smart meter’ in the home to control usage automatically/remotely, what assurance is there voluntary is now mandatory, price aside?
Because if it is price rationing itself–and certainly price spikes created by a renewables-wounded grid–will not ‘social justice’ concerns come in so that poorer people will not suffer relative to richer users?
Alfred Kahn warned against one interference leading to another and yet another …. This is why I see central planning with electricity as a ‘road to serfdom,’ going from the supply side to the demand side.
In conclusion, if Milton Friedman was alive today, he would 1) understand the direct and indirect effects of renewables on the grid and 2) see where the demand-side planning is going.
Restated, the Matthew Kahn approach is less about free-market demand under budget constraints as it is an opening step to rescue existing and future wind and solar forcing as part of the broader agenda of climate alarmism/forced energy transformation.
I am fearful that electricity will be turned from an affordable, thoughtless necessity into the opposite.