Policy driven economy #2

Central planners cannot know the necessary combinations of resources nor be able to determine the capital structure.  That is an obvious statement.  Here’s simply more proof:

Texas Clean Energy Hampered by Location

President Barack Obama has made the promotion of renewables central to his administration. A 2008 Department of Energy study found that the United States could, in theory, get 20 percent of its electricity from wind by 2030. Right now, however, that figure is less than 2 percent nationally. In Denmark, by contrast, about 20 percent of the electricity supply comes from wind.

Policy driven economy.  Do not allow markets to determine anything freely, rather “force” them through policy to “choose” the desired outcome.

In Texas, state officials have moved aggressively to remedy the transmission deficiency. In 2008 regulators approved a $5 billion network of wires, which ultimately will stretch more than 2,300 miles, or 3,700 kilometers, around the state. The regulators are determining, one by one, exactly where each line will go. Construction on the first of the lines should start this autumn.

Of course regulators will know how much transmission wiring is required.  They obviously can predict the demand in the future.  Oh to have such prescience!!

Lack of transmission is a national problem, especially for wind, which is often generated far from population centers. “The ability to site and build transmission is emerging as one of the highest risks facing the electric industry over the next 10 years,” according to a report last year from the North American Electric Reliability Corp., an industry group that sets operating standards for the grid.

Oh this one is easy.  If it’s regulations and laws, which no doubt are an issue, then the intervention is the cause.  No regulator nor planner could ever know where to place the turbines.  If it’s not, as might be the case:

Nonetheless, Texas seems likely to remain the leader in U.S. wind power for a long time. A big reason is that it is simply easier to erect turbines there than in other states. With its oil and natural-gas history, Texas is less concerned about environmental effects of the big machines than states like California. Indeed, wind turbines towering over pump-jacks for harvesting oil are common in Texas.

More than 90 percent of Texas is private land, and the state imposes virtually no permit requirements on that land. Randy Sowell, a 10-year veteran of the Texas wind industry, puts it this way: “In Texas, you can put anything you want on your own private land and nobody can say a thing about it.

Great.  So now we know what the problem is in other states, my home state for sure.  Regulations make construction terribly cost prohibitive, but not so in Texas.  What is the problem?

But even in Texas — a state long accustomed to oil pipelines and other energy infrastructure — opposition to the transmission lines is mounting. Many landowners do not want to surrender their land to high-voltage power lines, even though they would be paid to do so. “The meters on the attorneys are running,” said Robert Weatherford, the president of Save Our Scenic Hill Country Environment, one of several groups fighting to keep two proposed power lines out of a scenic patch of central Texas, with partial success so far.

No, the correct answer is they’re not paid enough.  And that’s the big difference.  Price is the signal by which consumers and producers communicate.  Simply “being paid” isn’t the problem, it’s how much are they being paid.  Period.  And if the price is too high, then apparently wind generated electricity is too expensive.  See, that’s how markets work.

So, once again, what do our benighted leaders do but try to skew the market:

A U.S. government tax credit brings down the cost substantially, however. Wind advocates, stung by assertions that their industry depends on federal largesse, point out that fossil fuels and nuclear power receive subsidies and tax breaks as well. Around-the-clock natural gas plants are also cheaper than wind, Mr. Webber said, given that natural gas prices are currently low. As the leading wind-power state, Texas is also figuring out the best way to integrate the new resource into the electrical grid.

So, instead of letting the market sort out through the pricing mechanism, they interfere and encourage production where it ought not be.  And the result?

There are too few transmission lines to carry the power.

Of course there would be.  Artificial prices distort markets.  We build turbines far from population centers because it’s “cheaper” then we find we haven’t the capacity to transmit the electricity to where it’s needed because it costs too much.  So, what do we get?

Forecasting the wind is getting more accurate. But operators of natural gas plants, who turn down production when the wind is blowing strongly but need to be ready to turn it back up when the wind drops, have begun to call for Texas wind-farm operators to pay a penalty if the turbines produce less power than expected. Wind companies, of course, want nothing of the kind.

Rent seeking.  Which ought to come as no surprise, given that wind is artificially cheaper through government intervention.

If:

  • turbines (supply) could be built nearer to population centers (demand)
  • costs of production accurately reflected available resources
  • price of electricity accurately reflected market demand and costs of production

then there’d be no problems.  The market would produce, or not produce, wind driven electricity and it would be sold at market prices.  If it was profitable, it would be produced.  If not, it wouldn’t.  Policy driven economy only distorts, wastes, and destroys.

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