Comment by londons_explore
3 years ago
If the UK were ruled, and all decisions made, by a benevolent dictator, then the solution to this problem is easy. Consider every option of where to build the wind turbines, and where to build power cables, add up the cost of every option, and choose the cheapest (environmentally and/or monetarily) that gives everyone the power they need.
An ideal market would produce the exact same result right?
Well not quite... And this is a classic example.
With the current policy of location-independent markets, wind producers build in the best spots, and don't care about the massive expense (to the grid operator) of moving the power south. That isn't the ideal solution.
With the new proposed policy of per-location markets, the grid operator 'makes money' by moving power from places of high generation (low prices) to places with high demand (high prices).
But wait... That isn't the ideal solution either. The grid operator has an incentive to maximize their own profits, and if they ship too much power from north to south, then the price difference will be lowered, and their profits will decrease. So they will underbuild deliberately.
But wait you say - this is an ideal market, so there is no monopoly grid operator. In this ideal market, there are many grid operators, each competing to move power from the north to the south, and if one operator deliberately underbuilds, then another will build more to capture that profit. The end result is cables will keep being added till the money to be made equals the cost of the cables...
And that is equal to the ideal benevolent dictator solution!
But... That assumes a cable costs a certain £ amount per MWH transferred. But real cables have efficiencies of scale - one large cable is more money efficient than many competing small cables.
And considering that, you're back to the single-cable-operator problem. In the market, they are a monopoly and will underbuild. If they aren't a monopoly, whoever has the biggest cable takes all the profit, and becomes a monopoly. And if you artificially force there to be 10 small companies competing, then there will be 10 small money-inefficient cables.
There is no perfect answer, except a (non existent) benevolent dictator!
You really don't see any middle ground here? I feel like a rationally and centrally planned infrastructure not based on market incentives is not that hard to imagine, whatever your political beliefs are, why resort to some kind of philosophical thought experiment of the dictator?
Democratic rational central planning is a political belief. I happen to agree with it, but you’ll get called names for it.
My understanding is that he's talking about a central entity that has full ownership of electricity delivery and production, by opposition to a free market of competing entities. Basically the centrally planned infrastructure you're talking about, not a real dictator.
And who would have thought that any dictator/ political party (either lefty or righty, it doesn't really matter) couldn't come up with a decent solution ["vote for us, we will solve your problems"] like they always seem to promise? After 10+ years....
Well there was a benevolent dictator in the recent past (upto 1995), when the grid was publicly owned.
Agree, but there have been some very expensive local authority disasters around solar.
https://www.bnnbloomberg.ca/the-chauffeur-the-leaked-tape-an...
Publicly owned old technology is very different to attempts to publicly develop next generation power, which tends to require brave entrepreneurs historically.
Natural monopolies should be centrally planned, because in this case the market competition is between nations on the basis of which one is an efficient and therefore cost effective place to operate. Companies don't set up competing mail rooms in the same building, that would be insane. It's less obvious at a national scale but economically just as silly to try and introduce competition where it would not naturally exist. The same principals also apply to railways, water, roads and phone lines.
A slight adjustment to this is that the single-cable-operator can become a monopoly because of government regulations. Permits, planning permission, running roughshod over objections (see HS2, Heathrow third runway). So the ideal market can never materialise. We (citizens/subjects) are somewhat okay with this. Most people do not want the free market criss-crossing the countryside with operators laying cables across whichever farmers accept money from them.