Cost of Energy Delivery

The cost of delivery is how effectively each energy can be transported to people, particularly high population areas. Since line loss, energy dissipating from electricity lines, occurs, it is important to put electricity generators close to the market it is intended to serve. The closer it is to the market, the less electricity is lost. Furthermore, putting up electric lines and the infrastructure associated with electric lines comes at a cost which is preferably avoided. This means the cost of delivery is highly dependent on where an electricity generator may be put.

Nuclear power plants are very flexible in where they can be placed. According to Lydia DePillis, an energy writer for Slate, the three factors considered in building a nuclear power plant is “state laws, geography, and the disposition of the local community.” Since the dispositions of the local community and state laws are variable and can be changed over a short period of time, they will not be considered in economic analysis, but will be examined further in the political implications section. When it comes to the geography factor, nuclear reactors need to be placed near large bodies of water, whether it is the ocean, a large river, or a large lake. The water source is used as a coolant for the reaction.

Since coal and natural gas are also thermoelectric power, meaning they create steam to spin electric turbines, they have similar requirements as nuclear energy. They require large amounts of water as a coolant, meaning they need to be placed near water sources. In Colorado, this limits us to the natural lakes, reservoirs, and rivers that can be seen in the provided figure. While reservoirs can be created specifically for nuclear, coal, or gas plants, this is an expensive and preferable option. However, there are water features spread out across Colorado, making it possible to construct these plants essentially anywhere.

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For renewables like solar and wind, farms must be placed where they will be most effective. The wind doesn’t blow at the same rate everywhere and the sun doesn’t shine equally across the United States. Solar farms must be placed where they will get the most sun and wind farms must be placed where they will get the most wind. Looking at the map provided by the National Renewable Energy Laboratory, we can see where the sun shines most intensely in the United States and least intensely.   This map shows that the south western area of the United States has the most ideal sun exposure for solar energy, and the north eastern area of the United States is one of the least ideal areas for sun exposure. A majority of Colorado rests in 5.5-6.0  kWh/m2/day. While a lot of Colorado rests in a higher area of sun exposure, some of the most populated areas in Colorado, specifically Denver, Boulder, and Fort Collins, do no fall into, or barely fall into, the higher sun exposure areas, thus creating a higher cost of delivery for solar energy in Colorado.

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For wind, The National Renewable Energy Laboratory provides a map giving the average annual wind speed at 80 meters above ground level. This map shows that the central United States has the highest average wind speeds, making it more favorable to wind farms as compared to coastal areas. Most of Colorado ranges on the lower end of wind speeds from less than 4 meters per seconds to 5.5 meters per second, though the eastern side of the state ha pieces that can range 8.5 to 9 meters per second. These eastern areas would be the most ideal for wind farms in Colorado, but they are also far away from Colorado’s population centers like Denver, Boulder, and Colorado Springs thus creating a higher cost of delivery for wind energy.

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Looking at these geographic implications, we can assess the relative cost differences of the energy sources for delivery. Natural gas, coal, and nuclear all are very versatile, as their only requirement is that they need to be near a water source. Wind and solar energy are less versatile and require higher levels of wind and sun exposure. However, sun and wind exposure do not always line up with areas of population, thus increasing its relative cost of delivery.

In Response to “A Prosperous and Cleaner Future…” by Lynne Kiesling

If I were to describe Lynne Kiesling’s publication “A Prosperous and Cleaner Future: Markets, Innovation, and Electricity Distribution in the 21st Century” as anything, it would be that she is the Friedrich Hayek of energy policy. This paper methodically, and almost poetically, describes a major issue facing the energy and environmental policy world today: archaic design, a design that was put in place during the 19th century Progressive Era which put regulators “as agents, custodians, and stewards of ratepayer resources” (Kiesling 2015).

However, putting regulators in a dynamic and ever-changing market as custodians gives rise to what Austrian economist Friedrich Hayek describes as “The Knowledge Problem” in his 1945 essay “The Use of Knowledge in Society,” in which he says:

The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate “given” resources—if “given” is taken to mean given to a single mind which deliberately solves the problem set by these “data.” It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. (Hayek 1945).

Politicians and regulators are generally the butt of many party jokes as being incompetent and foolish, however this is a misunderstanding of why regulators stifle markets and innovation. Energy regulators will make bad decisions on what is best for the energy market or the environment not exactly because they don’t know what is best, but because they can’t know what is best.  The same could be said about a CEO of an energy company. Lynne Kiesling explains this idea by saying “[i]n dynamic markets with diffuse private knowledge, neither entrepreneurs nor policy makers can know a priori which goods and services will succeed with consumers and at what prices.”

Thus, it is not the free market assertion that private sector forces know better than public sector forces, per se. However at first glance, it seems that a solution in energy and environmentalism problems can never be found if no one actually knows enough to solve it.  This is not the free market assertion either. Instead it is that a free market is the quickest trial-and-error process for determining solutions based on the dispersed knowledge of private sector actors, which is determined through prices and profit. This is the crown-jewel of competition, which is absent in today’s energy market because of government sanctioned monopolies. Public sector action is simply too slow to enact this trial-and-error method, nor would they be able to determine what is and isn’t successful quite like consumers and the market can. Furthermore public sector forces are too slow to keep up with the innovation of today’s market, which is illustrated by Kiesling through the emergence of new technology like smart-grids, nuclear energy, and combined-cycle gas turbines. Kiesling as a result concludes that our regulation methods are inherently far too static for the dynamic market and technology we see today:

Many of the assumptions of this regulatory model are increasingly untrue in our modern society. The assumption of a single production technology with a declining long-run average curve has long been incorrect, as shown by the smaller-scale combined-cycle gas turbine (CCGT) innovations in the 1980s and the ensuing unbundling of generation from the vertically integrated firm and the liberalization of wholesale energy markets in restructured states in the U.S. This assumption is becoming even more problematic in the face of recent innovations in smaller-scale generation technologies, including natural gas, renewables, and even small modular nuclear power. (Kiesling 2015).

If Kiesling and Hayek are correct, it is clear that a feasible solution to problems we face today in energy and the environment, which are increasingly complicated topics, is the free market, and not an expansion of archaic regulation methods.