The Guardian has an article this morning that notes, with some amazement that high winds in Spain are bringing power prices down as the significant penetration of wind farms in that country allows a lot of zero-marginal-cost electricity (ie, any additional production is essentially free) to come into the system. Of course, while lauding the foresight of the Spaniards in building up the industry, the article could not help noting acidly that end-users were paying fixed prices and did not see the benefit of this.
Thinking about the economic implications of this, I also noted this exchange between Migeru and ATinNM about whether energy is a good (a "noun" / extensive) or a service (a "verb" / intensive) and I can't help linking the two in a wider theme that has bearing on the financial crisis, and the wider environmental crisis, which is: how do you put a proper price on utilities and infrastructure (including banking) - and on the output they provide?
How do you value things that are quasi-free IF the right infrastructure is in place? Conversely, how do you pay for any infrastructure if the marginal cost of using it is close to zero? How do you move from the "cost to own" (buying energy) to the "cost to use?" (buying the services energy provides: transportation, heat, etc.... Symetrically, how do you make people pay for indirect costs they generate, but do not bear, as a result of their actions?
Discussions on externalities, positive and negative, are not a new thing, but we are at a time of confluence of several trends that could have a significant political impact if put together in perspective (ie framed) in a smart way:
- the financial crisis is making regulation and government intervention a necessity rather than an evil thing, which opens up opportunities to "sell" the right kind of regulation;
- the emergence of the wind industry on a large enough scale to have a macro-economic impact provides a easily understandable and positive demonstration that well designed infrastructure, made possible by long term planning and regulation has obvious, immediate economic benefits via persistently lower prices for all when it actually exists;
- the recent volatility of prices in the oil&gas industry (and other commodities) shows to all that pure market mechanisms create shocks - to consumers on the way up, to producers on the way down - that economies are not able to absorb within the timeframe of such price movements without a lot of otherwise avoidable pain. Expressed in another way, in times of finely balanced supply and demand, energy as a good is incredibly more volatile and unstable than energy as a utility, or service provided by a network - and you get energy to be utility-like only if the infrastructure is widely available to do. Only governments, or entities acting on a large enough scale, can provide the impetus and the coordination required for that to happen in practical terms in a modern economy, as this requires consistent design and rules of access, long term planification of investments and system-wide management.
- similarly, the volatility of asset prices suggests that money may need to be treated as a utility as well - except that in that case, it's money scarcity, rather than money itself (the service would be "risk mitigation"), that needs to be allocated by the relevant infrastructure. Again, the case for an entity defining what the public interest is and within what guidelined private actors can act seems compelling.
All of this put together suggest to me that we have a unique opportunity to re-define economic activity, and government's role. I'm still grappling with some of the ideas outlined here, but I think this is something that should be developed and pushed.