FERC’s new rule on compensation for demand resources tips the market balance toward negawatts. Arguably the commission’s economic analysis is flawed, and the rule represents a covert policy...
Pricing the Public Good
Weighing green energy’s costs and benefits.
As I was editing this issue of Public Utilities Fortnightly , I was struck by the competing arguments presented in three different articles—all of which consider the relationship between energy policies and the public welfare.
One author—Mike Hall, CEO of developer Borrego Solar—examines California’s solar feed-in-tariff (FiT) and its potential for bringing solar into the generation mix. In “ Cali Gets it Right ” he argues that the California FiT has the potential to accomplish “virtually all of the major policy objectives.” Namely, it will award power purchase agreements based on the results of a reverse auction, effectively letting market forces determine the value of solar generation, rather than having policy makers set the subsidy price. Additionally, the program is tailored specifically to distributed solar projects, which Hall says “make good use of real estate from which no other … public benefit can be derived.”
Hall’s argument presumes that more energy from solar power is, by definition, a public good. And as a general matter, this assumption is fairly easy to accept. To the degree solar energy displaces coal-fired generation, for example, it reduces air pollution, as well as the consequences of coal mining and transportation. And to the degree building solar projects helps to accelerate solar’s race toward cost-parity with traditional power sources— e.g., by supporting technology advancements and manufacturing scale economics—then such projects expand the range of viable energy alternatives. That improves the nation’s fuel diversity—obviously a good thing for multiple reasons, including the fact that local solar plants can power electric vehicles and thus reduce oil imports.
That’s indisputably a good thing. But another author writing in this issue presents a compelling argument that just because a thing is good, that doesn’t mean it’s the best possible thing. As a result, policies aimed at promoting one good thing can diminish a better thing, for a net loss to the overall public welfare.
In “ Lighting Up the World ,” scholar Jude Clemente observes that over the past century, electricity has vastly improved the health and welfare of Americans. Everything from cleaner drinking water (via electric-pumped wells) to better education for girls can be correlated with improved access to affordable electricity. Moreover, Clemente argues that the cheaper electricity becomes, as a percentage of per-capita income, the more good it will provide to the public—most notably by supporting economic growth and prosperity.
Again, this argument is easy to accept; electrification is categorically a good thing, and cheaper electricity is certainly better than more expensive electricity. But as Clemente points out, such self-evident facts sometimes get lost in the public policy debate. When NIMBY activists are fighting to stop development of a transmission line or power plant, for example, they tend to disregard the vast benefits that such facilities bring to the public—perhaps because those benefits are widely socialized and delivered over a long period of time, whereas their own gripes are personal and immediate.
But lawmakers also