Thursday, May 28, 2009

NOT PJ: Power outrage

“I’d like the electricity company to give me $1000,” says our regular columnist Bernard Darnton this week, “but I’d like it even more if they gave me some electricity.”

With my promised tax cut a bitter memory, my only hope of a windfall now is getting my $1000 out of the electricity companies. According to the Commerce Commission, the power companies have been overcharging for electricity to the tune of $4.3 billion dollars.

This has prompted various empty vessels to clamour for their $1000-per-head refunds. Even if there were going to be refunds you wouldn’t be getting $1000. Of the $4.3 billion, $4.2 billion would probably be owed to Comalco and the rest of us would get $4.19 each.

That’s even assuming that the $4.3 billion is real, which it isn’t, for various complex economic reasons. (The main one being that if any government department had any idea what the price of anything “should” be we’d all be driving around in sporty new Ladas and watching North Korean TV sets paid for with all the foreign aid money that Zimbabwe kept sending us.)

The reason that the price of electricity keeps going up is that there simply isn’t enough of it around.

With something like crap journalism, if we run out we can just import more. If we have a dry year and the supply of live crosses to rain-drenched reporters standing in exposed locations talking about how wet it is dwindles, we can just download a bunch more stories about crap driving in swollen rivers off the satellite.

That’s not the case with electricity. If it doesn’t rain and there isn’t enough lake water to run the hydro stations at full capacity we have to generate that power locally somehow else. And for that to happen the price has to rise above the level at which “somehow else” is worthwhile.

Say a hydro station can generate power for 2 cents a unit and can produce a bajillion units of power. If we need less than a bajillion units of power the price could get down to 2 cents. If we need a bajillion-and-one units of power we need to fire up the new generator. Let’s say the only alternative is generating electricity by trapping Sue Kedgeley in a sow crate and capturing the hot air emissions. That bajillion-and-first unit of electricity, like most green power, will cost hundreds of dollars and it won’t get generated unless people are willing to pay that much.

The generator of the 2-cent hydro power, at this point making $699.98 profit per unit, will be trying to work out how to gold plate Rolls Royces. That’s simply the reward for producing something so valuable for so little.

What should happen now is that the sight of all the gold-plated Rolls Royces tooling around Twizel tempts someone else to enter the market with either another dam or at least something cheaper to run than a nonsense-spouting economically and scientifically illiterate MP.

So, assuming that the Commerce Commission was even close to right – and that’s a big if – someone should jump in to scoop up those spare billions that are supposedly washing around.

Of course no one does. First, because the huge profits aren’t that much when you consider the amount of capital involved. If my bank account contained the amount of cash required to build the Clyde Dam I certainly wouldn’t be doing anything as mad as building the Clyde Dam with it.

Second, because it’s impossible. Between the not-in-my-or-anyone-else’s-backyard types halting new hydro and wind schemes, the bans on nuclear and new thermal generation, and the laws of physics suggesting you don’t install solar panels on roofs in Dunedin it’s essentially impossible to build new generation.

In a free market, high prices act as in incentive to produce more. In an unfree “market”, high prices serve to ration supply. Better to generate less power and push price-sensitive consumers out of the market (i.e. kill a few old ladies) than disturb the mauri of a river.

Rather than getting Energy Minister Gerry Brownlee to threaten power companies not to raise prices, the government should be removing the obstacles to new generation. A new thermal station fuelled with copies of the Resource Management Act would be a good start.

* * Read Bernard Darnton every week here at NOT PC * *

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3 Comments:

Blogger Crampton said...

Truly excellent. Thanks!

5/28/2009 09:40:00 am  
Anonymous Act Party Diehard said...

Minister Gerry Brownlee is a fucking socialist/communist. National should start (fully) privatizing power companies and allowing other players to come in. Let the free market solve this problem once and for all.

5/28/2009 10:23:00 am  
OpenID Bernard Darnton said...

Thanks, Eric. Hope the advanced economics didn't dazzle you.

5/28/2009 11:34:00 am  

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