I had a revelation last night about the electrical grid. I was responding to an old friend’s comment where he stated that we needed distributed generation. I could have used the example of Mao’s Great Leap Forward with the blast furnaces in everyone’s yard, but I wanted to maintain our friendship, and stuck to Riccardo’s comparative advantage argument instead.

Then it hit me. Prior to 1970, electric generators were located very close to the point of consumption (I am talking US here). This minimized the line losses. Interconnects were put in to allow for some power sharing especially in the event of a forced outage. In general, the system was stable and one outage in one location would not necessarily affect another.  It was also characterized by a larger number of smaller generators, this applied to every thermal generator.

We started to see the size of nuclear plants increase as the fixed cost per core rose through regulatory creep in the 1960’s.  This drove the plants to have to be incrementally larger, additionally prohibition from building within certain distances from population centers and having to make infrastructure improvements to support unlikely evacuations. This all drove the nuclear plants farther away from population centers, and making them bigger and bigger.  Because now of their larger size they have to tie into a larger grid network to fractionally distribute their generation over a larger area.

The same trend occurred with fossil plants (except oil which were mostly shuttered mostly due to fuel costs) due to the creation of the EPA. This trend started before the EPA, coal plants went from being 100 ish MW to 400 ish MW by 1970. Some of this can be attributed to technological improvements and higher O&M costs due to smaller unautomated plants, high fixed labor costs. After 1970 we see an explosion in plant size now looking at  GW ish level generators.

These larger generators service a large area requiring large levels of interconnectedness. Thus a problem in one region will have a much larger impact that before. Also with the larger size of generators, we are seeing the loss of any particular plant having significant impact on a tremendous service area, e.g. the Atlantic seaboard.

While I think to some measure smaller is beautiful allowing for a less fragile grid and that desiring anti-fragility is a noble concept, I doubt the efficacy of mandating such a change.  I see existing regulation as the cause of the predicament we are in.  Demanding more well intentioned regulation on top of already well intentioned regulation will create the not so well intentioned outcome of increased electricity prices.  We need a regulatory overhaul of existing regs, examining them in context of their consequence and their intention, and replace them with regulations that enable outcomes that we want with few outcomes that we don’t.

The great reality in economics is that people ALWAYS respond to incentives. Why don’t we acknowledge this and enact incentive structures (regulation) that adopts the more enlightened position of human behavior?