Small and close beats big and far

… and we’re back!

Via Green Options comes this study (PDF) from the Minneapolis-based Institute for Local Self-Reliance, arguing that the costs of large wind-power and ethanol facilities outweigh the benefits.

The major benefit: economies of scale. Great big windmills, or huge farms of them, generate a hell of a lot more power than little ones do, so the fixed costs — paying somebody to maintain them, for instance — can be spread out more. The same is roughly true for big ethanol plants. This has long been an economic truism, that (up to a point) bigger is generally cheaper.

The major problem: transmission and transportation costs. A great big wind farm usually needs to be in the middle of nowhere, either so fewer neighbours will be offended or to take advantage of high enough winds to turn all the turbines. If you’re generating gobs of electricity in the middle of nowhere, you have to get it to where the consumers are, and that takes expensive transmission towers and wires, which take studies and permits of their own.

Overall, transmission and array losses increase the cost of power production.  A project 500 miles distant could cost about 1.8 cents/kWh more than a local project.  Higher wind speeds could lower generation costs to offset or exceed these higher transmission-related costs.  A wind speed 5.3 percent higher would be needed to offset a 500 mile trip.

The second diseconomy of scale for wind farms can occur in higher infrastructure and maintenance costs. While large projects save on site development and legal costs by spreading them over several turbines, a single owner-operator with one turbine can avoid legal and permitting fees (about $20/kW).

The same sort of problems apply to large ethanol plants, the report’s author John Farrell writes, with the added difficulty that a big producer tends to depress the local price of the stuff by flooding the market.

Now, one solution to the legal and permitting problems surrounding large installations is to reduce the red tape entrepreneurs need to cut through to build them. Set some simple standards and enforce them, rather than fussing endlessly over details. Particularly, don’t get caught up in battles over whether the neighbours have a right to an un-bewindmill’ed view of the landscape. They don’t, beyond the right not to be assailed with great rackets and other interference on their own property, and that should be reflected in the law.

But even so, the costs of transmission and transportation are large and not subject to government policy. (Not to sensible government policy, anyway.) If Farrell’s figures are right, they jibe with my instinct that distributed generation of renewable electricity is better than centralized, and that ethanol’s generally more trouble than it’s worth no matter how you make it.

My only reservation about Farrell’s work is that he asserts, twice and without demonstrated foundation, something like this:

The most significant diseconomy of scale is that bigness leads to absentee ownership, significantly reducing the benefits to rural communities of harnessing renewable energy.  Public policymakers should decide whether the loss of those rural development benefits is worth the small decrease in production costs.

You’d expect this from an outfit calling itself the Institute for Local Self-Reliance, of course, but you’d also expect some research proving the point. Farrell’s work is heavily footnoted for its other facts and figures, but the idea that absentee ownership is bad is taken as a given. There’s a reference to another ILSR report called Energizing Rural America, supposedly published in April, that’s missing from the group’s website. I believe this is it, but it doesn’t seem to me to prove that local ownership is better. Better for the locals, yes, but it rather goes without saying that if ownership is good, and locals are owners, local ownership is good for locals. I’d want to see evidence that local ownership is intrinsically good for everybody before buying into that conclusion.

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2 responses to “Small and close beats big and far

  1. David,

    Thanks for discussing the report here, it’s great to see it generating some conversation.

    At the risk of being accused of dodging the question on local ownership, I wanted to first pose a question: how does a libertarian view the issue of ownership with regard to the social benefit? Is the most efficient enterprise (lowest unit cost) the most socially beneficial? The biggest? The most profitable?

    -John

  2. That’s a fair question, and I’m not entirely sure how to answer it. I tend to believe that the most efficient enterprise — with all costs properly factored in — is the best, I suppose, and in general the best way to achieve that efficiency is to get out of the way as much as possible. I’m not as concerned with outcomes as I am with processes and ground rules. Good ones tend to lead to good outcomes, whether or not those are outcomes I might happen to favour at first glance. I spend a lot of time struggling with whether outcomes I instinctively dislike are really Bad Things or just matters of taste that aren’t really my business.

    You and I might disagree on whether benefits and costs to the local community in particular are things that ought to be factored into determining whether a given enterprise (wind farm, ethanol plant, bookstore, whatever) is a Good Thing or not.

    I think local, small-scale ownership and control of just about anything tends to lead to better outcomes, which is a pretty traditional conservative principle, but I don’t see it as a good in itself.

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