Thursday, July 24, 2003

Privatisation for the Home Scientist (Part I)

I've had this post at the back of my mind for a while but I haven't found an excuse to post it. So thanks to Chris Sheil at Troppo Armadillo for his post "Score this One for the Elites": at last I can pretend, at least to myself, that these musings are more or less topical and up-to-date, with-it, hip F-A-B Scott, F-A-B Virgil and goodnight John-Boy.

Here's a little experiment you might like to try at home. You'll need a pair of 1.5 volt batteries (one EverReady Energiser, one Duracell), some ordinary copper wire and two flashlight bulbs. If your resources run to a couple of ammeters, so much the better - you can try the quantitative version of the experiment, but if you only have ordinary household resources, the qualitative version will have to do. Strictly speaking, if you have the sort of ordinary household resources I have, you're probably stuch with the gedanken version of the experiment but that shouldn't deter you. It was gedanken experiments which helped to make Einstein what he is today - the world's greatest dead physicist.

Your mission, should you accept it Jim, is to wire the two batteries, and the two light bulbs, into a single electrical circuit with current from both batteries flowing from the batteries to the bulbs along a single wire. The return from the bulbs to the batteries is also to be a single wire. You're not allowed to wire one battery to one bulb and one to another - the current to the bulbs must come from both batteries. You may, however, wire either the bulbs or batteries in parallel as long as a single wire connects the battery sub-circuit to the bulb sub-circuit. Now here's the tricky part: you have to design your electrical circuit so that (subject to the small restriction I've outlined) all the current from the Duracell battery goes to one bulb and all the current from the Energiser goes to the other.

Actually, it might be better to use a couple of fairy lights, say a red one and a green one, so that you can tell them apart. In that case, you'd want all the current going from the Duracell going to the red fairy light and all the current from the Energiser going to the green fairy light. Or vice versa, as long as there's no mixing of current.

If you have the two ammeters, you want to achieve something similar - with all the rated current output of the Duracell going to one ammeter and all the rated current output of the Energiser going to the other. If you're the sort of person who owns two ammeters that's probably blindingly obvious to you, but I thought it might be useful for the fairy light people to know. Oh and if you're stuck in the gedanken experiment group just try to work it out in your head, or by drawing a few diagrams on a sheet of paper.

There's no time limit on this, so take as much time as you need. It's not a contest. On the other hand, if you're still stuck at the end of next week it might be wise to give it up and contact former Victorian Treasurer Alan Stockdale. To be truthful, I've no idea how it can be done either, but apparently Alan does. One of the economic advisors told him how when he privatised Victoria's electricity industry. It's not really a problem of physics at all it's a matter of economic policy, and the solution is in how you structure the market.

Get it right, and you can have two households right next door to each other in the same street buying electricity from two different retailers and both getting the benefits of lower prices through competition. Even though the the two houses are both wired up to the same grid. And that's not the end of it - the retailers get to buy the electricity that they on-sell to the households from competing generating companies, so they get the benefits of lower prices through competition too. This is either a triumph of human ingenuity over refractory facts of nature, or the most successful confidence trick since two anonymous Frenchmen sold the Eiffel tower for scrap, by tender. Twice.

I know what you're going to say (especially if you're pro-privatisation): an electricity supply grid isn't a pissy little electrical circuit, with two batteries and a couple of fairy lights. That's very true. An electricity supply grid is a bloody great big electrical circuit, with generators and high voltage cables strung across the landscape on pylons, sub-stations, step down transformers, overhead wires in your local street and an electricity meter on every house. And it runs on AC, rather than DC so there's no need for a complete circuit but, when you consider the basic physics, the idea that you and your neighbour can buy different electricity from different retailers is revealed as an elaborate and rather ridiculous fiction. There's simply no way to provide every household with a genuine choice of electricity retailers, unless you duplicate the transmission infrastructure. The real choice for the householder is between different brokers, each of whom is essentially selling electricity out of a common pool.

The same is more or less true at the supply end: unless you duplicate the high voltage transmission cables that connect the generators to the retailers, all the power that goes into the grid goes into the same supply pool. Different retailers may, nominally, have contracts with different suppliers for electricity supply, no doubt doing the best they can to negotiate contracts which allow them to sell to end users at a reasonable profit, but simple physics dictates that if you have two generators putting power into the same length of high-voltage cable, what comes out at the other end is the combined output of both stations. There simply ain't no way to separate out a component for each generator. More crucially, it's impossible to work out which retailer any given kilowatt hour of electrical power "belongs" to. You can't put a despatch label on electrical current.

I suppose that, having used the words "Part I" in the title, I shall now have to go on to produce a Part II. That will have to wait until next week, but in the meantime, ask an economist (there are one or two good ones in the blogosphere) to explain the concept of "moral hazard" to you. I need to refresh my knowledge on this too, so if you get a good explanation, please drop me a line.

No comments: