The Energy Department’s study of the power grid is 187 pages long but it can be summarized in five words: the energy markets are failing us. "Society places value on attributes of electricity provision beyond those compensated by the current design of the wholesale market," the study found. Economists like to say that markets "optimize" production and consumption; that is, they set prices in a way that induces suppliers to bring forth the right amount of whatever is being traded, and lets consumers make wise decisions about how much to use, all in a way that improves everybody’s welfare. That’s true, as far as it goes. But markets are a little like computer programs; they only do what they’re told to. The best they can do is to optimize the factor they’ve been told to use, in this case, price. The market is a tyrant with a hyper-focused goal. The electricity markets are set up almost entirely to optimize price. But if the economy needs anything else, some
Former blog for NEI featuring news and commentary on the commercial nuclear energy industry. Head to NEI.org for the latest blog posts.