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Artificial Scarcity

The term “artificial scarcity” generally refers to a tactic where the supply of something is restricted so that prices go up (or remain high). Examples of this are diamonds (which are relatively plentiful and can be manufactured artificially at low cost), and health care (in the US the AMA keeps the number of doctors low so that their incomes can stay high, rather than just letting supply and demand set costs).

But this is the first time I’ve seen someone use abundance to drive up prices. Ausgrid, one of the largest providers of electricity in Australia, has notified government regulators that prices will have to rise. Why? Because rooftop solar panels have become so popular in Australia that there is too much electricity!

Remember when promoters promised that nuclear power would produce so much electricity that it would be “too cheap to meter“? Well, if solar power is producing too much electricity, it does make you wonder if we currently actually do have an artificial scarcity of energy in the world to keep energy companies (including oil and power) to keep prices artificially high.



  1. Yudith wrote:

    They can do the same as OPEP does with oil; produce less so they can sell it for more, or rather forbid people to produce more energy with their solar panels than the quota for the nation and sell this quota by slices. And quotas will cost so much that there will only remain a few large companies with solar panels. At the same time, solar panel owners will be able to sell their energy for more, which would benefit them. And than everybody knows that money trickles down, right?

    Saturday, December 17, 2011 at 6:47 am | Permalink
  2. PatriotSGT wrote:

    What they’ll do next is reduce the price or credit they pay individuals who “sell back” excess energy collected from solar panels with the reverse meters. I imagine true energy reserves are guarded as closely as the actual price dealers buy cars from the factories.

    Saturday, December 17, 2011 at 7:36 am | Permalink
  3. Tony wrote:

    Okay, go ahead and do some research about the electricity demands in Australia vs America. I don’t know offhand, but I’m willing to guess that our per capita use is probably three to four times higher than Australia.

    Yudith, while OPEC is probably profit driven in their motivations, their rationing is probably helping us in the long run. I’d rather have oil be somewhat expensive for the next 200 years than have it be super cheap now and run out in a decade.

    Patriotsgt, Can you really be advocating forcing electric companies to sell their eletricity cheaper and at the same time expecting them to pay more to buy electricity that they don’t want to buy?

    Sometimes there are circumstances that the average person doesn’t understand when it comes to energy production and the laws that surround it. Every state is different, and sometimes there are ridiculous laws. Here in Missouri, the voters passed a law to require 15% of our electricity to come from renewable sources. However, the Public Service Commission continues to reject rate increases for renewable projects. Converting to solar and wind power production is expensive, and the people of Missouri refuse to pay for it while requiring it to happen. So now, Missouri power companies are buying wind power from Iowa and Illinois in order to meet renewable energy quotas, while at the same time, closing coal plants that can’t meet environmental restrictions and laying off workers.

    Do your research before you complain.

    Saturday, December 17, 2011 at 10:02 am | Permalink
  4. David Freeman wrote:

    We had a similar similar situation occur with the water company here during a drought a few years ago. The water authority took out advertisements urging people to conserve water due to the drought. We responded very well and usage dropped dramatically. When the drought ended and supplies were adequate again, the water authority asked for and received a rate increase because people continued to conserve after the drought ended.

    Saturday, December 17, 2011 at 12:18 pm | Permalink
  5. Peter wrote:

    Keep in mind also that electricity isn’t necessarily something you can buy like oil and hold on to. It’s just pushing electrons around in wires. So there’s a bit of a difference.

    Also, the infrastructure for electricity has a price that we all have to pay for. Unless the people in Australia are going “off-grid” and depending on solar power 24/7, there’s still a bunch of poles and wires going to their house. Those have to get paid for as well. If the electricity companies have less money, who takes care of those poles?

    Saturday, December 17, 2011 at 2:54 pm | Permalink
  6. Gord Martin wrote:

    The free market, without having to deal with the exogenous costs, etc. is unlikely to invest in developing alternative sources. Put incentives in which force higher payment for solar, etc than the cost of coal, etc and if you don’t get blind lucky and pick the right rate you will get too much supply at a high cost. We have to tinker and not get our poop in a knot when every dart isn’t a bullseye.

    Saturday, December 17, 2011 at 3:14 pm | Permalink
  7. Tony wrote:

    So did you read the wiki article that you linked to about “too cheap to meter”? The phrase was coined in 1954 apparently, and was misattributed to nuclear fission energy. According to the sources linked in that wikipedia article, the phrase was used by the chairman of the Atomic Energy Commission in reference to hydrogen fusion.

    So before you hop on the anti-nuclear bandwagon, at least read the things you link to.

    Sunday, December 18, 2011 at 12:25 am | Permalink
  8. Tony wrote:

    And in less snarky news, I work at a nuclear plant and I can do my best to help get accurate information next time you want to talk about nuclear power. I don’t know everything and I’m by no means a spokesman or PR guy, but I can get questions answered to the best of my ability.
    One of the biggest failings of the nuclear industry was not educating the public about how it all works. It is safe, it’s mostly renewable (if it weren’t for stupid American laws), it’s reliable, and it’s efficient.

    Sunday, December 18, 2011 at 12:32 am | Permalink
  9. PatriotSGT wrote:

    Tony – I’m not advocating bankrupting power companies. Just commenting on the way big power companies might approach a surplus of energy to protect their business. Which, I would think as normal. Currently I don’t think that happens here in the US, we don’t have that much energy to sell back so its rather insignificant. But, if green did catch on and build perhaps it would be good to have some regulatory standards created to regulate the price energy contributers via the green way could expect to receive. Something along the lines of the price power companies pay for their other sources of energy.
    Peter is right on the nature of electricity not being suitable for collection and storage to be used later, so it would be tricky to work out a system for electricity providers to buy back power. Their cost remain constant there is just a greater temporary supply. I do agree that nuclear could provide more of our power, its just the government hasn’t approved much new contruction in the last 20 years and unless that changes we are stuck where we are.

    Sunday, December 18, 2011 at 8:25 am | Permalink
  10. Iron Knee wrote:

    Tony, of course I read that Wikipedia article on “too cheap to meter”. I think it is hilarious that the chairman of the AEC was talking about fusion, but was not able to clarify it because fusion research was classified. So the phrase was use (a LOT) to talk about fission reactors. Bottom line? It doesn’t matter that Strauss was talking about fusion, the phrase was widely used talking about fission reactors.

    And if you had been reading this blog for a while, you would know that I am not against nuclear power at all. In fact, I’ve done posts promoting the benefits of thorium-based nuclear power. I’m mainly against the current US nuclear power industry, like GE (whose CEO is ironically the chair of Obama’s Council on Jobs and Competitiveness).

    But I would love to have a reader like you commenting (or even writing posts) about energy issues.

    I would love to see power generation in this country become more decentralized. Instead of large centralized power plants that can be targets for terrorists and require expensive power distribution systems, build smaller generation facilities. Those smaller facilities could be Thorium-based or solar, wind, or whatever. Comments?

    Sunday, December 18, 2011 at 12:46 pm | Permalink
  11. Tony wrote:

    I know that NEI has talked about trying to license the smaller thorium reactors, but I haven’t heard anything recently. I think it would be good for remote areas where it doesn’t make sense to upgrade the grid. The infrastructure costs are a large part of electricity rates going up.

    I know it sucks to pay 80-100 dollars a month for power, but it’s been years since my power has been out. When I was a kid, every time a heavy storm hit we were lighting candles and being bored all night without TV.

    Tuesday, December 20, 2011 at 6:32 am | Permalink
  12. Tony wrote:

    *correction… NEI has talked about trying to get utilities to license smaller reactors. I don’t think they have any plans to get those moving on their own.

    Tuesday, December 20, 2011 at 6:33 am | Permalink