A Coase Solution To An Energy Problem

He Would Like This Idea

America needs to expand its energy grid. It is expensive to expand regardless of the type of energy you try to build. Nuclear takes a long time. Natural gas takes a long time. They take time not only because of permitting and environmental studies, but they also take time simply because it takes a long time to get the parts necessary to build them.

Solar generates energy from Day 1. But solar is pretty inefficient, and it is an expensive energy source per kilowatt.

Companies want data centers for AI. They eat gobs and gobs of electricity. In some cases, they are building private energy power plants for their own data centers. It’s a decent solution, but because so much of the American energy grid is managed by either government-run or heavily government-regulated companies, it’s not scalable.

Solar, when put in a field and energy transmitted to faraway places, is not scalable either.

Solar on a house where the sun shines works. In a lot of cases, that house will generate excess energy that it can send to the grid.

If you don’t know the Coase Theorem, it’s handy. In my opinion, it formed the intellectual base for the entire Chicago School of Economics. Here is a boring video explaining it.

Another way to challenge yourself to think about this is with a problem like this:

A fisherman fishes in a river. He catches fish and sells them at the market to earn a living. A company builds a power plant upriver from where he fishes, and pollutes the water, killing some fish.

Who should pay for the pollution control device on the plant?

There is a similar problem with energy, data centers, and solar.

Why shouldn’t Big Tech companies offer to buy solar and batteries to store them for homes in the areas where they want to build power-hungry data centers? Free for homeowners, but their electricity rates shouldn’t go higher. More power to the grid for Big Tech, and because solar generates from Day 1, more power on Day 1.

Paying to install heat pumps in hot climates might also be a great Coase solution for Big Tech and power.

In hot climates, heat pumps can unlock significant grid capacity by replacing less-efficient air conditioners. Rewiring America’s calculations show that in Texas, upgrading air conditioners to heat pumps would create 3.9 gigawatts of capacity on the grid. Solar and batteries would add another 10 gigawatts, helping nearly reach the state’s planned needs for another 17 gigawatts by 2029.

Legislators need to think about this. What’s preventing private companies from transacting with private home and private business owners to do this? If there is anything in the way, clear the decks and let the Coaseian free market work.