Landfill is an interesting product. The price fluctuates far enough that it can fluctuate from positive to negative and back again. If someone is building a tunnel, you can probably get paid to take landfill. If someone is building an island, you can probably get paid for supplying landfill. There are projects that can only go ahead at certain times: the Hornsby quarry remediation project was only viable because the north connex was being built.
That's slightly obscure, and there's not much you can do with landfill other than, well, fill land. But we are about to hit a very unusual combination of circumstances which will create some head-scratching economics.
Solar panels are getting cheaper. The learning rate for solar energy is (probably) the steepest of any energy technology yet deployed. So we can be pretty much assured that within the next decade we'll have enough solar power to power anything we want (as long as it is day time). We'll overprovision our houses and factories (and offices if they still exist) with generation capacity so that in the morning or evening when the sun is hitting at an oblique angle, we still have enough for our needs.
That means that at peak times, we'll have more than enough solar energy. What do we do with that surplus energy?
Actually, it's slightly worse than that, because there are some (non-renewable) power plants that can't fully idle. A nuclear reactor can't fully turn off for a few minutes in the middle of the day. Neither can a coal power plant. So they will be running at a time when nobody has a need for power. That may be OK -- if you make a lot of money generating power overnight, you might be prepared to pay some small penalties during the day for overproduction if that's what it takes to keep the system running.
Which means that someone, somewhere is going to get paid to create a dummy electrical load. We've never (as far as I can tell) seen "grid stability" payments for using electricity before. But it's the inevitable conclusion of where we are the moment: discounted rates for consumers who can change their requirements to help with grid stability exist already; there's no reason that this wouldn't still be necessary when the price of electricity hits zero.
Therfore, there will be times of the day (in certain weather conditions) when some companies will get paid to use electricity.
The kinds of consumers that will get paid are likely to be doing something that is energy inefficient (obviously), and not particularly capital intensive (since their equipment will be idle a lot of the time), and making something that can be stored indefinitely (because you definitely can't do just-in-time manufacturing if you are waiting for times when the price for electricity goes negative). But quite a lot of products could be made to fit that.
A possible product that I think is likely to play out this way is water desalination. Desalinated water is very expensive because of the embedded energy cost: it's often described as "bottled electricity". Currently we tend to use reverse osmosis because it's more energy efficient; but if you don't have to worry about energy costs, you might choose instead to boil water and distil it: since the capital costs are cheaper.
Now things get even weirder. Let's say you are getting paid 0.5c per kWH (a not unreasonable price) that you use. You might find that you can sell the water for -0.01c per kL. Yes, you can make a profit: not just giving it away, but you could still be profitable while paying someone to consume it.
If this all plays out, we might have water and electricity (at times) having a negative price. These are common inputs to other processes, so it doesn't end there: there might be a business that requires water and electricity occasionally, but the input costs normally make the business unviable. They in turn might be able to make some money selling the end product at a negative price if their inputs have a negative price.
If this sounds all a bit unbelievable, remember that up until very recently, many economists thought that it was impossible to have negative interest rates... right up until the moment when they started happening. We already have examples of products that oscillate between positive and negative prices, it's just that they were never fundamental inputs to other processes. My prediction is that by 2030 we will have a small part of the economy ticking away profitably making negative price products.
(Post scriptum: now for the completely weird: how do negative price products interact with negative interest rates?)
For added revenue - Boil the water using massively overclocked (but otherwise outdated) GPUs with BitCoin mining workloads ... :-pReplyDelete
Now you're talking.Delete
I for one am looking forward with anticipation to our quasi-postcapitalist future where I can invest in nocturnal, privately owned hybrid power-plant/crypto-mining farms with a fancy lobby for enticing visitors to walk in, lounge on the couches and play Halo on multiple xboxes set up around the room while getting paid to drink bottled water.
Isn't carbon capture and sequstration energy intensive? That would be a good use for spare solar energy.ReplyDelete
@the Post scriptum: Negative interest rates and negative product prices work great together. They force and facilitate spending (respectively) - somewhere. If the spending goes into the real economy, it'll cause inflation; if into assets - bubbles. Inflation would make negative interest rates obsolete, but govt's and corp's really like how they devaluate their debts. Bubbles won't. I'd bet on bubbles. Who knows, might even be Bitcoin! (@Will) :DReplyDelete
I don’t get the premise that energy will *have* to be consumed. In the landfill example, the dirt must go somewhere... and someone would be paid to receive it.ReplyDelete
But the power plant can still be on 24/7, generating, and sometimes simply not injecting in the grid.
Then there isn't any resistance in the circuit that contains the power plant. Various bad things happen, because power plants aren't designed to handle that situation.Delete
"It is not too much to expect that our children will enjoy in their homes electrical energy too cheap to meter..." --Lewis Strauss, Chairman of the US Atomic Energy Commission, 1954.ReplyDelete
That's not how economics works, is it? You want to optimize your profit, so what'll happen is that someone will find a way to get positive price output from negative input. Let's say for instance energy storage? But hold on, the moment energy storage is in place, your negative inputs are gone as well.ReplyDelete
Of course you would try to get a positive price output. But what if you can't? (e.g. because every battery that needs recharging is now recharged, every other potential energy consumer is satisfied) Normally that's the end of the story, but if your input costs are negative, then you might still be profitable even if you can't get a positive price output.Delete
Yes, that's what I'm saying: if your storage is full but the price is still favourable, you'll invest in more storage. That'll happen until the price is not good anymore.Delete
Indeed: this can't make sense as a stable equilibrium state. But for short periods of time this kind of weirdness can happen. Landfill prices don't go negative forever: the go negative for a period of time until someone can figure out something that they need to fill. But it's not like it's impossible ever to get negative prices (landfill or power or other goods) just because eventually someone does something about it -- economies spend a lot of time away from equilibrium states.Delete
If possible, I think we should also invest in carbon capture plants. Create grids with localized towers that trap green house gases with the excess energy and effectively cool our planet.ReplyDelete
Alpine hydro power plants started arbitraging nuclear a couple of decades ago: in winter, when there is little water flow towards the high altitude reservoirs, they use almost free nightly nuclear to pump water from the valleys all the way back up, and then have it come down again the next day/evening. Surprisingly effective “storage” of very large amounts of energy.ReplyDelete