Guest Column: Feedback Loops and Efficiency in Incentive Programs
By David LaGrand
All too often, big business and government deserve the criticism they draw for being slow, unresponsive, and unimaginative.
It was not a surprise to me when I had a conversation with a Consumers Energy employee last week to hear that Consumers Solar Power buyback program in the works for this year is shaping up to be the same kind of slow, ponderous, unresponsive program that could have been rolled out in the 19th century.
In the program, the utility will be required to offer to buy back a certain amount of solar power from customers at a certain price. Pretty simple, and good for getting solar systems installed.
On the other hand, we could sure do better. Why not, for example use the eBay model and hold a reverse auction? Even local auction houses do online bidding these days. The technology is not daunting.
If the solar buyback program were set up as an auction, the program could be more effective. Right now, the program seems to be slated to set up contracts to buy back 1,000 kilowatts of solar generating capacity at a rate of about 25 cents per kilowatt-hour. If we call that a 15 cent per kilowatt-hour premium, the program should cost about $200,000 per year to run.
If, instead, generating capacity buybacks were auctioned off to qualified bidders, with a minimum bid of 25 cents per kilowatt, installers might well prove to be willing to take a smaller premium – say, 15 cents per watt – in order to get some premium on the power produced. If so, Consumers could use the same outlay – $200,000 – to produce a much bigger program. If bidders took 15 cents per kilowatt-hour, using my example (a 5-cent premium), the program size could be tripled.
Again, we won’t know how a bid system will work without trying, but there’s really no downside to allowing feedback loops to drive prices down, and it’s unfortunate to see government-supported programs languish in inefficiency due to simple failure to keep up with current business practices.
David LaGrand was born in Grand Rapids and graduated from Calvin College and the University of Chicago Law School. After working as an Assistant Kent County Prosecutor, LaGrand formed a private law practice. LaGrand has formed several small businesses including Four Friends Coffeeshop and the Wealthy Street Bakery. In 2007, LaGrand was elected to the Grand Rapids City Commission. David lives near downtown with his wife Melissa and their four children. He is a member of Eastern Avenue Christian Reformed Church.
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