This is the fourth and final post in a series written by Paul Bennett, PhD candidate in economics at George Mason University.
Is it best to “drop in” E-Cats into existing power stations, or deploy them into homes for individual use?
This issue may not be primarily a question of economics, but I want to give an opinion on it anyway. Twenty years from now there will be no electricity grid and every home will have its own E-Cat generating heat and power. All those unsightly and failure prone power lines will have been removed. All moving vehicles will be powered by E-Cats and gas stations will all have disappeared.
So is there any point in developing units that can be “dropped into” existing power stations? It depends on the cost, safety and ease of use of a home sized unit, on how the cost of power produced by such a unit compares to the cost of power produced in much larger power station sized units, and on the speed at which each is developed.
The advantages of the home unit approach are: (a) people like to be independent, (b) the units are less likely to be impacted by natural disasters, (c) the inefficiency of converting heat to electricity and then back to heat to heat your home has to make the possibility of direct heat production in the home unit very price competitive, (d) no power loss in transmission, (e) no maintenance costs for the transmission lines, (f) no need for transformers in every neighborhood.
The advantages of continuing to use power stations: (g) If the E-Cat requires skilled technicians to keep it running, this would be much more efficiently done in a centralized power station, (h) If the E-Cat cannot be made safe for home use, it may be possible to operate it safely in an industrial installation, (i) the capital cost of a unit may make it unattractive for individual purchase by the majority of the population. Note. I do not include any mention of the value of the infrastructure already deployed.
Any economist will tell you that sunk costs are already sunk and have no place in the decision as to how to go forward. Looking at the above list, I am convinced that (g) and (h) will be quickly overcome. Mr. Rossi has estimated that the capital cost of deploying a unit will be about $2,000 per kw. I suspect that a typical house will need about 5 kw. So we are looking at $10,000 for a typical home. This is a lot more than a new furnace and if it remains this high it may slow the deployment of home units.
I suspect that even if the price does not come down, some enterprising businessman will come up with a scheme whereby the unit is placed in the customer’s home, but remains the property of the businessman and the businessman sells the electricity and heat to the homeowner at a rate that makes him a handsome profit. In this way (i) becomes a non-issue. In short, I won’t be investing in any businesses that would benefit from the “drop in” approach.