Economic and Demographic Issues Related to Deployment of the Satellite Power System: (SPS) October 1978 ANL/EES TM-23 Prepared for: U.S. Department of Energy Office of Energy Research Satellite Power System Project Office Under Contract W-31-109-Eng-38 DOE/NASA Satellite Power System Concept Development and Evaluation Program
NOTICE This report was prepared as an account of work sponsored by the United States Government. Neither the United States nor the United States Department of Energy, nor any of their employees, nor any of their contractors, subcontractors, or their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness or usefulness of any information, apparatus, product or process disclosed, or represents that its use would not infringe privately owned rights.
ANL/EES-TM-23 Distribution Category UC-11, 41,60,63,63A,63B,63C,63E,64, 66E,95F,97c Economic and Demographic Issues Related to Deployment of the Satellite Power System: (SPS) October 1978 Prepared by: Thomas E. Baldwin Lawrence G. Hill Danilo J. Santini Erik J. Stenehjem PRC Energy Analysis Company McLean, Virginia 22102 Prepared for: U. S. Department of Energy Office of Energy Research Satellite Power System Project Office Washington, D.C. 20545 Under Contract No. W-31-109-Eng-38 DOE/NASA Satellite Power System Concept Development and Evaluation Program
The author acknowledges the following people for their review of the first draft of this White Paper: Dr. Edward H. Allen 1533 Sumac Drive Logan, Utah 84321 Mr. Dane L. Mazzitti Environmental Engineering Division American Electric Power Service Corp. P.O. Box 487 Canton, Ohio 44701 Mr. Jack Campbell U.S. Department of Energy 12th and Pennsylvania Avenue, N.W. Room 4324 Washington, D.C. 20461 Dr. Frederick Grygiel Chief Economist New Jersey Department of Energy 101 Commerce Street Newark, New Jersey 07102 Dr. H. Paul Friesema Center for Urban Affairs Northwestern University 2040 Sheridan Road Evanston, Illinois 60201 Mr. Lee Guernsey, Director River Basin Research Center 159 N. Science Building Indiana State University Terre Haute, Indiana 47809 William R. Waters Department of Economics DePaul University 25 East Jackson Boulevard Chicago, Illinois 60604
Preface A series of white papers are being prepared at the request of the Planning Research Company as input to the Societal Assessment of the Satellite Power System (SPS) Concept Development and Evaluation Program sponsored by the United States Department of Energy, Office of Energy Research, SPS Project Office. The objective of the Societal Assessment is to identify and characterize those social, legal, and political ramifications of the SPS technology that might significantly influence its development and to determine strategies that might make the SPS more socially acceptable. This white paper assesses the impacts of large new energy sources from Satellite Power Systems on the distribution of industry and population in the U.S. and other countries receiving SPS outputs. It was prepared by members of the Economics and Social Sciences Section (ESS) of the Energy and Environmental Systems (EES) Division at Argonne National Laboratory. The effort was led by Dr. Thomas E. Baldwin (EES), with major contributions made by Dr. Danilo J. Santini (EES) and Dr. Lawrence G. Hill (consultant to EES). Erik J. Stenehjem, Section Leader Economics and Social Sciences Energy & Environmental Systems Division
TABLE OF CONTENTS ABSTRACT ............................................................ 1 EXECUTIVE SUMMARY ................................................... 3 1 INTRODUCTION ...................................................... 9 REFERENCES......................................................... 10 2 INDUSTRIAL LOCATION................................................ 15 2.1 THEORY...................................................... 15 2.1.1 Least Cost Theory..................................... 15 2.1.2 Maximum Profit Theory................................. 2.1.3 Theories of Locational Interdependence .............. 17 2.1.4 Integration of Least Cost and Locational Interdependence ....................................... 1® 2.1.5 Spatial General Equilibrium ........................... I9 2.1.6 Recent Contributions ................................. 20 2.2 FACTORS AFFECTING INDUSTRIAL LOCATION ........................ 21 2.2.1 Primary Factors...................................... 21 2.2.2 Secondary Factors .................................... 23 2.3 APPROACHES FOR REGIONAL AND LOCAL ANALYSIS ................. 23 2.3.1 Comparative Cost Analysis............................. 24 2.3.2 Input-Output Technique................................ 24 2.3.3 Correlation and Regression Analysis ................. 28 2.3.4 Export-Base Theory ................................... 25 REFERENCES......................................................... 28 3 RELATION OF POPULATION TO INDUSTRIAL LOCATION ..................... 31 3.1 THEORY...................................................... 31 3.1.1 The Muth Model....................................... 32 3.1.2 The Santini Model.................................... 32 3.2 ECONOMIC DEVELOPMENT, EXPORT BASE, AND POPULATION CHANGE. . . 33 3.2.1 The Causal Relationship between Export-Base Employment and Population Change .............. 34 3.2.2 An Export Base Model of Employment and Population Change ............................... 37 3.2.3 Relevance of the Social and Economic Assessment Model (SEAM) to SPS............................. 41 REFERENCES......................................................... 42 4 ANALYSIS AND EVALUATION OF SPS SOCIODEMOGRAPHIC ISSUES .............. 43 4.1 DESCRIPTION OF THE SPS CONCEPT................................ 43 4.2 ISSUES RELATING TO GROUND RECEIVING AND DISTRIBUTION OF SPS ENERGY................................................ 44 4.2.1 Siting................................................. 44 4.2.2 Deployment............................................. 47
TABLE OF CONTENTS (CONT’D) 184.108.40.206 Rectenna Construction ........................ 47 220.127.116.11 Rectenna Operation ........................... 48 18.104.22.168 Location Options Available to Firms................ 51 22.214.171.124 Government Options to Simulate Utilization of SPS Outputs...............52 4.3 PUBLIC ACCEPTANCE ............................................. 53 4.3.1 Displacement of Population from Rectenna Sites .... 54 4.3.2 Boom Development from Rectenna Construction ............ 55 4.3.3 The Centralization of Society..............................56 4.4 INTERNATIONAL MOBILITY..........................................57 4.5 OTHER PROBLEMS AND IMPLICATIONS.................................58 REFERENCES............................................................59 5 FUTURE RESEARCH NEEDS ................................ 61 5.1 SHORT TERM......................................................61 5.2 LONG TERM.........................................................63 BIBLIOGRAPHY ......................................................... 65 ACKNOWLEDGMENTS ...................................................... 69
ECONOMIC AND DEMOGRAPHIC ISSUES RELATED TO DEPLOYMENT OF THE SATELLITE POWER SYSTEM: A WHITE PAPER by Thomas E. Baldwin, Lawrence G. Hill, Danilo J. Santini, and Erik J. Stenehjem ABSTRACT Growth in energy consumption has stimulated interest in the exploitation of renewable sources of electric energy. One technology that has been proposed is the Satellite Power System (SPS). Before committing the U.S. to such a large program, the U.S. Department of Energy (DOE) and the National Aeronautics and Space Administration (NASA) are jointly participating in an SPS Concept Development and Evaluation Program. This white paper on industrial and population relocation is part of the preliminary evaluation of related socioeconomic issues. The white paper documents the results of four preliminary assessment activities which are as follows: 1. Review existing literature dealing with industrial location, attendant population migration, and the role of electricity availability and pricing as factors influencing economic movements. 2. Identify economic and demographic issues relating to the deployment of SPS. 3. Consideration of the potential significance of these sociodemographic impacts in terms of expected public acceptance by appropriate interest groups. 4. Recommend additional study needs and the most advantageous approaches to these studies. The conclusion of this preliminary assessment is that FY 1979 study should be concentrated in four assessment areas: (1) rectenna siting strategies, (2) the expected effects of marginal and average cost pricing on industrial and population relocation, (3) the future impact of rectennae siting, and (4) the responsiveness of industry to locate facilities according to the availability and cost of electricity. Long-term research should address the question of whether SPS will contribute to the centralization or decentralization of economic activity and society.
EXECUTIVE SUMMARY Consumption of the Earth’s fossil and nuclear energy reserves has grown rapidly in the latter half of the 20th century. This growth in consumption, coupled with rapidly increasing prices for these finite resources, has stimulated widespread interest in the exploitation of renewable sources of electric energy. One technology that has been proposed for development is the Satellite Power System (SPS). According to this concept, large satellites in geosynchronous orbit would collect solar energy and convert it to electric energy in space. When beamed to Earth in the form of microwaves, this energy would be collected at receiving antennae (rectennae) and rectified to DC power for distribution through the grid. Before committing the U.S. to such a large program, the U.S. Department of Energy (DOE) and the National Aeronautics and Space Administration (NASA) are jointly participating in an SPS Concept Development and Evaluation Program. This white paper focuses on the economic and demographic issues of industrial and population relocation around rectenna sites. The white paper is part of the larger preliminary evaluation of socioeconomic issues that is being carried out in FY 1978 to determine research directions for FY 1979 and beyond. To this end, the white paper documents the results of four preliminary assessment activities which are as follows: 1. Review existing literature dealing with industrial location, attendant population migration, and the role of electricity availability and pricing as factors influencing economic movements. 2. Identify economic and demographic issues relating to the deployment of SPS. 3. Consider the potential significance of these economic and demographic impacts in terms of expected public acceptance by appropriate interest groups. 4. Recommend additional study needs and the most advantageous approaches to these studies. Section 1 provides an overview of the SPS concept and introduces the concerns of this white paper. Sections 2 and 3 review the rather extensive literatures dealing with industrial location and the relationship between industrial moves and population migration. Except for some broad generalizations, there is no information about industrial relocation or population migration
consequences in the SPS literature. Therefore, these sections review knowledge about industrial location and population migration that has accumulated independent of the SPS issue. Section 2 traces the development of industrial location theory and places in perspective the primary and secondary factors that have been shown by empirical research to influence the distribution of industrial activity. Section 2 concludes with a review and assessment of approaches to locational analysis that can be applied to the study of industrial location as it may be affected by SPS. Export-base theory is evidenced to provide a strong foundation for estimating the types and levels of basic economic activity (e.g., manufacturing) that may be attracted toward the SPS electric rectifying sites. It is concluded that, from these estimates of basic industrial attraction, one can develop forecasts of the employment and population changes attendant to relocations of manufacturing using additional methods. However, in order to apply these additional methods, the causal relationship between economic change and population migration must be understood. Section 3 reviews the literature that has examined this relationship and assesses the two schools of theory that have emerged. Export-base theorists have held that population follows movements of economic activity and employment; whereas another school of theorists have held that change in economic activity and employment follows population movements. The most important differences between these theories are examined in Sec. 3 and the findings of supporting studies are assessed. Based on this assessment, it is concluded that export-base provides the more valid theory upon which to build a methodology for estimating changes in regional employment and population resulting from the development of electric generating capacity. Section 3 also describes a computerized export-base methodology that has been developed at Argonne National Laboratory (ANL) for this purpose. Section 4 focuses on the economic and demographic problems and implications particular to SPS rectenna siting that need further study using the approach set forth in Sec. 3. After a brief description of the SPS concept, and a short statement of justification for concentration on the rectenna element of the system, Sec. 4 examines the pre-deployment implications for population displacement and the post-deployment impacts of industrial and population relocation. This section also deals, albeit briefly, with the issues of public acceptance and international moves as they relate to rectenna siting in the U.S. The major conclusions of Sec. 4 are that rectennae siting and the pricing
of electric outputs will be the prime determinants of the impact that SPS may have on the future distribution of economic activity and society. First, any SPS-effected relocation of industry and population will depend upon where the large microwave receiving and electric distribution facilities that are required for the envisioned 5-GW satellites are sited. Using the existing U.S. standard for microwave radiation exposure (10 mW/cm2), each elliptical rectenna would cover approximately 132 km2. Full deployment of a 60-satellite (300-GW capacity) system, with a separate rectenna for each satellite, would therefore require approximately 7900 km2, or about 0.09% of the total U.S. land area devoted to rectenna sites. Two preliminary siting studies indicate that the rectennae would need to be located in rural areas and one of these studies indicates that rectennae may need to be clustered in undeveloped regions to optimize the avoidance of densely populated areas, with the availability of relatively cheap land and proximity to load centers or utility tie points. Second, the cost of transmitting the generated electricity is a critical consideration. By the time SPS becomes operational, it may not be economically feasible to transmit the power over long distances from rural rectennae sites through the grid to existing manufacturing centers. If this is the case, the total cost of rectennae siting will include redistributing a portion of the load and the conversion of existing land-uses, as well as construction of the rectenna consisting of land acquisition, preparation of the site, transport of materials, and assembly of the elements. On the other hand, it may be feasible to transmit electricity over long distances, but this will probably require substantial renovation of the existing distribution system in addition to annual operating costs and design, development, test, and evaluation (DDT&E) costs of SPS. There are several pricing strategies that can be applied to cover the costs of developing SPS electricity. They include: average cost pricing, capacity-only pricing, peak and off-peak pricing, energy-only pricing, and marginal cost pricing. Average and marginal cost pricing are particularly important in considering industrial location incentives that may develop. Based on the review of literature in Secs. 2 and 3, and the identification in Sec. 4 of rectennae siting and electricity pricing as the prime determinants of effects SPS may have on industrial and population relocation, Sec. 5 specifies short-term assessments that should be undertaken in FY 1979, as well as some long-term research needs for FY 1980 and beyond. The shortterm assessments are needed to first build an arsenal of tools and understanding
that can serve as a foundation for the more refined assessments that will be required as evaluation of the SPS concept proceeds. Long-term research should be aimed at developing accurate predictions of whether SPS will contribute to the centralization or decentralization of society. However, before investigators can seriously tackle this larger question, the more fundamental issues must be examined. These would include the consideration of maximizing economic and demographic benefit from rectennae siting; the relationships between electricity prices, industrial moves, and population migration; potential socioeconomic impact from these moves; and the future locational responsiveness of industry based on the availability and cost of electricity. These issues are interrelated and the study of each should build from assessments of the most fundamental issues. For these reasons, the short-term research needs have been characterized and prioritized as follows: • Rectenna siting assessment (two possible approaches) — Search for sites (i.e., counties) that maximize the economic/demographic benefits of SPS. — Evaluate the economic/demographic viability of sites identified by others. • Assess the expected effects of marginal and average cost pricing on industrial moves to rectenna-bearing regions. This assessment would include some sensitivity analysis. • Ex ante assessment of economic/demographic impact of rectenna siting. This assessment would examine the following phases of SPS development: — Rectenna construction and secondary growth — Initial industrial relocation and secondary growth — Attraction of related industrial economic activity and their secondary effects • Assess the responsiveness of industry to relocate facilities based on the availability and cost of electric power. This assessment would include: — Identification of electric-intensive industries and processes — Consideration of projected regional generating capacities that may influence future shifts in the spatial location of industry — Price comparisons of SPS electricity with other forms of generation. — Identification of industry-specific resource needs and other incentives that may influence relocation decisions such as water availability; transportation or labor requirements; market locations; and government policies at the local, state, and federal levels
These short-term assessments will contribute information about the industrial markets that SPS can be expected to serve. Anticipation of these markets is essential to the use of our export-base approach for projecting economic and demographic changes from SPS deployment. When understanding developed from the short-term assessments is available, the question of whether SPS will contribute to the centralization or decentralization of American economy and society can be examined more critically in the long-term.
1 INTRODUCTION - STATEMENT OF ISSUE AND PURPOSE OF THIS WHITE PAPER Consumption of the Earth’s fossil and nuclear energy reserves has grown rapidly in the latter half of the 20th century. This growth in consumption, coupled with rapidly increasing prices for these finite resources, has stimulated widespread interest in the exploitation of renewable sources of electric energy. One technology that has been proposed for development is the Satellite Power System (SPS). According to this concept, large satellites in geosynchronous orbit would collect solar energy and convert it to electric energy in space. When beamed to Earth in the form of microwaves, this energy would be collected at receiving antennae and rectified to DC power for distribution through the grid. The SPS concept involves a complex program that encompasses development of the following elements: the satellite power station, space transportation systems to provide for construction of the satellite stations, microwave power transmission, and ground receiving and distribution. The Baseline System Concept developed by the National Aeronautics and Space Administration (NASA) calls for a scenario of implementing two 5-GW SPS systems per year (10 GW) for 30 years, beginning with an initial operational date of the year 2000 for the first unit. Attainment of this scenario would result in an SPS generating capacity of 300-GW in the year 2030 and require capital investment of $718 to $793 billion in 1977 dollars.1 Based on present estimates, such an SPS system would contribute a significant portion of the total U.S. installed electrical capacity by 2030.2 Before committing the U.S. to such a large program, the U.S. Department of Energy (DOE) and NASA are jointly participating in an SPS Concept Development and Evaluation Program. This evaluation program includes four functional study areas: (1) systems definition, (2) evaluation of environmental, health, and safety factors, (3) related socioeconomic issues, and (4) comparative assessment of alternative energy systems. Preliminary program recommendations are to be made by May, 1979, and final program recommendations will be presented in June, 1980.1 This white paper on industrial and population relocation is part of the preliminary evaluation of related socioeconomic issues that is being carried out in FY 1978 to determine research directions for FY 1979. Overall, the socioeconomic evaluation comprises twelve white papers that assess different
aspects of the impacts that SPS is likely to have on national and international society, exclusive of environmental, health, and safety issues.3 This paper focuses on the economic and demographic impacts that operating a large SPS system may have on industrial location and population distribution at the local, regional, and national levels in the U.S. Issues tangential to this primary focus are: public acceptance of the SPS concept, the centralization or decentralization of American society that may result from its deployment and international movements of industry and/or population. These latter issues are accorded limited attention because they are the primary concerns of other white papers. The purpose of this preliminary assessment is to survey existing literature, delineate important impact considerations, and establish a basis for further work. To this end, the white paper documents the results of four preliminary assessment activities which are as follows: 1. Review existing literature dealing with industrial location, attendant population migration, and the role of electricity availability and pricing as factors influencing economic movements. 2. Identify economic and demographic issues relating to the deployment of SPS. 3. Consideration of the potential significance of these sociodemographic impacts in terms of expected public acceptance by appropriate interest groups. 4. Recommend additional study needs and the most advantageous approaches to these studies. For purposes of the Concept Development and Evaluation Program, elements of the SPS concept have been grouped in several ways; but one aggregation that has proven most helpful in formulating this paper is set forth by NASA. In that report, the major SPS elements are grouped as follows: Satellite Power Station This element encompasses the power conversion options being studied. In addition to the photovoltaic and thermal solar energy conversion options, contractor studies are being performed on nuclear energy conversion systems. Each conversion option uses a rather similar microwave power conversion and transmission system as part of the satellite power station. Ground Receiving and Distribution Site This element includes the receiving antenna for the microwave beam, the utility interface with the related electric ground distribution system, the safety system related to microwave exposure protection and to the safety of maintenance and service activities, and the maintenance and service system.
Manufacturing, Construction, and Maintenance Operations This element includes ground and orbital operations and their respective systems that support the required manufacturing, construction, assembly, and maintenance activities. A special operations management activity ties together equipment and manned operations and transportation and logistics requirements . Space Transportation This element consists of five transportation systems necessary to provide operational satellite power systems: the heavy lift launch vehicle (HLLV), the personnel launch vehicle (PLV), the cargo orbital transfer vehicle (COTV) system, the personnel orbital transfer vehicle (POTV) system, and local space transportation vehicle (LSTV) systems. This paper specifically deals with the influence that the availability and cost of electricity have on the spatial location of industry and population. Accordingly, we are primarily concerned with the relocation of industry and population to regions containing SPS ground receiving and distribution (rectennae) sites that may be operating to supply a significant portion of the U.S. electricity demand early in the next century. Two fundamental issues are emphasized in the preliminary assessment of impacts resulting from these terrestrial operations: (1) the displacement of population from large areas of low density land where the rectennae will be sited, and (2) the redistribution of industry and population that may result based on the availability and cost of SPS generated electricity. Although estimates vary slightly, the typical 5-GW rectenna would con- tain on the order of 10 dipole elements which, when assembled into an elliptical array, would cover an active area of approximately 78.5 km2 (30.3 mi2 or about 19,400 acres) and require a total land area of 132 km2 (51.0 mi2 or about 32,600 acres).1 Based on the current U.S. standard for human exposure to microwaves (10 mW/cm2), no safety zone would be required around the rectenna site.2* Even in the absence of a safety zone, full deployment of a 60-satellite system with a separate rectenna for each orbiting station would require a substantial investment of land. The two preliminary siting studies that have been undertaken to date^’5 emphasize low population density as site selection criterion *If the U.S. standard for exposure to microwave radiation were lowered to 0.1 mW/cm2, a safety zone would be needed. Addition of this buffer would increase the area covered by each rectenna site to approximately 100 mi2 (64,000 acres).2
to minimize the displacement of population. These land and population considerations will cause the rectennae to be sited either in rural areas of urbanized regions or in rural regions of the U.S., and the displaced population will have to be redistributed among other geographic locations and sectors of the economy. Another, and in many respects, more important consideration is the proximity of the rectennae to major loads or utility tie points. Assuming that the utility interfaces are within 150 miles of the receiving site, a transmission efficiency of 98% can be expected.2 Since the price of SPS electricity will be affected by transmission efficiency, there may be incentives for electric-intensive industries to move to regions containing rectennae, and this would, in turn, improve the local tax base.* Furthermore, to the degree that these industries need labor, population can be expected to move with the jobs that would be relocated. These are, in elementary terms, the major economic and demographic issues that are addressed in this white paper. Except for some broad generalizations, there is no information about industrial relocation or population migration consequences in the existing SPS literature. Therefore, this preliminary assessment is based upon literature drawn from the fields of economics and demography and professional judgments formulated by these authors based on technical descriptions of the SPS concept. Sections 2 and 3 of this paper review the rather extensive literatures dealing with industrial location and population migration. These sections relate migration to past movements of industry that have occurred independent of the SPS issue. Section 2 summarizes the historical development of industrial location theory and places in perspective factors that have been shown by empirical research to influence the distribution of industrial activity. Section 2 concludes with a review and assessment of approaches to locational analysis that can be applied to the study of industrial location as it may be affected by SPS. Section 3 reviews literature developed from the two major schools of theory dealing with the relationship between economic development (i.e., industrial location) and population migration and, based on the foregoing assessment of approaches to locational analysis, we recommend use of an export-base approach to study the regional economic and demographic consequences of SPS rectenna siting. Building on this background, Sec. 3 also *0f course, any improvement of local tax bases due to industrial relocation would be accompanied by a concomitant, although more diffuse, decaying of some other local tax bases.
discusses how the export-base approach can be used to study the interactions among (1) the magnitude of economic development (i.e., the creation of jobs), (2) the resulting spatial location of workers and their dependents, and (3) subsequent demands for services. Section 4 specifies the economic and demographic problems and implications particular to SPS rectenna siting that need more detailed examination using the approach set forth in the previous section. After a brief description of the SPS concept and a statement of justification for concentration on the rectenna element of SPS, Sec. 4 focuses on the predeployment impact of population displacement and the post-deployment impact of industrial and population relocation. Section 4 also deals with the issues of public acceptance and international mobility as they relate to rectennae siting in the U.S. Based on the review of literature and identification of the economic and demographic Implications of SPS, Sec. 5 identifies short-term assessment work that should be undertaken in FY 1979 and some long-term basic research topics that need to be addressed in FY 1980 and beyond.
SECTION 1 REFERENCES 1. Solar Power Satellite Baseline Review by MSFC-JSC, Preliminary (July 13, 1978). 2. NASA, George C. Marshall Space Flight Center, Satellite Power System Engineering and Economic Analysis — Summary, NASA TM X-73344 (Nov. 15, 1976). 3. Bloomquist, Charles E., Draft Recommendations for a Detailed Program to Assess the Societal Impacts of a Satellite Power System, Planning Research Corporation (May 4, 1978). 4. Eberhardt, Anne W., Candidate Locations for SPS Rectifying Antennas, NASA TM-78146 (Nov. 1977). 5. Arthur D. Little, Inc., Rectenna Siting Requirements, unpublished information.
2 INDUSTRIAL LOCATION A key socioeconomic effect of the SPS system is the likelihood of industry to locate near the rectennae. This section reviews pertinent industrial location theories, factors affecting industrial location, and approaches for locational analysis. The reason for examining the literature on industrial location analysis is to gain understanding about how industry may be redistributed based on the availability and cost of electricity around rectennae sites. This understanding is critical to estimating changes in regional as well as local employment and population levels that may occur subsequent to SPS deployment. 2.1 THEORY This survey of economists* contributions to industrial location theory is a highly selective summary of important theories. We will summarize five generally recognized categories of industrial location theory. These are: least cost theory, maximum profit theory, theories of locational interdependence, integration of least cost and locational interdependence, and spatial general equilibrium theory.1 A brief discussion of each of these categories is a necessary prelude to choosing a method of analysis for assessing industrial and demographic location around an SPS rectenna site. Recent contributions to industrial location theory will be summarized separately. 2.1.1 Least Cost Theory Johann H. von Thunen was among the earliest economists interested in locating theory.1 He was concerned with the optimum location for agricultural crops in relation to a city. Although this theory was formulated to determine the least cost areas for agricultural crops, it provided a theoretical framework for later industrial location theory by utilizing the two variables of land rents and transportation costs. Alfred Weber developed a more comprehensive least cost theory many years later.1 Weber postulated that if weight and distance are the only determining factors, transportation costs will attract industrial production to those places where the fewest ton-miles originate during the entire process of production and distribution because transportation costs will be lowest at those points. Labor costs are the
second factor that Weber considered vital in the location of manufacturing. The basis of Weber’s law of labor orientation is related to the idea that every point of lower labor costs constitutes a center of attraction that tends to draw industry from the point of minimal transport cost. In Weberian theory, besides the costs of transportation and labor that affect the regional location of industry, there are other factors, known as agglomeration factors, that contribute to the local distribution of industry. Weber defines an agglomeration factor as an ’’advantage” in production or marketing costs at a specific place. In contrast, a deglomerative factor is one that lowers production costs because of the decentralization of production. Edgar M. Hoover has built upon these contributions to least cost location theory.2 His main contribution lies not in theoretical originality, but in his penetrating discussions of the influence of Weberian locational factors. He stresses the fact that the cost of transferring outputs does not increase proportionately with distance. Where Weber’s analysis often indicated the optimum location to be between the points of supply and demand, Hoover’s accounting for terminal (or transfer) costs explained why industries are often found at the point of supply or demand. Hoover’s analysis of the agglomerating and deglomerating forces is also much more penetrating than Weber’s. Included in agglomeration are such advantages as better transfer services, a broader, more flexible labor market, more advanced banking facilities, better police protection, and lower insurance costs and utility rates. In addition, by agglomerating and localizing, Hoover postulates that firms specialize to a greater degree. Thus, certain operations and services that a plant in a less industrialized area would have to do for itself can be economically contracted out as the industrial infrastructure of an area develops. Least cost analysis and agglomeration characteristics are important concepts to be considered in the socioeconomic assessment of SPS. The SPS system could provide cheap and/or highly dependable electric power as an incentive for relocation. This possibility will be explored later in this white paper. 2.1.2 Maximum Profit Theory August Losche developed the maximum profit theory of industrial location. This theory is based on conditions of monopolistic competition, as advocated by Weber’s least cost theory.1* The profit maximizing theory of industrial location recognizes that the site of an industrial enterprise rests
not only on objective facts of cost, but also on subjective considerations about potential markets. Consequently, two entrepreneurs may choose two different locations under exactly identical external conditions. The range of sites depends on the size of the possible profits. A factory may be established at a place where revenue is greatest rather than where cost is smallest. Losche also refined this concept. The plant may not be established at the place of largest sales, but where one of the sales’ components, such as quantity or price, prevails. Orientation to quantity reflects the number of buyers, whereas orientation to prices recognizes the importance of purchasing power. The former favors populous areas while the latter favors prosperous areas. Losche assumed a single hexagonal market area surrounding each center of production. The optimum location changes with each price change, which directly affects demand. Thus, when variability in market demand is considered, as Losche indicated, the least-cost theory — which is based on cost of production — loses validity. It then becomes meaningless to attempt to locate at the point of lowest cost. As a result, there must be an attempt to find the largest market area that will then provide the greatest profit. This is the central theme of the maximum profit theory.1 If Losche’s theory is correct, the SPS system may not attract industry to its immediate vicinity since preliminary siting studies indicate the rectennae are to be located in sparsely populated areas where markets are limited. This thought will be explored later. 2.1.3 Theories of Locational Interdependence To overcome some of the weaknesses in traditional least cost theory, the "locational interdependence" or "market area" school of thought came to be developed. This school includes the works of economists who, like Losche, are interested in the theory of imperfect or monopolistic competition. They include: Hotelling,9 Chamberlin,10 Lerner and Singer,11 Smithies,12 and Ackley.13 This approach generally assumes that all firms have identical production costs and sell to a spatially distributed market. The delivered price to consumers varies with the cost of overcoming distance from the factory. Each seller, in choosing his location, seeks to control the largest possible market area, the positions and extent of which will be influenced by consumer behavior and by the locational decisions of other firms. The manufacturer exercises monopoly control over that section of the market that he can supply at a lower price than his competitors. The spatial pattern of plant location and market areas is thus
a product of variations from place to place in demand and of the locational interdependence of firms.5 For those industries to which this school of thought applies, little relocation of industry to rectennae-bearing regions will occur. Future research should identify specific industries to which the particular theories apply and then to select those theories as a basis for the further study of rectenna siting impacts. 2.1.4 Integration of Least-Cost and Locational Interdependence Melvin Greenhut has provided the most logical theory in attempting to integrate the least-cost and locational interdependence theories. Of particular value is Greenhut’s discussion of the location factors. He lists these as transportation, processing costs, the demand factor, and what he describes as "cost-reducing” and ’’revenue-increasing" factors. Generally, he notes, one factor is of particular importance, with secondary factors coming into play when the governing factor gives alternative sites. Transportation costs become the most important factor in the localization of manufacturing when processing costs, market demand, and personal factors are held constant. When transportation costs dominate, they become an important influence in the decentralization of an industry. Processing costs may dominate in localizing industry when neither transport costs nor market conditions demand a location at the market center. The raw materials source appears to have little or no locational influence on an industry when the cost of transport is negligible, or when the freight cost is substantially the same for raw materials and the finished products. Greenhut’s theory of industrial location attempted to correlate the demand and market approach. Thus, there is an integration of cost and demand influences that are considered codeterminants of location. This integrated theory includes: cost factors, demand factors, and purely personal considerations. Only when all of these factors are considered in determining the location of an industry can an understanding of the forces for determining location be acquired. The core of Greenhut’s theory is summarized as follows: "... each firm entering the competitive scene will seek that site from which its sales to a given number of buyers (whose purchases are required for the greatest possible profits) can be served at the lowest total cost ...nl
In time, the successful attempts of competitors to locate at the profitmaximizing site will so shrink the relative demand as to cut profits, thereby leading eventually to the state of locational equilibrium. Such equilibrium would find (1) marginal revenues equated to marginal costs, (2) average revenue tangent to average costs, and (3) concentrations and scatterings of plants in such order that relocation of any one plant would occasion losses.3 When applied to SPS, this theory has important implications. For example, partly due to the availability of hydroelectric power the Pacific northwest has attained a high concentration of aluminum manufacturing and aircraft plants that use this material. The source of electrical power for the aluminum industry is threatened by 1988. Hence, the siting of rectennae in that region would be consistent with Greenhut's theory. This issue will be explored later. 2.1.5 Spatial General Equilibrium The first comprehensive theory of general equilibrium using a spatial concept was developed by Walter Isard, in Location and Space Economy. 1 Isard attaches great importance to the fusion of location theory with other branches of economic theory. Isard attempts this through application of substitution principles. The basic idea is that a general theory of location can be developed in a manner similar to other aspects of economic theory by applying the principle of substitution to the way an entrepreneur combines expenditure on the various factors of production in making his choice of location. Isard classified location factors into three groups. The first group includes transport and certain other transfer costs. Because these costs vary regularly with distance, they provide a relevant set of reference points — whether raw materials, service, or market points — that establish systematic variations of these costs over space. A second group of factors comprises costs associated with labor, energy, taxes, water, insurance, climate, and a number of other items. Although these items possess a relatively stable geographic cost pattern, they do not vary systematically with distance as do transport costs. By contrast, these costs vary independently of distance and direction. The third group includes those elements that cause agglomeration and deglomeration economies. The agglomeration forces include economies of scale, as well as the localization and/or urbanization of economies. The deglomerative forces include diseconomies within a firm, the rise of rents and costs of urban services, and the rise in the cost of food as the rise in the size of population settlement compels the
importation of foods from greater distances. The agglomerative and deglom- erative forces operate independently of geographical position. Isard concluded that of the three groups, only transport costs, which are functionally related to distance, impart regularity to the spatial pattern of economic activities. Substitution analysis among various transport inputs provides an understanding of the geographic pattern of production and the impact of the friction of distance.1 Preliminary SPS rectennae sites are located in sparsely populated areas where transportation costs may be high. Thus, if Isard’s theory is accepted, little relocation of industry may occur around the sites. The substitution concept has important implications for SPS which will be explored later. 2.1.6 Recent Contributions There has been little progress during the last two decades in the elaboration of classical location theory. Although locational analysis has continued its development with new perspectives evolving, most of these contributions do not constitute new conceptual frameworks. Rather, they provide generalizations based on observations of the industrial world.1 The purpose of this section is to note these recent contributions but not extensively detail them. The behavioral theory points out that economic man is assumed to be normative. That is, decisions are made under complete economic rationality (perfect knowledge). It is often pointed out that this is not true in reality, and that a rational optimal industrial location decision is impossible. Thus, the search for an industrial location is not for one that is optimal, but rather for one that will satisfy the needs of the decision-maker. The general systems approach grew out of the concern for increasing specialization and the general inability to view problems in their totality. The systems approach recognizes that the totality of production factors must be considered by a firm desiring to secure a satisfactory location. Thus, one must examine the flow of information in order to understand the links and relationships between factors affecting the choice of location. The growth pole theory notes that the economic space of a firm is determined, among other things, by a field of forces. As a field of forces, economic space consists of centers (or poles or foci) from which centrifugal
forces emanate and to which centripetal forces are attracted. Thus, each center of attraction and repulsion has its proper field, which in turn is set in the field of other centers. The economic zone of influence is delimited by this process. Thus, growth poles are likely to be firms, industries or groups of firms and industries. It is within these "poles” that growth and change are generated. Connections between the poles (i.e., inputs and outputs) transmit the forces that are generated. The stages theory indicates that over time, different sectors of the economy will assume lesser or greater importance. A historical sequence of events is hypothesized. The economy of an area develops initially around a primary activity — agriculture, forestry, mining— that provides an exportable surplus over local needs. The proceeds from these sales provide the means for importing items not produced locally, typically manufactured items. This spurs new stages of growth. According to the agglomeration theory, the great concentrations of manufacturing through time are the product of a single thrust-specialization. The fundamental theme of this viewpoint is that the specialization of functions results in the specialization of areas or regions. It makes possible a distinction in function between town and country and further differentiates one area from another. Areal specialization becomes the corollary of functional integrated specializations simply represents the advantages of a particular locality. 2.2 FACTORS AFFECTING INDUSTRIAL LOCATION A fundamental question in spatial location is: What are the factors that play a role in the world’s industrial spatial patterns? This section will delineate several primary and secondary factors. 2.2.1 Primary Factors Many theorists contend that transportation is the single most important factor in industrial location. Transportation is regarded as a major determinant of plant location in two respects: cost of service and type of service. If freight costs comprise a large part of total costs, the transportation factor may have to be economized. However, the desire to economize line haul costs does not necessarily signify its achievement. A prerequisite to the
achievement of the reduced total shipping costs is that transfer costs must be accounted for. Vital transport data, therefore, are a combination of the ratio of freight cost to total cost and the difference in transfer burdens at alternative sites. Availability of certain types of transportation or points of converging transport systems are exceptionally important factors. Santini has shown that water transport is a key geographical determinant for many heavy industries.15 The availability of raw materials is frequently a major locational factor. All manufacturing requires a supply of raw materials. Furthermore, raw materials are not equally distributed over the earth, but are localized in certain regions. The influence of raw materials as a location factor has declined in the last 50 years for several reasons. The development of a network of transportation systems has facilitated the movement of raw materials and, as manufacturing has become more complex, there is relatively less processing of basic raw materials by individual manufacturers.1 Santini’s work also illustrates the importance of water transport for those industries processing large volumes of raw materials.15 Another major factor is the availability of energy. The principal uses of energy are to generate heat and provide power for manufacturing. Fossil fuels are used to provide both heat and power by numerous methods. By comparison, technologies that utilize renewable resources such as hydropower and the proposed Satellite Power System are primarily designed to generate electricity. Therefore, while the fossil fuels provide diverse forms of energy for almost the entire spectrum of modern industry, significant electricity consumption is confined to a narrower range of industries. The availability and cost of electricity is of key importance to the aluminum, petroleum, iron and steel, chemical, paper, and several other industries. These are the industries whose location pattern is likely to be initially affected by the development of renewable resources and the subsequent expansion of electric generating capacity in the U.S. Another important energy consideration is the importance of electricity availability relative to other location factors such as labor, transportation costs and the availability of auxiliary resources. For example, conventional electric generating plants are dependent upon water for cooling. SPS promises to remove this constraint and could, as a consequence, indirectly affect the distribution of industry.