Objectives

The design of future energy systems which can cope with fluctuating supply and flexible
demand is an important societal concern. An essentialaspectistheconsumptionofenergy,
particularly of complex systems such as factories or IT infrastructures. Important points are
the flexibilization of energy consumption, so that the share of locally generated 'green'
energy increases, robustness of energy provisioning, or the efficient design of new energy
systems serving these purposes. To accomplish this, a core prerequisite is a structured
collection, storage and analysis of energy status data. Energy status data describes the
provisioning of energy, its storage, transmission and consumption, be it the outcomes of
measurements, be it metadata such as the extent of fatigue ofbatteries,be itotherrelevant
datasuchaselectricityrates.
This Research Training Group targets at the handling of such data. To this end, an
interdisciplinary approach(computerscience,engineering, economics,law) isindispensable.
It reveals new scientific challenges we will confront Ph.D. students with as part of their
education. For instance, we have observed that different planning and control purposes
require data of different temporal resolution and at different aggregationlevels.Thisvarying
granularity leads to the question how to find outliers in such data at the right level of
abstraction. Other graduates benefit from new approaches that detect such outliers. They
can now work more efficiently, e.g., can identify shortcomings of existing models of energy
systems systematically. An example of such a model would be one describing thebehavior
of LiIon batteries. The infrastructure for energy research of the KIT Helmholtz sector such
as the EnergyLab 2.0 will be subject/object of our Research Training Group to a significant
extent the persons responsible for these facilities are part of the group of applicants of this
ResearchTrainingGroup.
An other distinctive feature of the research agenda graduates have to deal with as part of
their educationwithusisthecomprehensivetreatmentofthelifecycleofenergystatusdata,
which consists of the phases 'collection', 'analysis' and 'deployment'. It yields a significant
added value, compared to stand alone Ph.D. work that otherwise would have to cover that
entire life cycle byitself:Forinstance,Ph.D.topicsfallingintoanearlyphaseofthelifecycle
might tailor specific methods of collecting energy status data if it is known how it will be
used. Topics from the phase 'deployment' in turn, which want to design better energy
systemsinadatadrivenfashion,canworkwithdataofexactlytherightquality.
Courses&Lectures

We at KIT already offer several lectures that are related to the Research Training Group
contentwise.
Thisincludesthefollowingones:
EnergyInformatics
OrganicComputing
BigDataAnalytics
AlgorithmsforGraphVisualization
QuantitativeMethodsinEnergyEconomics
BasicsofLiberalisedEnergyMarkets
MarketEngineering:InformationinInstitutions
eEnergy:Markets,Services,Systeme
SeminarorganizedbyseveralchairsSmartGrid/EnergyInformatics'

Seminar organized by several chairs ,Methods ad Algorithms to Evaluate and Optimize

ConductionboundEnergySupplySystems'

During the lifetime of theResearchTrainingGroup,wewillalsooffernewlectures,seminars

andlabcoursesspecificallyfortheResearchTrainingGroup.
Informationontheseofferswillappearhereinduecourse.

In my
last post
, I explained the core problem facing US electric utilities: They are still
structured as monopolies that bundle together disparate energy services, despite new
technologymakingitpossible,anddesirable,to"unbundle"thoseservices.
That core problem explains why so many utilities arefightingrooftopsolar,hostiletoenergy
efficiency, and/or working to secure bailouts for big oldcoaland nuclearplants.Inallcases,
their financial returns depend on excluding emerging competitors from electricity markets,
maintainingmonopolyaccesstocustomers.
It's an unsustainable situation. Utilities are overdue for some deep restructuring, toopenup
competitivemarketsforelectricityservicesandspurinnovation.
That is, to understate the matter considerably,easiersaid thandone.Whatmightthesenew
utilitieslooklike?Andhowcantheybebroughttolife?
Threewaystheutilityofthefuturecouldbestructured
Here's my premise, as explained in the previous post: The only "natural monopoly" left in
electricity is the grid itself.Theutilityhastwocorefunctionsthatproperlyremainthe purview
ofasingleentity,responsibletothepublic:
It is the "load serving entity," i.e., the party responsible for delivering power to
customers (all customers, without discrimination) through distribution wires that it
maintainsandrepairs.
It is responsible for reliability of service, which involves realtime physical balancing
of supply and demand, monitoring and orchestrating grid needs like proper voltage,
andmaintainingsufficientreservecapacity.
Beyondthat,however,everythingoughttoupforrethinking.

(Shutterstock)
Stillautilitything.
Whatwoulditmeanfordistributionutilitiestoopenuptocompetition?

There are lots of ideas floating around about this I've put somelinkstofurtherreadingat
the bottom of the post but for now I'll just draw on the taxonomy offered in the Lynne
Kiesling
paper
Imentionedinthelastpost.It'sadecentintroduction.
(Note: This is a completely bluesky, blanksheetofpaper exercise. I'll leave the ugly
politicaleconomysideofitforlater.)
Theideais toopenupcompetitivemarketsforvariousenergyservices,usingthedistribution
grid as a neutral, openaccess platform, like the internet. Energy services can mean power
generation, storage, capacity, "balancing services," management, and efficiency. It could
also mean financial services that enable participation in energy markets, through
aggregationorarbitrage.
Ideally,thepricessetforthoseservicesonthosemarketswouldreflecttheirtruevaluetothe
grid,includingtheirvalueinmeetingregulatorymandates.
Given all this, the question is what role the distribution utility should play in those markets.
Should it own its own backup generation reserves? Should it sell solar panels to its
customers? What is its role in compliance with and enforcement of regulatory mandatesfor
cleanenergyandefficiency?
Kiesling breaks the question down like so: "Should distribution utilities own assets and
transact directly on their own behalf, manage transactionson behalfofothers, or coordinate
the transactions of independent economic agents?" Different answers to these questions
yieldthreebasicbusinessmodels.
1)Ownership/verticalintegration
In this, a variation on the traditional model, "the distribution company directly engages in
energyrelated transactions themselves, as market participants." This means utilities own
generation and participate in distributionedge markets by selling solar panels, leasing
storage technologies like batteries, and the like. These assets would be added to the "rate
base," meaning utility investors would continue to receive their stateguaranteed returns on
investment.
Therewouldbemarkets,bututilitieswouldparticipateinthem.
2)Manageratherthanown
This is a step back, in which the distribution utility"usestheautomationandcommunication
capabilities of smart grid technologies to manage transactions on behalf of agents in
electricity markets this management function can include some ownership of assets for
reliability purposes." So the distribution utility might own some reserves for reliability
purposes, but for the most part it would serve as a broker of transactions between energy
servicesprovidersandcustomers.
3)Coordinate
This isastepfurtherback, inwhichtheutilityisnotamarketparticipantatallbutis insteada
"facilitator of the transactions of independent, distributed agents in the electric network." In
this model, the distribution utility divests itself of all assets that aren't the grid itself and
moves intoaprimarilyservicerole:providingmarket structure,pricesignals,realtimesupply
and demand data, and enforcement of rulesandregulations.(Anotherpossiblerole:serving
as a single point of contact for customers, who could receive one bill that tallies uparange
of thirdparty energy services.) Those services would become the utility's new revenue
streams.


(
ILSR
)
ThisishowILSRenvisionsoptionNo.3.
The overriding idea is to, over time, replace central planning with markets. Rather than a
utility deciding years in advance how much demand there will be, how much supply is
needed, and how much it all costs, those decisions will be made on an ongoing, realtime
basisbythedynamicsofcompetitivemarkets.
Theutility'sroleinoptionNo.3istomanage,butnotparticipatein,thosemarkets.
It would set up a kind of clearinghouse, where those who have power or services to offer
register and those who need power or services come toshop.Forinstance,attimesofhigh
sun when solar power is flooding the grid, the value of solarelectricitywillfall,butthe value
of energy storage (to hold some of that surplus for later) will rise. So solar providers willbe
abletoconnectwithstorageproviders,whichwilloffercompetitivebids.
The value of electrons (and other services like demand shifting, voltage regulation, or
capacity reserves) will vary throughout the day, and from location to location,dependingon
grid conditions. So a key role for the utility will be to make that realtime price information
easilyavailable,sothatmarketparticipantscanmakesensiblechoices.
For instance, a customer's automated home energy management system has a certain
amount of energy stored in its battery appliance. Should it sell some of that power on the
grid, or buy more power and increase the stored reserve? That will depend on how much
powerisworthatthemoment.
Or say the utility determines that backup reserves are running low, threatening reliability. It
would then automaticallyboostthepriceofreservepower,allowingpowerproviderstobidin
morecapacity.

And so on. The hope and expectation is that asthe20thcenturyseemedtodemonstrate

markets will do a better job of determining value than central planners, which means a
cheaper,moreefficientpowersystemwithlesswasteandredundancy.
Puttingmyneoliberalselloutcardsonthetable

(Shutterstock)
Me,basically.
Despite my reputation as a wildeyed leftie, I'm actually a big fan of wellregulatedmarkets,
especially as instruments of innovation, which is what's most needed in the world of
electricity right now. For that reason, I favor option No. 3. The danger of the first two,
Kiesling argues, lies in "vertical foreclosure," whereby a monopoly"[fails] tosacrificemarket
share ortoexitwheninnovationanddynamismbecomerelevantcompetitors,andregulatory
institutions likewise fail to facilitate the diminution of the monopoly." This kind of "failure to

exit" has anticompetitive effects on markets largely through "incumbency and consumer
inertia."
Another way of putting that is that utilities have every incentive to begrudge competitors,
cling to sunk costs, and use access to regulators to keep the game rigged intheirfavor.As
long as a company with a captive set of customers and stateguaranteed returns is
participatinginenergyservicemarkets,itwilldistortthosemarkets.
In fact, this is the great danger of the transition thatliesaheadforutilities:thattheywillfight
it every step of the way, clinging to the regulated assets that provide them their most
predictable returns. You can see this happening in crude form in utilities like
FirstEnergy
seeking customer bailouts for their big baseload coal and nuclear plants. You can see it
happening with the battles over rooftop solar all over the country.Butasutilitiesarepushed
toward the service model, unbundling even the products and services they provided on the
retailside,thattypeoffightwillbecomemorecommon.
If they use their pull with regulators to protect themselves, it will only slow down (and raise
the cost of) thecleanenergytransition.Technologyhas evolvedtothepointwherethereare
uncounted innovations waiting to happen all along the outer edges of the grid, just as the
internetunleashedawaveofdistributedinnovation.
Part of the reason utilities are still using technologies older than, uh, me is that the
technologies are huge and the regulatory model is built for caution. It takes a long time to
innovate on technologies that only come in multibilliondollar increments, and when your
returns are guaranteed by law and reliability is youronlyobligation,you'relikelytostickwith
thetriedandtrue.
By contrast, gridedge innovations are based on new ICT services, new financing models,
and smallscale technologies that are plunging in price.Thatmakesforlowbarrierstoentry,
if regulators don't keep those barriers artificially high. One way or another,thosedistributed
innovations are going to
swarm over the utility dinosaurs like mammals
. Utilities have a
choice: evolveor,likeUScoalcompanies,gounderinmaximallyundignifiedandungracious
fashion.
Threethingsthatcouldhelpwiththetransitiontotheutilityofthefuture
MostofwhatIdiscussaboveisidledreaming,akintosketchingunicorns.Theactualpolitical
economy of the utility sector is an unholy nightmare, with odds forever stacked against
reformers and innovators. Nonetheless, here are three things that might help the process
along.
1)Aplan
The trickiest partofallthiswillbe thetransition.Utilitiesfearthatthey'llgetstuckwithbillions
of dollars in stranded assets. Ratepayers fear that they'll get ripped off or end up paying
more for power. Social justice advocates fear that a shift toward a more marketfriendly
system is "privatization" that will end up screwing the poorandofferingthewealthyahigher
tier of what is supposed to be a public service. Regulators fear that they're being asked to
rebuild a very large, complex airplane that's already in flight, and nobody reallyknowswhat
thehellthey'redoing.
All those fears are reasonable. The best way toaddressthemistostarttalkingaboutit.Pull
stakeholderstogether,seewhat'spossible,andgetplanning.
2)Earlysuccesses
Work is underway to rethink utilities in several states, including
New York
,
Hawaii
,
and
Massachusetts
. These reform efforts differ in ambition Massachusetts is mostly

experimenting with new rate structures that vary by locationandtimeofuse(avaluablefirst

step), whereas New York is engaged in a rootandbranch rethinking of the entire utility
model:

(
NY:ReformingtheEnergyVision
)
Let'shopeNewYork'sutilityreformsworkoutbetterthanthisinfographic.
All these efforts are steps in therightdirection,though.Itwouldbeextremelyhelpfulif some
of them demonstrated success so that other states would feel more confident following
along. Each successful experiment builds a little momentum. This is an area where the
"laboratoriesofdemocracy"arereallyneeded.
3)Politicalconsensus
I know, there's no such thing anymore. But insofar as it is possible, it would be helpful to
expand the group of people who a) understand the root causes ofutilitydysfunction,andb)
organize and advocate for reform. Due to the patchwork nature of US grid regulation, it will
be a statebystate battle, but each one of those battles is more likely to be won if there is
somethinglikeanationalconsensusabouttheneedforutilityreform.
Battles over rooftop solar panels are important in the near term, but ultimately, they are
symptoms of a larger problem, which won't besolved withafewratetweaks. Rightnow,the
interests of utilities protect existing investments, sell as much power as possible, and
keep competitors out are fundamentally at odds with the interests of ratepayers and the
social imperative to decarbonize the power system. Only deep reform can realign utilities'
interestswiththepublic's.
Furtherreading:

Utility reform is an incredibly complex subject everything in my last two posts has
beenextremely strippeddown and simplified, to the horror of the halfdozen people in the
world who actually understand the subject in depth so if you wanted, you could spend
basically the rest of your life readingaboutit.Butdon'tdothat.Instead,hereareafewgood
placestostart:
When IwasatGrist,Iwroteaseriesofpostscalled
"Utilitiesfordummies,"whichisa
niceintroductiontoalltheseissues.
John Farrell at the Institute for Local SelfReliance is great on this stuff.
See:
"Electricity'sUnNaturalMonopoly"
andthelongerreportlinkedtotherein.
The Edison Electric Institute, the trade group for investorowned utilities, released a
paper a few years ago that madehugewaves,basicallyforecastingdoomforutilities
if they don't adapt:
"Disruptive Challenges: Financial Implications and Strategic
ResponsestoaChangingRetailElectricBusiness."
The Rocky Mountain Institute's eLab is probably the best single source on all this
stuff.Startwithitsreport
"NewBusinessModelsfortheDistributionEdge."
PeterFoxPenneristhegodfatherinthisarea.Youcantbeathisbook
SmartPower
.

For all the recent media attention to power utilities, most coverage has been about
symptoms rather than root causes. There's a battle over rooftop solar here, a coal or nuke
bailout there, afight againstefficiencyoverthere,butcasualnewsconsumersareofferedno
way of making sense of these battles or how they fit into a largerstory.They'releftwiththe
vague impression that utilities hatecleanenergyoutofsheergreedormalice.Andthat'snot
quiteright.

Greed and malice are definitely involved. But they, too, are symptoms. No matter how
individually virtuous utility executives may be, these running battles between utilities and
cleanenergywillcontinueuntiltherootproblemisaddressedandsolved.

The root problem is simple: It's thewayutilitiesarestructured.Theyaremonopolyproviders

of a whole bundle of electricity services in a given geographic area. But technology has
evolved to the point that many of those servicescouldbeprovidedjustasreliably,orbetter,
by participants in competitive markets if there were any such markets.Competitorskeep
trying to squeeze into the electricity space, and utilities keep using their monopolypowerto
trytosqueezethembackout.That'swhatallthefightsareabout.

There's no longer any compelling reason for all those services to be bundled by a single
"vertically integrated" monopoly. The only thing left that calls for monopoly control is the
distribution grid itself, managing it and interfacing with customers. As for the rest
electricity generation, procurement, and management they should be "unbundled," spun
offintocompetitivemarketstoaccelerateinnovation.

Until regulators divest utilities of monopoly control over electricity services, there will be
fightsbetweenutilitiesandemergingcompetitors.That'stherootoftheissue.

monopoly
(Shutterstock)
Thisisthewrongidea.
Changing that regulatory structure is adauntingprospect,forawholerangeofreasons.The
basic utility model has been around for nigh a century without changing much. Utilities and
their regulators have developed cozy, familiar relationships. Those who benefit from the
statusquohavemoreaccesstolegislators.Andthegeneralpublicistotallytunedout.

It'stimetotunein.

Whenutilitiesgotstarted,giantverticalmonopoliesmadesense

The early20thcentury history of electricity and electric utilities is fascinating, but we're not
goingtodwellonit,excepttosaythatitproducedtwokeytechnologies.

The first was steam turbines, which are vastly more efficient at generating power and more
scalable than the reciprocating steam engines they replaced. The second was alternating
current (AC), which could carry power vastly greater distances than the direct current (DC)
usedinlocaldistributiongrids.


Together, these technologies enabled power plants togetbiggerandbiggerandfartherand
farther away from population centers, even as the power they generated and delivered got
cheaperandcheaper.

Thiscreatedtwounderlyingstructuralconditionsfortheelectricitymarket:

extremely high barriers to entry, because big power plants and longdistance transmission
lineswereveryexpensive
enormous economies of scale, because the average cost of delivered power got cheaper
witheverynewexpansionofdemand
Those two conditions yield what economists call a "natural monopoly." Given the high fixed
costs of building plants and power grids, it didn't make sense to have multiple companies
making those investments. And given the economies of scale, it didn't make sense to have
multiple companies competing over the same set of customers. Instead, for a given
geographic area, it made sense for one entity to doitallbuildthepowerplants,generate
thepower,anddeliverittocustomers.

Because progressive reformers at the time didn't want a repeat of muchhated railroad
monopolies, they came up with what is informally known as the "regulatory compact." In
exchange for monopoly access to customers within a geographic territory, the utility would
providereliable,nondiscriminatory(availabletoeveryone)poweratlowestcost.

As quasipublic entities, utilities cannot profit. However, they can charge whateverratesare
necessary to cover their fixed (infrastructure) and variable (fuel) costs and provide a
reasonable return to investors. To ensure that their investments, rates, and returns are
reasonable, they are overseenbystatebasedpublicutility commissions,whichhave access
totheirfinancialrecordsandfinalsayovertheirrates.

ThomasEdison'sfirstpowergenerator
(ThomasEdisonNationalHistoricPark)
Thomas Edison's "jumbo dynamo" power generator, used at Pearl Street's electric power
station,1882.
This model was designed for one purpose above all: to electrify the country. Utilities had
every incentive to build,build,build,knowingthatthemoretheybuilt,thehighertheirreturns
it was guaranteed by law. The more they built, the cheaper the power got the cheaper
the power got, the more people used the more people used, the more utilities needed to
build. It was an enormous, rapid expansion of economic activity and public welfare.
Everyonebenefitedeveryonewashappy.

Then, in the latter half of the 20th century, things started changing. The logic of the model
begantocrumble.Themodel,however,liveson.

Giantverticalmonopolieshavestoppedmakingsense

Let's take aquickdetourintoeconomictheory.(I'mdrawingherefromafascinatingpaperby

Lynne Kiesling ofNorthwesternUniversity.KieslingcoauthorstheblogKnowledgeProblem,

whichisrecommendedreading.)

When a firm is "vertically integrated," it owns most or all of its own supply chain,
encompassing a variety of products and services. When does itmakesenseforafirmtobe
verticallyintegrated?Kieslingidentifiestwokeyfactors:

economies of scale, which create high barriers to entry, usually in the form of high fixed
costs
high transaction costs, i.e., high costs (in time, money, or risk) of contracting with outside
firms for services versus extending the boundary of your own firm to include them. Put
colloquially, getting someoneelsetodoatask (ormakeapart,etc.)safely,well,andontime
issometimestoomuchofapainintheass,soitmakessensetodoityourself.
Vertical integration can have benefits. Consider Tesla, Elon Musk's electric car company.
The barriers to entry in the auto industryare extremelyhigh(especiallygivenMusk'sgoalto
create a mainstream electric car market), and there areenormouseconomiesofscale (see:
gigafactory). Also, the supply chain necessary to create the highquality parts Tesla needs
doesn't yet exist. So the company, sensibly, is doing almost everything in house. Much the
same istrueofMusk'sothercompany,SpaceX.AndSteveJobswaslegendarilyinsistenton
verticalintegrationatAppletoensurequality.

For most of its history, the utility industry has exhibited the two key features that justify
vertical integration:economiesofscaleandhightransactioncosts.Wementionedtheformer
earlier.

On transaction costs, remember that until quite recently, everything on the grid was
electromechanical (not digital). The way utilities found out how much electricity a customer
used was by hiring someone to go to the customer's building, observe the little spinning
wheelonthemeter, andwritedownthenumbers.Thewayutilities foundoutthatpowerlines
were down, or houses werewithoutpower,wasbycustomers callingonthetelephonetotell
them.

powermeter
(Shutterstock)
Hightech.
That is, sadly, still the way utilities find out stuff in many places. In that circumstance, it's
obviously impossible to share realtime information with a third party, and risky to contract
with one. Without digital monitoring andautomation,communicatingtherelevantinformation
intherelevanttimeframeistoolaborioustobeworthit.

The benefit of a vertically integrated monopoly electricity service is reliability. Since there's
only one entity responsible and no competitive pressure to cut costs (in fact, the opposite:
there's pressure from shareholders to spend more), utilities are free to solve the reliability
problem by overbuilding capacity. Contracting for reliability services outside the utility is not
onlyrisky,itrepresentspotentiallylowerreturns.

The opportunity cost of vertically integrated monopoly what you forgo when you choose
that regulatory structure is innovation. Utilities are large organizations with enormous
sunk costs and years of bureaucratic inertia, overwhelmingly focused on reliability, with
returns protected by law and every move watched by regulators. That is not a recipe for
entrepreneurialspirit.

Given economies of scale and high transaction costs, which held for most of the industry's
history, this tradeoff made sense. But technological changes can reduce both, and when
they do so, the logic of vertically integrated monopoly breaks down and it begins to make
sense to "unbundle" some of the integrated services. And that's just what happened in the
late20thcentury.

In the early 1990s, ratepayers were still paying off the high capital costs of huge, old coal
and nuclear plants even as smaller, nimbler natural gas plants started popping up and
offering cheaper power, while higher voltage power lines stretched farther and gave
customersmorechoices.

The demise of "bigger is always better" led, starting in the mid1990s, to a wave of
"restructuring," whereby power generation wasunbundledfromotherelectricityservicesand
turned over to a competitive market. Independent system operators (ISOs) and regional
transmission organizations (RTOs) were set up to manage these wholesalepowermarkets,
reduce thetransactioncostsofcommunicatingtheneedsofdistributionutilitiestogeneration
companies,andmaintainthelongdistancetransmissiongrid.

Restructuring raced through about 20 states and then, in the early 2000s, Enron happened
inCaliforniaandtheprocesscametoascreechinghalt,whereitremainsfrozentoday.

deregulationintheUS
(ConsumersDigest)
Thestateofutilityrestructuring,circa2012.
While wholesale competition made it to 20 states, retailside competition made it to almost
none, and only incompletely. The distribution grid and the services involved in it, generally
consideredstillanaturalmonopoly,werelefttoregulateddistributionutilities.

Inelectricity,thebenefitsofcompetitionnowexceedthebenefitsofmonopoly

Utility regulations haven't changed much in the past decade. But technology has. On the
generation side, the pressures that began facingbigbaseloadcoalandnuclearplantsinthe
1990s have only grown moreintense,asnatural gasgetscheaperandisjoinedbywindand
solar. Meanwhile, regulatory mandates at the state and federal level, sophisticated demand
management, and larger economic shifts have meant thateverexpandingdemandakey
premise of the early regulatory model has finallyplateauedandevenbeguntofall.There
is no longer any need for a stampede of new power plants. Economies of scale are no
longertheoverridinginfluenceinelectricitymarkets.

But perhaps most importantly, there has been a remarkable surge of innovation at the

"distribution edge," which includes the interface between the grid and the customer and
everything"behindthemeter,"wherecustomersmanageanduseelectricity.

Severaldevelopmentshavecometogethertoyieldtheseinnovations.There'sthefallingcost
of batteries and the rise of plugin electric vehicles, which have expanded options for home
energy storage. There's the extraordinary decline in the cost of distributed solar power on
residential and commercial rooftops, which has expanded the market for home energy
generation.

And above all,there'sthedizzyingexpansionofinformationandcommunicationstechnology

(ICT), which has the potential to revolutionize every aspect of the electricity supply chain.
The signal effect of ICT is to lower transaction costs to make it much easier to
communicate, coordinate, and automate grid interactions. It enables a larger and more
heterogeneousgroupofmarketparticipants,allthewaydownto"smart appliances"thatshift
demandbasedonrealtimepricesignals.

The 20thcentury "hub and spoke" grid was built to be big, dumb, and oneway only,
producing electricity at centralstation power plants and spilling it through lines into
consumerhomesandbusinesses.The21stcenturygrid(ifweevergetthere)isgoingtobe:

modular: the grid will be composed at least in part of smaller microgrids that can be
"islanded" off from the larger grid in case of service problems,providingtheirownpowerfor
alimitedtime
smart: sensors and ICT technology will enable realtime information about distributed
generation,consumption,gridcongestion,andpossiblethreatstoreliability
multidirectional: rather than being passive recipients of electricity, thousands of consumers
will also generate, store, and sell it, becoming participants in electricity markets
producer/consumers,or(gag)"prosumers"
smartgrid
(Shutterstock)
Shutterstockhassomeprettyterriblesmartgridart.
That's a lot of buzzwords at once I'll spell them out more fully in future posts but the
upshot is that electricity service is going to evolve from a pure commodity business
(electrons,dumpedintoyour home)withalimitednumberof participants toabustlingmarket
that involves a widerangeofdifferentiatedproductsandservices,offeredbyawiderange of
participantsofallsizes.

This will mean a couple things for you, the consu ... sorry, prosumer. You are going to
participate in these markets, though most of that is likely to be automated, taken care ofby
yoursmartappliancesandsmartcarandsmarthomeenergymanagementsystem.

And you are going to have more choices. You'll be able to choose exactly what tradeoff of
cost and reliability you want (even room by room). You'll be able to choose what level of
carbonintensityyouwantorthegeographicoriginofyourelectricity.You'llbe abletochoose
how much electricity you want held in reserve, in case of service disruptions, versus how
much you want to make available on spot markets (this too can be automated). You'll find

electricity services crosspackaged with other services like transportation. And in general,
you'll be more resilient, better able to ride out storms, attacks, or other disruptions of grid
service.

And who knows what else markets may come up with when the grid is open to all, like the
internet. The ground is ripe for all kinds of innovations we can't now predict. But here's the
importantthing,thenutgraph,soI'mboldingit:

In electricity, economies of scale no longer hold. Barriers to entry are no longer substantial
(except regulatory barriers). Transaction costs are no longer high. There is no longer any
justification for vertical integrationor "bundling"of electricityservices,evenatthedistribution
level.

The traditional tradeoff high reliability for low innovation no longer makes sense.
Thanks to ICT, reliability canbemaintainedbysmartcoordinationofthirdpartiesratherthan
overbuilding by a single party. And what's needed now more than ever, not only for the
consumer's benefit but to achieve social goals like decarbonization, is innovation. And the
best tool we know of to achieve rapid innovation is a wellstructured, wellregulated,
competitivemarket.

In other words, recent technological changes argue for finishing the work of electricity
unbundling, not only at the generation level but at the distribution level as well. It's time to
openelectricityupandgetitmovingagain.