Would ‘permission-less innovation’ spur more microgrids? The Adam Smith Institute believes so.
The libertarian think tank raises the idea in its new report, “Power Up: The framework for a new era of UK energy distribution.” The report comes as a UK competitive review board takes a closer look at electricity regulation. But the discussion is easily transferable to the U.S. with its long-history of struggle over how much oversight is right for electric power — especially now as the new distributed grid emerges.
The report compares the rise of the Internet to the rise of the distributed grid. Both have “transformative potential” as “powerful decentralizing forces.”
Permission-less innovation — where regulators give experimentation the benefit of the doubt — allowed Internet businesses to prosper and become 3.4 percent of gross domestic product in 13 major countries. Distributed energy could rise the same way given the chance, according to the London-based institute.
But unlike the Internet, electric power is subject to government-controlled pricing. This works just fine in a static monopoly environment. However, price control impedes entrepreneurial experimenters, like those developing microgrids, energy storage, smart meters, learning thermostats, the connected home, and other distributed energy tech, says the report.
Ever test any microgrids?
It isn’t just entrepreneurs that experiment when there is permission-less innovation. Consumers do too, says the report. Consumers get to try out “diverse offerings, using and purchasing the ones that they value the most.” Such experimentation gives government and business information about consumer preference. This knowledge is otherwise elusive, something even “the most powerful computer possible” can’t accurately prejudge.
“No one can anticipate future uses of technology, and the only way to find them is to allow people to experiment, not to rely on selection and approval by a regulated monopoly or by a regulatory authority,” the report says.
The Adam Smith Institute isn’t suggesting doing away with energy regulation. Even the Internet functions under rules: “Legal structures and communication standards still prevail.”
But Internet experimenters can “create a new device, a new application, or a new business, as long as their creation abides by technical protocols and commercial law,” the report says. In contrast, energy entrepreneurs often lack the market access to warrant such innovation where utility monopolies hold sway.
What should governments do to give distributed energy an Internet-like creative velocity? The report recommends that they:
- Reduce barriers to innovation
- Reduce retail market entry barriers
- Develop consumer protections based on demonstrable harm rather than on precaution
- Focus on digital security
It’s important that governments take these steps because widespread use of decentralized energy can deliver environmental and economic benefit, according to the report.
The decentralized grid “connects the values and preferences of hundreds of thousands of consumers to the production and investment decisions of generators, using a system of price signals in market processes to coordinate the decisions of all of the parties involved in the consumption of electricity by retail consumers.”
A decentralized grid can bring economic efficiency, lower energy consumption, and reduce environmental damage, according to the report. Not doing so, carries a cost. Or put another way, stifle innovation and pay the price.
See more about the report here.