The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralizing decisions and that a division of authority will actually extend the possibility of overall order. Yet that decentralization actually leads to more information being taken into account.
Source: F.A. Hayek, The Fatal Conceit (1988)
In November I had the honor of participating in a panel discussion at DERVOS, the meeting of the DER Task Force. At this meeting DERTF chose an important theme – contrasting visions for future energy systems – and a diverse array of speakers to delve into it. Big-planned-federal, distributed-planned-local, markets vs. planning, how much planning is necessary in a shared system with reliability requirements, all the discussions were substantive and thoughtful, and full of agreement and disagreement.
My role in this ecosystem, a role I fulfilled happily because it’s the role I inhabit every day, was to articulate the distributed-emergent-local perspective, and to argue for a greater focus on using digitization to enable decentralized coordination rather than top-down control and central planning. Digitization has reduced transaction costs and thus has increased the scope of individual possibility for self-determination in making energy decisions. The process for achieving that self-determination is through participation in markets, reducing the extent to which people are captive customers of a regulated monopoly. Digitization and markets allow us to coordinate our energy decisions and our use of the shared grid with less need for centralized control and less (but not zero) need for planning, and that planning should be the responsibility of grid operators, not governments.
Such price-discovery-mediated decentralized coordination means that order – in this case system balance and reliability – is an emergent characteristic. If we employ good market institutions and good technology standards, individual behavior and the behavior of their energy devices will be flexible and adaptive in ways that enable order and balance to emerge rather than being imposed.
The DERVOS organizers and DER Task Force podcast hosts, Duncan Campbell, James McGinniss and Colleen Metelitsa, invited me to join them as a follow-up to the event, and it’s one of the best discussions I’ve had that has focused on the potential for electric systems to become more emergent. I hope you enjoy the discussion as much as I did!
And, for my other fellow Hayekians, you will appreciate the image they created for the episode; I may have to frame it and have it be the backdrop for all future virtual meetings!
Hayekians can see through the ISO/RTO centrally planned electricity market, which is imbued with the 'knowledge problem' and protected by sovereign immunity. (Public Choice issues too). Distributed generation is at odds with economies of scale and scope of the industry.
Government subsidies for wind, solar, and batteries are the antithesis of a free market approach to electricity. What not dispense with the government framework?