In March 2023 I wrote a post reiterating my argument that grid reliability is not a public good, at least not according to the technical definition of a public good as nonexcludable and nonrival. Instead I argued that grid reliability is a common-pool resource, potentially somewhat excludable or at least differentiable, and if not nonrival at least congestible. Given recent discussions in electricity policy about reliability in general and winter reliability in particular, I think it’s worth reconsidering now.
Recall and enjoyed the previous article. Always gives me a chance to dust off economic ideas which is fun. For consideration..
Grid Reliability has Prioritized Insurance. Generac for instance. High reliability operations pay for this insurance. Generators, batteries, proximity to baseload, flywheels, etc. The insurance is private market coverage rather than utility provided.
The "Tech" service level comparison doesn't hold. Because the Electricity System isn't designed that way.. and even the most advanced tech Systems that are designed that way, don't do great at managing and compensating to service levels.
A more accurate comparison is Safety. A Public Good (although publicly provided). High Reliability operations contract with private Security companies for specialized needs.
We use Public Goods for things that are too difficult or costly to differentiate, correct?
Electricity seems like a mixed market - 98% public good / 2% Private good. Trying to push it toward Private on a theoretical basis runs into a Reality anchored equilibrium that's outside the market participants or policy structure.
Rather suggest considering the question -
1) Given Reliability is a public good and
2) The economic value of higher Reliability has drastically increased in the Digital Economy.
What's an appropriate level of Public investment?
What are fitting Rates?
How to incentivize Innovation (performance based, early stage investment)?
What policy guard rails are appropriate to ensure Access and Equity?
Do you still believe that electricity is a 'common pool resource' and thus not subject to private ownership and a free market? (You state above that you believed that "grid reliability is a common-pool resource...")
Second, on grid reliability and operations, don't we need a market discovery process in a real free market to provide answers (processes) without MOA/ISO/RTO government planning?
Recall and enjoyed the previous article. Always gives me a chance to dust off economic ideas which is fun. For consideration..
Grid Reliability has Prioritized Insurance. Generac for instance. High reliability operations pay for this insurance. Generators, batteries, proximity to baseload, flywheels, etc. The insurance is private market coverage rather than utility provided.
The "Tech" service level comparison doesn't hold. Because the Electricity System isn't designed that way.. and even the most advanced tech Systems that are designed that way, don't do great at managing and compensating to service levels.
A more accurate comparison is Safety. A Public Good (although publicly provided). High Reliability operations contract with private Security companies for specialized needs.
We use Public Goods for things that are too difficult or costly to differentiate, correct?
Electricity seems like a mixed market - 98% public good / 2% Private good. Trying to push it toward Private on a theoretical basis runs into a Reality anchored equilibrium that's outside the market participants or policy structure.
Rather suggest considering the question -
1) Given Reliability is a public good and
2) The economic value of higher Reliability has drastically increased in the Digital Economy.
What's an appropriate level of Public investment?
What are fitting Rates?
How to incentivize Innovation (performance based, early stage investment)?
What policy guard rails are appropriate to ensure Access and Equity?
Thanks as always!
Do you still believe that electricity is a 'common pool resource' and thus not subject to private ownership and a free market? (You state above that you believed that "grid reliability is a common-pool resource...")
Second, on grid reliability and operations, don't we need a market discovery process in a real free market to provide answers (processes) without MOA/ISO/RTO government planning?