Abstract

Bansal et al.’s Point piece, “Strategy’s Ecological Fallacy: How strategy scholars have contributed to the ecological crisis and what we can do about it,” calls for reforming the strategy field to focus on the natural environment, ecological cycles, and interconnections across natural and social levels, in service of value creation for ‘a defined ecosystem that comprises respect for the natural environment’. We doubt that such new foundations are necessary or useful. We argue that Bansal et al. misconstrue the evolution and content of strategy thinking; downplay the usefulness of existing tools for dealing with their issues of concern; overlook problems of measurement, collective action, government failure, and cronyism encouraged by their preferred policies; embrace an unnecessarily alarmist worldview; and underappreciate the social benefits of the market-based institutions they criticize. We suggest instead that a market system based on clearly delineated property rights, prices that freely adjust to reflect scarcities, and an institutional environment that encourages entrepreneurship and innovation remains an underappreciated instrument for protection of the natural environment, one that is superior to centralized and regulatory alternatives.

The impetus for change in monopoly electric systems has ebbed and flowed for over three decades. Over the past 15 years the interest in and ability to update electricity system technologies has grown, due to the combination of changing policy objectives and widespread digital innovation. Whether you call it smart grid or grid modernization, digital technologies by now have long had the potential to transform electric systems, improving their operations, reducing waste and idleness, and (but I repeat myself) having more market-based systems. Separate but complementary improvements in the performance and production costs of distributed energy resources like solar PV, electric vehicles, and battery storage, along with the policy focus on decarbonization, have amplified interest in and work on digitalization. Digitalization has reduced transaction costs and created unforeseeable types and amounts of value in the rest of the economy. Shouldn’t it do so too in electricity?

Abstract

The substantial technological change taking place in the electricity industry differs qualitatively from the past century’s technology history – decentralized, decarbonized, and digital – and policy objectives facing regulators have expanded to prioritize decarbonization. But electricity industry and regulators have a pacing problem, with rates of technological change far outstripping the slow pace of institutional change. The institutional challenges of implementing such changes in a rate-of-return regulated industry are formidable because these new technologies are so different in their features, capabilities, and system implications. This paper uses the Ostrom Workshop Institutional Analysis and Development (IAD) framework to conduct a mapping exercise of utility regulation in the presence of a technology shock. The mapping exercise constructs a conceptual “ideal type” stylized model of the 20th century combination of large-scale electro-mechanical technologies with public utility rate-of-return regulation, with the IAD framework as the structure of the model, and then compares that combination with a stylized model representing the DER and digital technologies and their capabilities. The stylized “technology shock” model is based on transactive energy, which connects energy devices to a local energy market, enables them to submit bids based on owner preferences, and automates device settings in response to market prices to enable decentralized coordination of supply and demand.

Abstract

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.

Read the full piece here.

ICLE Academic Affiliate Lynne Kiesling was a guest on the The Answer Is Transaction Costs podcast to discuss distributed energy resources (DERs) and the complex regulatory frameworks that shape smart-grid technologies. The full episode is embedded below.

Despite Biden’s attempts to “end fossil fuel” some basic economic analysis indicates his efforts are not in line with what the public wants. If you think back to your Econ 101 class, you’ll probably remember something called revealed preference.

This basic insight of economics says that people’s actions in a market place are a much better indicator of what is going on in their heads than asking them in a poll. Someone might tell you they like Biden’s attempts to kill off reliable, inexpensive energy, but when the rubber meets the road, their purchasing decisions say otherwise.

Read the full piece here.

The unexpected $540 million coming to Portland’s Clean Energy Fund should go back to Portlanders (“Portland’s Clean Energy Fund expected to raise additional $540M over next 5 years,” Dec. 13). Since the tax took effect in 2019, consumer prices have increased by about 20%, straining family budgets. The tax on sales underpinning the Clean Energy Fund worsens this strain. If the projections are correct, the clean energy taxes, including the $750 million that was already anticipated as well as this additional bump, amount to more than $900 a year per Portland household. Commissioner Carmen Rubio suggests spending half of the new windfall to boost the budget of cash-strapped city bureaus. She should send the other half back to Portland families.