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A world beyond market & state
This article would not have been possible without the efforts of Sebastian Gallehr. I am very grateful to him as well as to Stefan Ulreich, Hans-Joachim Ziesing, Thomas Meister, Helmuth Groscurth, Daniel Dahm and Marian Bichler for the many valuable insights I received from them when preparing this contribution.
From the beginning the modern energy industry was shaped by enterprises. They played a leading role in the development, distribution and commercial use of electrical technology. As a result of complex technological and political developments, a centralized and at the same time networked production model asserted itself. The logic of economies of scale1 and “balanced load management” describes the technological rationality of this process: the larger and more diversified the number of electricity consumers, the more the different user behaviors balance peaks in demand. And the larger the power plants that generate the electricity, the more effectively it can be produced and the lower are the costs per kilowatt hour generated.
As a result of this logic, large power plants have supplied large numbers of electricity users via a power grid. For about half a century, in all industrial nations, public policy has decreed that electricity suppliers should be able to act without any competition within their supply areas. In return, pricing policies and investments are controlled or regulated by the authorities and the electricity companies can even be owned by the public sector. The electricity supply system that emerged in the 20th century, therefore, was highly monetized, external to users’ homes and businesses, and administered in hierarchical and highly centralized ways.
Beginning in the 1980s, a restructuring of the energy industry began. Public policies that liberalized and privatized energy markets dismantled the geographic monopoly of electricity production. Electricity suppliers were to be exposed to competition, and vertically integrated, interconnected companies were broken up into different levels of the electricity business (electricity generation, transmission and distribution). The aim was to make the grid available for every provider to supply its customers without discrimination, making it necessary to separate electricity producers from the network operators, at least legally, but if possible also in terms of ownership. The electricity consumers themselves were to determine from whom and under what conditions they would receive their electricity. This was coupled with the hope that competition would push the power supply industry to more cost-effective and demand-oriented structures, a higher degree of cost transparency, a reduction of excess capacity, reduced prices and more ecological innovations.
However, the dangers of global climate change, which increasingly entered the public consciousness since the 1990s, illustrate the limitations of a liberalized, private sector-oriented electricity market. Not only has the combustion-based energy production system led to an unprecedented plundering of fossil resources at the expense of future generations, it has also produced an unprecedented human-generated threat to the ecological system. According to a wide consensus of the climate science community, CO2 emissions must be reduced worldwide by at least half, and in the industrial countries by 80 to 95 percent, to avoid dangerous climate change. The electricity sector can only reach this goal in an ecologically and socially sustainable way if, in addition to enormous cuts in consumption in all areas, it also implements a full supply of electricity from renewable energies. Additionally, we must significantly reduce our consumption of other resources, which massively endanger many biological systems, such as oceans, soils, virgin forests, animals and plants. The industrialized nations also use substantially more of the world’s available resources, and they pollute a far disproportionate share of the planet’s ecological storage reservoirs relative to the worldwide population. The old European systems of electricity supply were ultimately based on the specified goal of supplying even the most remote human settlement with electricity. This meant that networks and production in Europe were usually under public control and were seen as common goods. In principle it was thus possible to politically control and directly determine the financial and technological activities of electricity producers. In the liberalized market, however, individual companies do not have an intrinsic motivation to promote anything else but maximum company profit. Based on the purpose of their business, electricity companies cannot therefore have any real interest in reducing the overall consumption of electricity in society. Their obligation to maximize profits will constantly incentivize them to circumvent politically imposed conservation measures, cost reductions and mandates to lower carbon dioxide emissions.
In addition, a fundamental investment problem is emerging in the liberalized electricity markets: an aversion to the construction of new generating plants and electricity networks that are necessary for a full supply of green electricity. The temptation is great to use the existing technical infrastructure for as long as possible, instead of making new, long-term investments.
As was the case when the nationwide electricity infrastructure was first built, so today we are again at a crossroads: We can and must choose what organizational and technical structures will be used in the future. The liberalization of the electricity market has broken up entrenched structures of production and distribution, and has made them more transparent. At the same time, however, it has created new obstacles when it comes to combating climate change and lowering the consumption of resources.
But if we must obtain our electricity supply from planetary, common resources – the Sun, wind and water – it is worth exploring how the commons perspective might guide a reorganization of the electricity industry. The commons may well play a vital role that both complements and goes beyond the approaches taken by the state and by the private sector.
Based on the fundamental design principles suggested by Elinor Ostrom,2 the elementary structure of an electricity commons can be described as follows: The conventional binary usage structure of buyer/seller (or for governmental organizations, authority/electricity customer) would be replaced by a user community whose members regard themselves as both electricity customers and electricity producers. The scope and boundaries of the electricity infrastructure that is used and the group of beneficial owners must therefore be well delineated. Here, too, the behavioral patterns, the number of electricity consumers and the energy intensity of private as well as commercial activities determine the electricity consumption, the required output and thus the dimensioning of the power plants and electricity grids within this commons. The less electricity consumers use, the less they must produce.
A balancing process must thus occur: On the one hand, there are the positive effects that new electrical devices will have for the quality of living and the freedom to act for households and businesses. On the other hand, these changes will influence the consumption of electricity and the necessary production capacity. The designers of any new system of electricity production and consumption must consider both the investment and the maintenance costs for electricity production and grids as well as the stresses caused by local and global consumption of resources.3
If we are to create an optimal balance here, a rich set of procedures, skills and behavioral attitudes must be developed and practiced to ensure the effectiveness of such an electricity commons. For this to occur, rules will be required for the consumption, distribution and provision of the electricity. They must be finely tuned and coordinated with each other; likewise, they have to take consideration of local social, natural and technological conditions. Consumers are not simply at the mercy of these rules and conditions; instead, they participate in their creation. The appropriate handling of electricity consumption and production must be monitored by the consumers themselves or by persons who are legally accountable to them. Violations of rules and standards must be punished by a graduated series of sanctions that the consumer community regards as reasonable and fair. Should conflicts arise, they should be resolved immediately and at the local level if possible. This requires inexpensive and instantaneous communication among the consumers. Conventional public authorities that are accustomed to centralized, bureaucratic command-and-control need to recognize the functional efficiency of small, self-organized and self-regulated entities. (They may have trouble accepting this, but the Internet has already demonstrated the feasibility even of interacting networks of such entities.)
There are three factors that impede the creation of electricity commons based on close producer-consumer collaboration. First, the construction of new production capacity requires substantial financial means. This is especially true for the production of renewable energy, since the cost per produced kilowatt hour for such technologies is still more expensive than for large-scale fossil technologies. Second, a new infrastructure for electricity production (such as utility poles, windmills or agrarian monocultures for biofuels) has an effect on the landscape and will thus affect a larger circle of people whose interests must be integrated into the commons decision-making process.
Third, the technical advantages of electricity grids tend to promote a larger, integrated system of consumers because a larger consumer base requires less power production per access point (household or business), thus reducing costs. This reality stems from the fact that people turn on their vacuum cleaners, toasters or saunas at different times. The larger the grid, the less additional production capacity per access point is needed to meet peaks in demand. The investment costs for each individual customer are reduced. However, the number of members of the electricity commons must therefore be very large, resulting in the need for more complex social and organizational procedures.
On the other hand, it is precisely this grid structure of electricity production that is so helpful in maximizing efficiency and that makes communalization of electricity logical and attractive. Someone who lives “off the grid” and is self-sufficient in energy does not need or want a commons system. But although much praised in green circles, such idealized models of energy inefficiency and social atomization and isolation cannot be a solution for society as a whole. A network of energy users implies interaction between the users. If these interactions occur deliberately and with foresight, the result is collaboration. In addition, if the overall consumption of finite raw materials is going to be reduced – a vital necessity for our times – then we will need to use electricity grids and energy consumer commons to reduce consumption while maximizing efficiencies.
Is such a design realistic? In a decentralized scenario oriented toward renewable energies, it seems natural for local groups to set up their own electricity production capacities and influence the collective usage behavior wholly onsite. But in a liberalized electricity market, it is also always possible to establish local producer-consumer electricity commons. The market leaves open the question of who feeds power into the system, who purchases it and how the relationship between the two is shaped. As a practical matter, however, due to the existing economic, political and technical configurations of our energy infrastructure, only hybrid forms are possible, at least as a first step.
One familiar commons-based type of electricity supply is the energy cooperative. In recent years, a number of cooperatives have arisen in Europe (along with other financing models) that have made it their goal to fight climate change and finance “green” power plants. The “purest” form of electricity commons are ones in which the cooperative is both owner and operator of the production plants and power grid as well as the community of electricity customers and decision-makers regarding the infrastructure (members of the cooperative).
In reality, more or less all cooperatives deviate from this ideal. The Elektrizitätswerke Schönau (EWS) is one of the rare examples in which the members of the cooperative own the electricity production plants as well as the power grid. However, there are far more customers of EWS electricity (100,000) than direct coop members (approximately 2,000), so the user community is not coextensive with the community of decision makers. By contrast, the 30,000 customers of the Belgian electricity cooperative ecopower are at the same time members of the cooperative, and thus owners of power plants as well. (A significant number of them were also involved in the planning of production plants. The services of the grid operator, however, are accessed within the framework of the normal electricity market.)
Also noteworthy are the many production cooperatives for photovoltaic plants that directly use their own electricity. Most other electricity-generating cooperatives (“green” production plants, wind turbines and bioenergy power plants) can only establish a mathematical correlation between the amount of electricity they produce and the amount of electricity their members consume – because they sell their electricity to the grid or rely upon feed-in tariffs4 to the public community of electricity customers.
As consumers become more closely integrated into local electricity generation, it affects the ways that they consume electricity. This becomes more striking still – and also controllable in differentiated ways – through the use of “smart grids” and “smart metering” technologies. The more accurately the actual energy consumption can be determined at each point in time, and the more information systems make it possible for small consumers to inform themselves of their current usage and the overall capacity situation, the more user communities can control their behavior. The possibility of so-called “Negawatt power stations” – i.e., a coordinated, collective reduction in demand within a defined or even predicted time period – is increasingly realistic. Smart grid technologies also make it possible to harmonize the electricity production of different plants, or to bring together selected production/consumer communities economically into a single network.5
This makes it possible to create a multistage control system: An overcapacity in one community can be used to compensate for demand peaks in other communities. In terms of energy economics, this corresponds to a “balancing group” – a definable system of energy flows within which supply and demand are balanced. This constitutes a virtual network within a physical network.
The possibility of monitoring and controlling the production and usage behavior of the user communities will increase enormously if they are provided with solutions for using smart metering and smart grids within their area of responsibility. Access to these technologies is crucial for the question of self-determination. Who will be able to and have the right to install the corresponding technical equipment? Who will control its functioning? Who will be able to use it and thus, for example, have access to personal data concerning usage or even the operating characteristics of individual household appliances? For smart metering and smart grids, technological competition and battles for economic and institutional power have already begun between open source solutions and open standards on the one hand and closed, proprietary approaches on the other. The right of citizens to have “data sovereignty” is about to become a major political conflict with implications for energy policy. The results could determine if and how electricity commons are functionally possible.6
The appeal of communal provisioning of electricity may also fuel a new movement in civil society and politics to reappropriate the power industry. In Germany, thousands of concession contracts between municipalities and distribution network operators are due to expire in the year 2016. As this date nears, a wave of remunicipalization efforts is emerging in which municipalities are trying to seize the economic advantages of local provisioning while giving their inhabitants a greater personal stake in achieving the common welfare. About 40 new public utilities have already been established in Germany since 2007.
In reality we see quite a few viable approximations of an ideal commons-based structure for electricity supply. Policymakers should support these approaches if only because a commons structure can promote the holistic rationality of resource savings and accelerate the transition to renewable energy sources. However, a number of issues must be resolved. The most important one concerns the electricity grid. In the approaches described above, the already existing grid acts as a buffer for usage and production fluctuations that are too large for individual producer-consumer communities to balance. This is especially relevant during times of unstable production from sources such as wind power and photovoltaics. Both the high voltage grid and the regional low voltage grid are then needed as external service providers.
It does not make sense to create competing power grids, for it is neither cost- nor resource-efficient. Power grids constitute a natural monopoly. There will not be any meaningful competition between different actors here. The market will not have a discovery function that could lead to the development of the most efficient solutions, nor will it be possible for customers to discipline a company by switching to the competition. The current German trend toward privatization of the interconnected grid can only occur if there is massive control and regulation to prevent monopoly abuses by owners.
As was the case with previous rural electrification cooperatives, a transmission grid managed as a commons would mean that its users decide on the use, expansion and maintenance of the grid. A particular difficulty is created by the pyramidal, hierarchical structure of the electricity grid: the electricity is transformed down from the higher voltage level. Many million points of consumption, as well as every networked electricity producer, must somehow be incorporated into the design of a commons-based grid in a representative and immediate way. The system services for grid stabilization are thereby undertaken centrally. The wisest choice is probably to have an integrated grid in public ownership controlled by political bodies.
As for technologies that store excess power from wind and sun so that they can be used when needed, it must first be determined if commons concepts make sense. Regarding pipeline-bound processes, such as the artificial generation of methane gas (so-called “wind gas”), large, extensive gas networks are available that are either privately or publicly owned. These are large technical facilities with high capital intensity; correspondingly, the issues of the right of disposal and maintenance will be difficult to clarify. The commons models described above can probably be readily applied to small gas generation plants that are associated with combined heat and power plants situated nearby, so power can be generated from the gas. However, such an approach is probably difficult to apply to new, independent hydrogen networks because of their technical complexity, size and capital intensity.
All the hybrid commons-based projects described above are money-based. However, cooperatives straddle the market economy and social economy. On the one hand, cooperatives make it possible to separate the voting rights of internal governance from the amount of investments, so that the principle of “one user – one vote” prevails. On the other hand, cooperatives regulate their internal financial relationships regarding electricity via conventional cash flows. For small, easily manageable supply models, it could be advantageous to allow undercapitalized members to provide nonmonetary services (in the form of manpower, for example) as a way to obtain electricity or shares in the cooperative. A possible link to other types of economies could be regional (local, complementary) currencies whose values could be backed by obtainable units of electricity. The best-known system of this sort is the Japanese WAT System.7
More than in any other industrial sector, the electricity industry has for the last 130 years been caught in the conflict between the state and the market, and hamstrung by large, centralized structures. Now, new technologies and new forms of commons-based organization are opening up new possibilities. Michel Foucault developed the image of human life and society as a vibrating, constantly changing network that is permeated by variously competing powers. The relationships between these powers manifest in everyday human actions – in production processes and production plants; in political parties and corporations; in customs, habits and behavior patterns; and in concepts of rationality. Ultimately, they crystallize into government apparatuses, legislation and the social structures of domination. The social consequences of revamping the production, distribution and organization of electricity, a core element of our industrial society, could thus be enormous. The ecological necessity of doing so is clear, and the social benefits could be tremendous. New sorts of commons-based models of electricity generation, distribution and consumption deserve serious consideration by all parts of society.