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Work & Prosperity (Deep End)

Why are consumers so convinced that they’re being ripped off by the big energy companies? In part it’s because the utilities’ grip on our energy supplies is so complete.

The national grid was originally designed and built to enable centralised state-led control of the generation and distribution of electricity. Subsequently, privatisation was supposed to create a competitive market, but today the system is dominated by six or seven companies – most of them owned by the big French, German and Spanish utilities.

Ministers and regulators could have made a better fist of promoting competition, but the centralised nature of the underlying infrastructure was always going facilitate the concentration of market power.

Previously on the Deep End we’ve discussed how technologies that enable consumers to generate their own power threaten the status quo – especially in America:

“The 3,200 U.S. utilities are already facing what NRG Energy Inc. CEO David Crane calls a ‘mortal threat’ to the industry. Forces including deregulation, green politics and an explosion of rooftop solar and other homemade energy – known as distributed generation – mean a reduction in the fossil-fuel electricity utilities sell.”

However, the utilities have a means of striking back. They control the grid – and therefore the means of managing electricity supply and demand in any given area. Thus unless prevented from doing so by industry regulators, the utilities are in a position to impose prohibitive charges and conditions on the owners of distributed generation – thereby strangling a potential source of competition at birth.

And yet, as Ken Wells and Mark Chediak explain in a fascinating article for Bloomberg, the technology now exists to allow consumers to operate their own ‘microgrids’:

“Oracle Corp. Chief Executive Officer Larry Ellison plans to build one to power the Hawaiian island he bought last year. EBay Inc. has one to run a data center. The University of California at San Diego and the federal government have invested tens of millions of dollars in the technology.

“Microgrids are emerging as a credible threat to the dominance of America’s 100-year-old-plus utility monopoly. The small-scale versions of centralized power systems, once just used against blackouts, are now gaining thousands of customers as homeowners in states with high power costs turn to them as a way to manage rooftop solar systems, cut electricity bills and, in some cases, say goodbye to their power companies.”

So far, it’s mainly the larger commercial, industrial and public sector consumers of energy who are investing in this technology (together with communities in parts of the developing world where there is no pre-existing grid):

“While the earliest microgrids controlled simple generator backup systems, they have evolved into sophisticated smart grids. Operators can remain tethered to the larger grid and switch seamlessly between the electricity they generate and utility power, whichever is cheaper…

“If the main grid goes down, a flip of a switch or automated computer program deploys their mix of green energy, backup generators and storage batteries to keep the lights on.”

The plug-and-play nature of the most up-to-date systems means that microgrids can also be incorporated into new residential developments:

“In Sacramento, California, a 34-unit residential complex is being purpose-built with an integrated microgrid designed by Sunverge Energy Inc. The system will automatically switch residents to the cheapest power source, whether solar or conventional, while storing backup power for use if the grid goes down.”

Should governments actively promote the uptake of microgrids? Free market purists might object to any form of intervention. However, this is to forget that in Britain the national grid only exists because the old centralising state intervened to create one in its own image.

For the modern state to now withdraw would be to freeze the energy sector in its outdated, monolithic form, thereby inhibiting the emergence of a more decentralised – and hence competitive – energy market.

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