67 Pages Posted: 2 Oct 2015 Last revised: 5 Dec 2015
Date Written: December 4, 2015
For the past century, electric utilities and grid operators have both owned and operated resources to maintain the reliability of the grid. This reliability has been controlled through investments in generation, transmission, and distribution assets. Today, a growing number of previously passive customers are much more involved in generating their own electricity. But this customer involvement does not stop with generation. Customers are also contributing energy storage and demand response to the grid, reliability resources that are an essential component of supporting intermittent, renewable energy. This Article draws upon economic analyses of industrial organization and principal-agent theory to illuminate the tensions caused by the separation of ownership of these reliability resources from those who control the reliability of the grid. Given the current decentralized structure of the utility industry and the regulatory limits on utility ownership of these reliability resources, it then argues for mechanisms that allow for a more successful integration of these privately owned energy resources into a public grid.
Keywords: energy, renewable energy, energy storage, reliability, electric grid, distributed energy resources, separation of ownership and control, theory of the firm, make or buy, make and buy, customer ownership, reliability resources, transaction costs, asymmetric information, divergent interests
JEL Classification: L22, L94, L14, K32, K10, K23, D82, G18, H41
Suggested Citation: Suggested Citation