Archive for September 10th, 2009

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Toby Considine on retail electricity issues

September 10, 2009

Lynne Kiesling

Toby Considine is a must-read on the conceptual issues underlying this challenge: how do we use communications technology and data standards at interfaces to enable decentralized coordination and emergent order in electricity distribution and retail electricity markets? Seriously, he’s been my go-to guy since I met him at the GridWise Architecture Council constitutional convention back in 2005.

These days he’s dialing in on a really important point that I drove home in a more academic way in my book: how do these technological capabilities enable us to have electricity distribution and retail electricity markets that are self-organizing systems?

Toby has three posts up right now that just nail these issues, and I strongly encourage you to read them if you are interested in electricity policy, environmental policy, smart grid, emergent order, self-organizing systems, and/or technological change.

  1. Collaborative energy: smart grid and smart buildings. One thing I really like in this post is how Toby turns the traditionally engineering control question into one of individual human preferences, human-centric and service-oriented: “Today’s intelligent thermostat makes the occupant think about the building. The occupant should tell the building what his activities are, and what quality of service he expects. The thermostat, then, should optimize service [comfort] delivery as well as economic performance on its own.” He also does an excellent job of pointing out why we should already be thinking of and designing for a world of ubiquitous plug-in electric vehicles, and he frames this as an evolutionary pre-adaptation.
  2. Scheduling our things, scheduling our lives. The physics of electricity distribution mean that timing is everything; if we are going to continue using the existing distribution network as it is currently configured, then three things are really, really important — price signals to indicate relative value at time t and transactive devices that can respond autonomously to those signals, algorithms and devices that can schedule actions reliably, and the continued attention of a system operator as a backstop to ensure balancing, stability, etc. In this post Toby does an awesome job of highlighting how better scheduling of actions, combined with autonomous, transactive devices, can improve building efficiency, reduce costs, reduce energy use, and not impair service quality or comfort.
  3. Energy collisions and autonomous appliances. This post reflects some of the most important creativity that can change our mindset and culture when we think about retail electricity transactions: “The appliance manufacturers have a more engaging vision, in which they can compete as to how well they engage the consumer in better energy decisions. … The appliance manufacturers know how to do this already. They are starved for information. They want not only information about the price now, but predictions about price in the future. They want to compete on how well they can communicate energy decisions to the consumer.” (emphasis added) Seriously, this post is one of the best articulations I have read of the retail electricity market as a self-organizing system.

I think if you read these three of Toby’s posts back to back, you will find yourself thinking differently about what types of value propositions and transactions are possible in electricity, and how the technology is enabling us to achieve emergent order in self-organizing systems. The primary barriers to those achievements are existing regulations that have become obsolete due to technological change, and the organized economic interests that want to see those obsolete regulations persist.

Oh, and Toby, in response to your question: “Too many energy suppliers are stuck on models of direct control. When they accept using prices, they want to use them to create direct control. (There is a name for this in Economics—drop me a line or comment if you know what it is…).” I’m not sure what you have in mind. I just call it hierarchical control to create an imposed order, to distinguish it from individual control that leads to decentralized coordination and emergent order. But I think you were looking for something more pithy than that …

Posted in Economics, Electricity | Tagged , , | 2 Comments »

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Choice and competition protect consumers of healthcare … and electricity

September 10, 2009

Lynne Kiesling

Matt Welch does a sharp and thorough textual exegesis of parts of President Obama’s speech to Congress on healthcare (health care?) last night, in his article on the accusations of lying that are flying around Washington these days.

Matt’s final paragraph struck me, not just because I think he (and President Obama, in this case) is accurate when he makes this argument about health care:

There was one line in the speech last night that pointed to an alternative, more promising future: “My guiding principle,” Obama said, “is, and always has been, that consumers do better when there is choice and competition.” Unfortunately, the president evinces zero understanding of how increased regulation can reduce consumer choice, even or especially when the government joins the competition. And even if he did see the connection, we’d have good reason to suspect that he wouldn’t talk about it openly with the American people. That, ultimately, worries me more than a senior citizen who wants to keep the government out of Medicare.

Sadly, I think Matt is right with respect to the realpolitik of health care politics. But let’s focus on President Obama’s statement:

“My guiding principle,” Obama said, “is, and always has been, that consumers do better when there is choice and competition.”

This is my guiding principle too. If we can follow through on that principle, then health care policy will focus on doing things like removing the asymmetric tax treatment of employer-provided health insurance, and removing the barriers to insurance contracts across state boundaries. At its core the problems of health care policy are those of obsolete regulatory institutions.

But let’s also apply it to other areas in our lives that have obsolete regulatory institutions. Gee, hmmm, can we think of any of those … ? How about retail electricity regulation? Removing entry barriers and asymmetric legal treatments of potential retail competitors would start us down the road of choice and competition. Choice and competition trump monopoly and control every time … unless you are the monopolist with the government-granted entry barrier.

Let’s apply President Obama’s guiding principle that consumers do better when there is choice and competition to retail electricity markets. And health care.

Posted in Economics, Politics | Tagged , | 1 Comment »

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Emergent orders are all around us, especially in cities

September 10, 2009

Lynne Kiesling

Ron Bailey’s Hit & Run post, Ant Hills=Brains=Cities, reminded me of some really important, fundamental ideas that tend to get lost as we natter about financial regulation, health care regulation, climate regulation …

Emergent orders abound, and occur at all sorts of different scales — molecular, cellular, all the way to complex social structures that were not deliberately designed through some central planning group or function. Ron cites the excellent Godel, Escher, Bach to introduce some new research arguing that cities are like brains in their emergent order construction for successful functioning. Ron quotes Mark Changizi, a neurobiology expert and assistant professor in the Department of Cognitive Science at Rensselaer Polytechnic Institute:

… brains and cities, as they grow larger, have to be similarly densely interconnected to function optimally.

Interesting. Not surprising, especially if you’ve thought about emergent orders, and double-especially if you’ve read any of Jane Jacobs’ writing on cities. I recommend the Jacobs interview at Reason that Ron links, as well as other Jacobs sources linked in the various posts I’ve written invoking Jane Jacobs and her work over the past several years.

Given how much attention we are having to pay to imposed orders, and the increasing efforts to create more deeply imposed orders in finance, healthcare, etc., it’s important to remember how much of the social life of individuals is a web of emergent orders, and that the biggest and best value creation and thriving and innovation that we have seen in human history arises when individuals can choose and take action in emergent orders.

Posted in Complexity, Economics | Tagged , , , | 2 Comments »

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Jane Smiley: “All I need to know about Economics I learned in kindergarten”

September 10, 2009

Michael Giberson

Or rather, as Smiley explains in a HuffPost piece, in “Mrs. Ticknor’s Social Studies class in 1962, when I did my report on ‘The Communist Manifesto’ and kept misspelling the word ‘bourgeois’.”

She began the essay by complimenting Paul Krugman’s piece in the New York Times Magazine about the sorry state of economics (she “read every word” and “[doesn't] disagree with any of it”), but feels he is “missing out on some big issues that also need to be discussed and understood before we actually know what is going on in our world.” To wit, how economists are corrupt, soul-less, corporate-teat-sucking, child-sex-favoring fools only concerned with lining their own pockets while they sit in filth chewing the bones of tasty endangered species.

Be that as it may, I fear that she missed out on one of Krugman’s main points: in brief, economists have been seduced by beautiful abstractions and drawn away from the study of the real economy.  Part of the solution, in Krugman’s view, is moving away from a math-model driven science and toward a more empirical, behavioral economics.  To simplify a bit: economists should care more about data.

Smiley, in her essay, said, “If you want to know what’s happened to production in the US in the last generation, I suggest you read Marx.”  She explains how, as Marx had explained so many years ago, employers export jobs to the periphery in order to keep the wages of workers low.  But here is the problem.  Marx, while he didn’t succumb to math-driven modeling, did produce a number of beautiful abstractions that have diverted study away from the real world.

I’d urge Smiley, if she wants to know what’s happened to production in the US in the last generation, to follow Krugman’s words of advice and become a little more real-world oriented.  Perhaps she could start by looking up the change in the real income of workers over the generation or so since she wrote that report on “The Communist Manifesto” in 1962 and kept misspelling “bourgeois.”

If she can produce that single bit of data, then I might think she has half a clue about the economy, economics, or even production in the US in the last generation.

Posted in Economics | Tagged | 10 Comments »

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