Transforming the Grid: Electricity System Governance and Network Integration of Distributed Generation.

AuthorFelder, Frank A.

Transforming the Grid: Electricity System Governance and Network Integration of Distributed Generation, by DIERK BAUKNECHT, (Baden-Baden: Nomos Publishers, 2012), 250 pages, ISBN: 978-3-8329-7202-8.

Dierk Bauknecht's book addresses the following question: How can electricity market liberalization and sustainability be reconciled? He analyzes "... whether and how the standard model of network regulation that is part of the standard model of electricity market liberalization can be developed and adapted to accommodate DG [distributed generation] and network developments necessary to integrate a higher share of DG" (p. 20). He concludes that the additional objectives that sustainability entail cannot be incorporated into a market framework through efficient price signals alone. Instead, a governance mechanism is needed to overcome the lock-in of the existing system and to coordinate innovation processes.

According to Bauknecht, it is not sufficient to design markets that produce prices that incorporate all social costs. Even if technical innovations were to "fall from heaven," as the author puts it, they may not fit into the existing socio-technical regime even if prices are socially efficient. It is the need for controllability of a DG-based power system that requires both the political vision to make this happen along with a governance structure that will result in the Distribution System Operator (DSO) having the right investment and innovation strategies.

The author does not believe that the policy solution is a matter of correcting two major market failures of not pricing negative externalities and of not correcting the public good problem associated with innovation. According to Bauknecht, the problem is more fundamental: "... the evolutionary economics literature argues that innovation is not a rational optimization with perfect foresight, but is characterized by bounded rationality and imperfect information as well as institutional factors that influence a company's decision-making" (p. 133). Thus, incentive regulation is not sufficient because it is only focused on increasing efficiency and does not support broader objectives, which requires a broader political dimension and therefore a governance (as distinct from government) solution.

Is it the case that sustainability is a broader objective than efficiency such that even if society's use of its resources were efficient, it could still be on an unsustainable path? This fundamental...

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