In a recent search through endless online information, I couldn’t find any articles where someone had looked at the Tragedy of the Commons and our public electric utilities. I thought I might write one.
Never heard of the Tragedy of the Commons? This is a brief but dense summary from Wikipedia
“The tragedy of the commons is a situation in which individual users, who have open access to a resource … act independently according to their own self-interest and, contrary to the common good of all users, cause depletion of the resource through their uncoordinated action.”
Think about Distributed Energy Resources (DER), then, in this context. This is why I’m surprised that more hasn’t been written, since we are moving from centralized power generation to locally generated and potentially stored power that is completely uncoordinated.
I think we’ve thought of the “common” or “public good” only in terms of our environment — for example, sheep grazing lands — but we haven’t always considered the public systems we’ve already created. There are some references to public roads and the Tragedy of the Commons online, but DER is so new, and relatively small relative to our overall power generation, that perhaps it hasn’t yet been considered. We may talk about grid stability and the need for baseload and battery storage. We may view it as a problem that can be solved with enough technology, but we don’t often look at it through an economic lens.
A flagship example of a zero-carbon building can be found in Kowloon Bay, Hong Kong; the building produces more power than it consumes annually. Annually is the important term here because, of course, like almost all zero-carbon buildings worldwide, it still needs to be connected to the grid to meet its power needs when the panels aren’t producing.
Another way of looking at our current situation is that a zero-carbon building relies on the public electric utility acting as an infinite, free and perfectly efficient battery via net metering; we can deposit extra power into it and withdraw from it, if needed. In many respects, it’s no different than a sheep herder relying on a free common grazing area that is just outside the sheep pen.
Of course, utilities do charge for connecting to the grid and also typically charge for the peak demand the customer requires in a month. This means there is still an economic cost, but not for power produced, because that is, effectively, $0.
A zero-carbon building may benefit the utility; they may not have to invest in extra generation capabilities if the building exports power during peak grid load and draws power overnight when the utility has excess power. However, this is an uncoordinated action, which is how a Tragedy of the Commons situation typically arises.
As long as the penetration of solar energy systems is relatively low and the costs of solar remain high, there is little impact on the utility, because individual customers aren’t primarily focused on economic gain, but on potentially intangible benefits (i.e. greenwashing). Like a remote mountain meadow far away from cities, there is little impact on the commons. However, although that remote mountain meadow can sustain 100 sheep year ‘round, it would quickly be depleted if 1,000 sheep grazed during a dry summer month, year after year.
But now, with the decreasing cost of installing solar systems and increasing electricity rates, the risks increase. Individual customers are incentivized to install solar systems to reduce their own electricity bills, while relying on the public utility being there when needed. As more systems are built — all dependent on a “free” battery — public utilities begin to lose revenue and therefore need to increase their rates; this kicks off a vicious feedback loop.
We also need to consider that we all rely on these public utilities and need them to be viable. When push comes to shove, we will be forced to support our public utilities, even at the expense of individual customers, including ourselves.
What might that mean? Well, what if the utility is forced to apply wholesale market rates to the power you export to the grid? Why should an individual customer get a much higher rate than what the utility can purchase for that same power elsewhere? A change like that, of course, dramatically changes the economics for individual investments.
If the “free” battery is removed from the system, individual customers will suddenly rethink how they approach DER. In many ways, this will be a good and much-needed step as we transition to a green energy future. We can’t continue to rely on our utilities to always provide us with perfect free batteries at no charge. We need better ways to coordinate our activities to avoid the Tragedy of the Commons. Unfortunately, this coordination won’t be easy because, currently, individual players don’t have incentives to change. Organizations who benefit from installing solar energy systems, and the customers who directly benefit from those systems, have no incentive to consider the impact on the utilities. In fact, often the utilities are viewed as a barrier when they can’t provide a free battery to some customers because their infrastructure has limitations. I think the first step requires gathering and using our data and information from the variety of systems that we are installing. Perhaps we can then develop the knowledge to coordinate our actions.
The longer we wait to act the larger the impact on the commons and the more painful changes become. How long do we have? Consider that the systems we are installing today are supposed to last for 20 to 30 years. Do we really think we can avoid making changes during that time?
Only if we want to stop our transition to a green energy future, which none of us want nor can afford.