At its core decentralization, or more precisely disintermediation, is very disruptive to the retail energy industry. If customers can produced electricity cheaper than these intermediaries can purchase it then margins get tighter and the cost of operating the grid will need to be recovered. Also, producers of electricity fear that more distributed electric generation will result in consequences that will disrupt their profits and result in an outcome they cannot control. Both are monopolies whose business models are threatened by decentralization and disintermediation. This need not be the case and reinforcing the status quo is a road to ruin.
I believe there are ways to establish an equilibrium between decentralization, cogeneration, centralized power generation and a distributed energy grid. It will be disruptive and the old monopolies will have to adjust their business models. One question that needs to be answered is how will the infrastructure be managed and paid for? Another is how can increased cost of energy be subsidized to maintain some equity for the poor? I believe both these questions have answers—however, it will require some public investment and require distribute producers to par a flat fee and a carbon tax that acts like a VAT. Throughout the energy production consumption value chain energy producers and consumers those who reduce their greenhouse gas (GHG) footprint will recover some of this. However, some of that savings will need to offset common infrastructure and further conversation to renewals and GHG reduction. The biggest problem are investors in the status quo who will not want to kill the gooses that aid the golden egg—ironically they are the most politically connected and will want subsides tilted in their favor. This is what we’re seeing play out at the moment.
With the status quo it will be decades before enough clean energy is produce, both de-centrally and centrally, to reduce GHG production to levels established in the Kyoto Protocol. It’s not that centralized power producers and intermediaries dislike a competitive market as much as they want to maintain the equilibrium of current ‘voluntary’ market activities. They will lobby central authorities to free the market only enough, or possibly not all, to not upset their advantage by releasing those they hold captive. They’re all for regulation if it benefits them.
