Distributed Systems and the Need for Coordination

The electricity industry is rapidly evolving, mainly because of two parallel trends. On one hand, technology has created new forms of electricity generation, mostly solar and wind generation, which tend to be smaller in scale and better suited for installation at the customer premises, at least in a decentralized way. On the other hand, new policies oppose nuclear- and carbon-based electricity generation, which diminishes the importance of traditional centralized generation.

Electricity is increasingly generated at or close to the customers’ premises, reversing the century-long trend towards centralization. Electricity is being transformed into a distributed network with an ever-larger number of electricity generation entities, even “prosumers”; that is, consumers who generate their own electricity in their premises and sell excess production.

The key question is whether this new industry structure requires a coordinator. We seem to be far from a fully distributed industry of independent off-grid consumers. Wind and solar electricity production is unreliable and batteries to store electricity are expensive, so the grid is still the most efficient system to provide electricity, at least as a back-up.

The role of the coordinator not only seems necessary, but also increasingly complex. System coordinators have to identify all electricity producers and prosumers, keep track of their unreliable production patterns, and match them to unreliable demand, as prosumers will only demand electricity when they cannot produce it themselves. This extremely fragmented ecosystem, with highly dynamic complementarities among a large pool of prosumers and consumers, seems to be the perfect opportunity for a digital platform to coordinate the market.

However, there is a natural limitation: the grid can only function if the electricity tension is kept stable, so a coordinator must balance the entries and exits of electricity in the grid. It is not only necessary to balance supply and demand from an economic perspective, but, more importantly, to have a totally balanced system for purely technical (that is, grid stability) reasons. Balancing the grid in real time is, so far at least, the main obstacle preventing full platformization of the industry.

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