Behind the Scenes at Global-Roam

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At the tail end of my ES Cornwall Scholarship, I ended up working with the Electricity Pool of England & Wales in London for about a year (in 1997 – coinciding with the time the Pool was canned).

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What is an electricity market?

Back at that stage, that was an important question to me.

Over the previous 18 months or so, I had been studying all I could get my hands on about the emergence of competitive market structures in various parts of North America (and had been in Alberta at the time when the market first opened there).  On top of this, there had been the early moves towards establishing the VicPool market in Victoria around the time that I jetted off overseas.

However, it was such a paradigm shift for me that it was very hard to get my head around (after all, the argument went, electricity was not just like any other commodity).

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Fundamental Questions

I spent an initial period of time solidifying my understanding of the overall concepts of what a market was, and the way it worked (etc…).

Following from that time, I spent an increasing amount of time pondering the debate that was still raging about whether a centrally coordinated market (which had been the paradigm globally a decade beforehand) delivered better outcomes than the new market.

Extensions of this argument extend to questions about:
1)  The relative value of small, disaggregated, embedded generators as opposed to large, remote, generation units.
2)  Questions about the value of demand side response (and how to encourage it) also fit into this boat.

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Preliminary Conclusion?

I heard Trevor St Baker (from ERM Power) sum it up very concisely at a conference a couple of years ago when he was asked a question.  Can’t recall the question, but his answer was along the following lines.

You can have a Government-owned monopoly that is efficient and effective, or you can have one that is not.  In the same way, you can have a private-sector-owned monopoly that is efficient and effective, or you can have one that is not.

In any of the above cases, we (as the consumer) have no say in how the business is run – whereas through a market, at least we can have some impact on which companies are rewarded, and which are not.

(My apologies to Trevor if I have misinterpreted what he said in any way).

This aligns with my view that a market will be, on average, the best solution for consumers, as it will mean you don’t end up paying for any bad investment decisions that are made.

In my view, this is not too dissimilar to the old “Deming –vs- Taylor” debate, except in an economic sphere.

On the one hand you have the (Taylor-inspired) central planners, who believe that they know what is right (absolutely) and hence can dictate where and when new plants should be built, of what type, etc…

On the other hand you have people (like me) who believe that the requirements can’t be known with certainty, hence set a market in place and let it find the optimal solution.  On average, I believe you’ll get a better outcome from the market.

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The Beginnings of a Mission

When the plug was pulled on the market arrangements that existed at the time in the UK (leading to NETA, then BETTA, then…) a telling argument was lodged – that the market was operated by an “old boys club” who determined how everything ran, with not a load of transparency, and with energy users not able to participate in determining how the market would run in any way.

In my view, there were also a number of critical structural flaws in the market that I won’t go into here (except to note that the NEM does not have them, and never has).

The criticism, however, brought home to me the importance of transparency of information.

To me, transparency is more than just availability.  To me, transparency also means understandability of the information – not just to “the usual suspects” of the generators and the retailers, but to everyone who wants to know (including, as we have found, energy users but also a wide range of others).

For information about a fairly complex topic, this was certainly a challenge – and it was the beginning of our mission….

This entry was posted on Tuesday, July 1st, 1997 at 1:06 am and is filed under CEO's Philosophy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.