Towards the Comprehensive Design of Energy Infrastructures

Daniel Scholten, Rolf Künneke
2016 Sustainability  
Energy infrastructures are increasingly perceived as complex, adaptive socio-technical systems. Their design has not kept up; it is still fragmented between an engineering and economic dimension. While economists focus on a market design that addresses potential market failures and imperfections, opportunistic behavior, and social objectives, engineers pay attention to infrastructure assets, a robust network topology, and control system design to handle flows and eventualities. These two logics
more » ... s. These two logics may be complementary, but may also be at odds. Moreover, it is generally unclear what design choices in one dimension imply for the other. As such, we are ill-equipped to identify, interpret, and address the challenges stemming from technical innovations, e.g., the integration of renewable energy technologies, and institutional changes, e.g., liberalization or new forms of organization like cooperatives, which often have interrelated operational and market implications. In response, this paper proposes a more comprehensive design framework that bridges the engineering and economic perspectives on energy infrastructure design. To this end, it elaborates the different design perspectives and develops the means to relate design variables of both perspectives along several layers of abstraction: the form of infrastructure access of actors, the division of responsibilities among actors, and type of coordination between actors. The intention is that this way system and market design efforts can be better attuned to each other and we further our understanding and conceptualization of the interrelationship between the techno-operational and economic-institutional dimensions of energy infrastructures. The framework also aids in overseeing the broader institutional implications of technical developments (and vice versa) and stimulates awareness of lock-ins and path-dependencies in this regard. neither of them specifically targets energy infrastructures or large socio-technical systems in their conceptualization of system or market design. The fragmented nature of energy infrastructure design is troublesome in at least two ways. First, the two design logics may be complementary, but may also be at odds. They may generate different, or even conflicting, outcomes. Energy sector liberalization, for example, opened up energy markets for a variety of actors, unbundled existing incumbents, and led to diverging economic interests among actors, creating a more decentralized mode of organization, while the technical operation remained that of a vertically integrated monopoly controlled from a central control room [18] . System operation and market organization hence represent contradictory modus operandi. As a result, market interests and activities of actors can start to conflict their operational roles and responsibilities. Second, and more fundamentally, it is generally unclear what design choices or developments in one dimension imply for the other. Currently we lack the means to express ex ante the implications of engineering choices on market designs of energy infrastructures and vice versa. This hinders determining how we should, for example, interpret and address the interrelated systemic and market challenges raised by new renewable energy technologies, such as the feed-in of solar PV based electricity from thousands of households and the intermittency of large-scale wind, or new forms of organization, such as distributed generation and energy cooperatives. A new and more comprehensive design framework is necessary that bridges the engineering and economic perspectives on energy infrastructure design. Ideally, it would provide scholars and practitioners the means to explore the implications of (planned or emerging) technical and economic changes in a structured manner, by positioning implications in an easy-to-use and comprehensive overview, and possess a vocabulary to relate concepts and implications to another. This would enable them to oversee the economic implications of technical developments (and vice versa) and stimulates awareness of lock-ins and path-dependencies in this regard. Moreover, it would allow them to identify and assess design options across both dimensions. This paper proposes such a comprehensive design framework. Building upon literature on socio-technical systems, system and market design, and energy infrastructures, it reconfigures existing insights in order to relate the design variables of both perspectives along three layers of abstraction: the form of infrastructure access of actors, the division of responsibilities among actors, and type of coordination between actors. The intention is to be able to attune system and market design efforts to each other so that we may adequately identify, interpret, and address interrelated operational and market challenges to energy infrastructure performance. In doing so we not only further our understanding and conceptualization of the interrelationship between the techno-operational and economic-institutional dimensions of energy infrastructures, but also help practitioners come with regulatory responses to innovation in energy systems, be they decentralized energy technologies or the embedment of new forms of organization such as cooperatives. One word of caution: this paper only proposes a comprehensive design framework; application to cases is left for follow-up research. The paper is structured as follows. It starts by elaborating energy infrastructures as socio-technical systems and the differing design perspectives of engineers and economists (Section 2). This also highlights the need for a more comprehensive view. Next, a comprehensive design framework is proposed that structures the core concepts and insights from both perspectives in a similar fashion and that develops the means to relate these concepts to each other, allowing for the comparison and alignment of techno-operational and socio-economic considerations in a design effort (Section 3). We then critically reflect on the framework proposed, discussing the possibilities and limitations of its application and point out future research trajectories (Section 4). Finally, Section 5 concludes. Sustainability 2016, 8, 1291 3 of 24 Energy Infrastructure Design Perspectives Energy Infrastructures as Socio-Technical Systems Energy infrastructures comprise all the sources, technologies, actors and institutions involved in the production, transportation, consumption and management of energy (see Figure 1) . Energy refers to the sources, e.g., fossil fuels (coal, oil, and gas), renewables (solar, wind, hydro, geothermal, tidal, waste, and biomass), alternative energy sources (nuclear), and energy carriers, such as electricity or hydrogen. Infrastructures are defined as "the framework of interdependent networks and systems comprising identifiable industries, institutions (including people and procedures), and distribution capabilities that provide a reliable flow of products and services ( . . . )" [19] (p. 13, citing the US Critical Infrastructure Assurance Office (CIAO)). Technically, they consist of various nodes and links. The nodes represent the entities and installations that produce, trade, store, refine, sell, and consume energy, like wellheads, power plants, refineries, transformer stations, and all sorts of electric appliances. The links make up the long-distance and local networks that transport and distribute energy between the nodes, like pipelines, electricity grids, and oil tankers. Typically, a distinction is made between upstream (exploration, production, and trade), midstream (transportation, refinement, and storage) and downstream (distribution, metering, retail, and consumption). The necessity for all nodes and links to function complementary represents a crucial aspect for the infrastructure to deliver energy from producers to consumers in a reliable and robust fashion. Economically, energy infrastructures were traditionally run as vertically integrated public monopolies, with the notable exception of oil, where private multinationals play a great part. Governments, both through ownership and regulation, controlled infrastructure planning, construction and service performance, like universal provision, by means of central planning and allocation of funds. Since the mid-1990s, however, liberalization, privatization, and unbundling led to an increase in the amount and variety of actors and markets involved in energy infrastructures as these infrastructures were cut up into competitive and public segments [20] [21] [22] . "Investment signals ( . . . ) established through market forces" [5] (p. 128) determine production, trade, and retail while sector specific regulation is applied to networks because of their natural monopolistic features. Over the last decades, energy infrastructures have been increasingly perceived as complex adaptive socio-technical systems. Central to this view is that infrastructures are "erected and structured around a certain technical core of physical artifacts (that are) embedded in, sustained by, and interact(ing) with comprehensive socio-historical contexts" [23] (p. 293). The obvious peculiarity of this perspective is that it does not follow an exclusively technical topology of infrastructures [24, 25] but considers the interaction of the integrated physical and social/organizational networks a crucial element in determining system performance [2] [3] [4] [5] 26, 27] . Focus is on how technologies, actors, and rules mutually influence and continuously reconstitute each other in a co-evolving manner characterized by lock-in and path-dependency. In this light, energy infrastructure performance-commonly measured in terms of availability, affordability, and acceptability [1]-is the result of the interaction between its techno-operational characteristics, energy market dynamics, and institutional arrangements [6, 28] . More precisely, performance is about how institutions and technical options incentivize actors and shape activities in the commodity and monetary flows. The commodity flow relates to various tangible assets or artifacts that make up the supply chain, such as pipelines, wires, pressure stations, generation plants, etc., and the operational activities of the various actors managing the physical flow of energy from producers to consumers. Special attention goes in this regard to the control systems or mechanisms and infrastructure design principles that coordinate the flow of energy, information, or funds through complex transportation and distribution systems and the complementary functioning of the assets [29] . The existing technology (and access to it) sets the boundary conditions of the technically and operationally feasible. It determines the options actors have. Not all assets might be available, for example, and operations may be dependent on ICT systems for smooth coordination among actors.
doi:10.3390/su8121291 fatcat:ztmi6hvz4rfwtfilgf37xtbyom