Revolutionizing the Energy Sector – the Case for Decentralization

Traditionally, the energy sector has been a conservative one. Not much has changed in the past 60 years in the way that citizens obtain energy and states ensure that there is supply. To begin with, we have to become aware of the two ways this sector is divided – electric and non-electric production. The former meaning the type of energy which lets us turn the lights on and recharge our cell phone batteries and the latter incorporating the rather diverse section of energy uses from residential heating to transportation fuels, it is an important difference to make. The following will be an examination strictly of residential and commercial electric and heat energy production and use.

There is a strict conservatism in the way energy is produced: from power generation in some far-off place, transportation via power lines or underground pipes and final consumption. No citizen really knows where the power which they use comes from. It might be from a coal or gas-fired power plant, a hydro-electric facility (a near-by dam) or from a wind-turbine farm. The presence of different sources in every state makes it impossible to determine the exact production site. The fact is that people are used to not following these matters up anyway. They generally consume power in all sorts of forms in their households or workplace and pay the bill at the end of the month. Only in time of crisis does the question “where does the power come from?” suddenly become important to the individual. For example, during the gas crisis in January 2009 when Russia cut off gas supplies through Ukraine, the media began informing, and citizens started listening, about how much gas each state imports and in which sectors it is used. The heavy and sometimes total dependency of some states on the imports of a single fuel source for a sole industrial sector suddenly shined through and led to criticism in favor of diversification. People did not want to be left in the cold once more for the simple reason that heating companies are completely dependent on gas from Russia.

Diversifying the energy sector is one aspect which is addressed from another viewpoint as well – that of climate change. While the short term perspective calls for diversification of supply of gas (from other states) or the prolonging of nuclear reactor lifetime, the longer term plans include a shift from carbon-generating energy production to renewable energy sources. Plans for building wind turbines or solar collecting power plants are well known to the public and these are the main ways that we will battle the climate change problem and reduce harmful gas emissions. Yet, these new sources of energy have a specific characteristic which the old conceptualization of power generation did not – the ability to exist on a small scale.

Many people have realized this characteristic and have exploited it to their advantage. Houses with rooftop solar panels are becoming a common sight in countries with plenty of sunshine, like Spain, but also in cloudier places like Belgium. The main idea behind placing a solar pv panel on the top of your house is that you can generate your own electricity and therefore pay less to the energy company. If your heating is electric as well, then you can achieve total independence. To any consumer, the idea of spending less is very appealing; to producers of solar panels, it means greater demand and therefore profit. Yet, to national energy companies, it means a decentralization of the energy market. In the conservative viewpoint portrayed earlier, the consumer uses energy and has nothing to do with its production. Once households and small businesses begin investing in generating their own power, there will be a large fall in profits for centralized producers. Decentralization will therefore mean a liberalization of the energy market from the conservative stance it now takes.

For a more practical point of view, we have to consider densely populated areas, where large quantities of energy are used. Large residential buildings have, until now, had little potential for energy production. Yet, with the potential of installing solar panels or even small wind turbines on rooftops, renewable energy technology is revolutionizing the sector. Prof. Arthuros Zevros, President of the European Renewable Energy Council, imagines a transformation where “all new buildings should produce as much energy as they consume.” This is surely not a dream, but a realistic goal. The technology exists and is already in use but the crucial question is how we can finance this transformation. Making energy efficient buildings is costly, and in the face of the financial crisis many individuals and small businesses are reluctant to spend. On the other hand, governments seem to be defending the conservative stance and, with some exceptions, be reluctant on financing small-scale, decentralizing energy projects. Yet, the revolution is still potentially there.

Peter Vis of the European Commission states that building the infrastructure should happen “to the affordable size” and, due to the flexibility of the market, there is room for “municipality involvement”. What this means is that the decentralization from national producers and (often) monopoly-style control will change for a more free and liberal model where smaller scale production will play a big role. A strong example of this is the city of Barcelona, which created local incentives on top of the national legal framework for installation of solar panels on the roofs of public buildings. The result is that hospitals and schools pay less for energy, which also has an effect on the public budget. This illustration of decentralization can lead to a model to be followed in other states which have similar capacity and opportunity for engaging the market.

Often when it comes to energy questions the government is expected to take initiative and to resolve problems. Now there is a shift of this mentality towards a more bottom-up approach where the citizen can also participate in providing for their own energy security and contribute to the fight against climate change and pollution. The principle of subsidiarity in the EU, which states that decisions should be taken as close to the citizen as possible, will play a big role in this process since local government units (municipalities, regions etc.) will take up the initiative for these projects. In places where the citizens are willing to join these schemes but suffer set-backs due to financial problems, the local government can do a lot to help. The EU’s Structural Funds are available for such projects, and with the increasing pressure to fight climate change, there will also be a rise in support. New and existing mechanisms can be used to aid the development of this idea and bring the potential revolution of the energy sector into existence.

Therefore, decentralization of the energy market has its benefits, especially for the consumer. Once an investment has been made, there will be free or very cheap energy for your household or small business; you will be contributing to lower greenhouse gas emissions; in case of national crisis, your energy security will be guaranteed. All these reasons should contribute to the realization that there are actions an individual can take for their own benefit instead of waiting for the state. Often, there will be local support for this and the results can be profitable on all levels. These principles and ideas will soon become a major factor in national energy policy.

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