Derek's comment about wind power on my previous post mentions that wind power is not "dispatchable". This characteristic refers to the extent to which the resource is available to the system operator, who is responsible for the real-time physical balancing of the network, when striving to achieve that balance. Dispatchability has been a serious issue in regulatory policy discussions, and I think it will be even more important in the future.

Here's the issue: control room operators are responsible for making sure that the power flows on the grid keep voltage and frequency levels within particular ranges to maintain power flow on the grid. This task is complicated, and the physics behind the task is even more complicated. So if you are a control room operator, you want to have a sizeable portfolio of resources at hand that you can turn on and off, and that you can know will respond. If you are a control room operator, you want certainty, including certainty that when you tell someone to power up or power down, they are actually going to do it in the timeframe you requested.

Control room operators (and, by extension, system operators) have issues with both supply-side and demand-side dispatchability of resources. Derek's comment points to the supply-side issue with wind; the physical challenge of incorporating wind into the grid is that you have to produce power when the wind is blowing, and you can't control that. It's not like powering a gas turbine up or down, which is much more amenable to the centralized control paradigm in which the control room operators have traditionally functioned in the regulated environment.

Dispatchability on the demand side is a topic of particular, and timely, interest to me. The control room operator is not a big fan of demand response of the market-based, commercial type that I advocate, because it increases his uncertainty. If all customers can respond to prices, the control room operator loses the ability to control demand from his centralized vantage point. Thus from the control room operator's perspective, decentralized demand response enabled by market contracts removes a tool from his toolkit. How can he control when "load" is going to come on and off? At least with regulated, averaged, fixed retail prices, "load" is more predictable, and follows historical load duration curves pretty well. Once individuals have the freedom to choose how, and how much, to respond to prices, those load duration curves may no longer hold.

So there's the policy challenge, and the persuasion challenge for those of us who argue that market processes enable intertemporal, dynamically efficient resource allocation and production. We have to build the case for how market processes and customer choice provide decentralized control distributed throughout the grid. Furthermore, we have to be able to substantiate the claim that such distributed control will actually make the control room operator's job easier, not harder.

Consider two different factors that contribute to that claim. First, put on your new institutional/transaction cost economics hat. If we think at the transactional level, about a wholesale power transaction between a generator and a load-serving entity (as an aggregator/proxy for their end-use customers), one way to mitigate some of the uncertainty facing the system operator is contractually to specify dispatchability as one dimension of the transaction, with the system operator having full information about the planned power flows and the characteristics of the resource. Some resources are more dispatchable than others, and if that dispatchability has value, then a dispatchable resource should command a higher price in the marketplace.

Incorporating that insight into contracts should not be prohibitive. For example, in that transaction you have to pay for the transportation of the power; i.e., you pay for transmission. The system operator sits at the middle of that portion of the supply chain. So the contract for dispatchable power could involve a lower transmission charge than the contract for non-dispatchable power, reflecting the value differences between the dispatchable and non-dispatchable resources. The challenge is to think about how to create an institutional environment in which such value-reflecting transactions and contracts can occur.

The second factor that affects my claim of distributed control is technological change. The centralized control room paradigm is premised on an analog world. Now we have a plethora of digital technologies, including those that enable distributed remote sensing and monitoring, that make distributed, decentralized control possible.

The options include automated sensing and response; both demand and supply resources can program sensors to take an action in response to either a voltage change, a frequency change, or a price change. In aggregate, those distributed automated responses may provide emergent order, in the form of voltage, frequency, and price stability. In that sense distributed control can make the control room operator's job easier, by requiring him to focus only on truly real-time unanticipated events, which may become even less frequent as the distributed technologies and price structures and contracts reduce the probability of cascading failures.