CAN TECHNOLOGY BRING ABOUT A BETTER ECONOMIC SYSTEM WHICH COMBINES MARKET PRINCIPLES WITH SOCIALISM?

The electric power industry went through a long and stable period of being a regulated industry, planned and operated by vertically-integrated utilities, before liberalization and restructuring became the global trend since the 1990s. In essence, it went from central planning towards a free market with mainly the generation supply side. After some major power market failures, debates about the solution are polarized around either reverting to the previous structure or more market liberalization on the rest of the supply-demand chain. The work presented here suggests a third way. It is based on an ideal which may be called “Unity in Diversity” or UDI-ism in short. The hypothesis is that if an individual’s selfish incentive can be made to align more with the socially optimal objective, then the creative energy of individuals’ diversity would become more unified in achieving the social objective. The key is to make that incentive market-based and monetary in nature. In order for the market-based monetization to take place, efficient market mechanisms with low transaction costs need to be developed. With technology and research, that may become possible. This paper will propose a third way of regulatory and financial structures and incentives which may fix this problem, seeking a balance between the traditional, regulated and vertical utility structure and the idealized power market designs which have viewed the transmission grid as a monopoly requiring regulation. This paper will first outline the concept of UDI-ism and discuss how it will benefit the economy in general. Second, it will then apply this concept to the problem of global warming and show how it will enable market principles to manage the effect of CO2 emitted by the electricity sector. Third, it will show how UDI-ism may provide public benefit solutions for the transmission investment problem, for example, for the inter-national transmission projects crossing multiple borders. Finally, the role of technology and research necessary to turn this ideal into reality will be discussed. It is hoped that this paper will stimulate discussions among researchers to further explore these ideas so that a more robust and more optimal economic system will become reality.