The Case For Power Generation Supplier-Cooperatives

Authors Note: I do not work in the power industry. I am not an expert in power generation. I'm just some dude with ideas. Keep this in mind

The invention of Photovoltaic devices (i.e., Solar Panels) and high-capacity battery storage presents new opportunities not possible with traditional power generation methods.

Of particular interest, it allows small to medium-sized entities to enter the power generation market and compete with the big players. I think medium-sized supplier co-ops may be powerful players in the future of electricity generation.

What does this even look like? For centuries, farmers have pooled commodities into co-ops to trade as blocks. This gives them leverage to negotiate with massive buyers like supermarkets since they are not trying to undercut each other, and large actors do not have an information asymmetry advantage.

We now have many solar panels (generators) and Li-Ion batteries (storage) distributed across our power grids and managed by individuals and families. These individuals are negotiating by themselves with power companies and getting ripped off. So the answer is simple: Why not pool their resources and negotiate with power companies as a single block? This is just a supplier co-op, the same as the farmers'.

1 Structure

For such an organization to be successful, it needs to have capabilities within the following four branches:

  1. Generation (Solar Panels)
  2. Storage (Batteries)
  3. Buying and selling to and from the grid
  4. Selling to members

The neat thing is, not all of this has to be set up at the same time. Starting with a small group of individuals with panels, they can negotiate as a block and then bootstrap the co-op into a larger organization with all four branches.

The larger the co-op, the greater its ability to negotiate on behalf of its members in buying and selling to the grid. This is Union Power if you are a socialist, or just like health insurance if you are a capitalist.

2 Not Just Panels

Not every site is a good candidate for solar panels; they don't get enough light, etc. A co-op would let these people contribute as well, paying them for battery storage.

There is no reason that a battery HAS to be plugged directly into a solar panel. The grid could pay people to house and maintain a battery on their property and use that for storing the excess power generated by the panels on other people's properties, paying them for their service.

3 Incentives Matter

A co-op, which is owned by its members, can prioritize cheap power for its members over profitability. Therefore, they can make strategic decisions to prioritize their members' needs rather than selling back to the grid. E.g., instead of selling power at a high rate to maximize income, the provider may choose to reserve the power in their batteries to power their members at a lower cost.

3.1 The Difficulties with Economics

While economics plays in our favor in some cases, there are a couple of cases where the economics play against us.

3.1.1 How to incentivize batteries

At the moment, the incentive for an individual to buy a battery is so that they can store electricity for later use at peak times, rather than selling back to the grid at non-peak prices.

The incentives here are a little different; we want people to store electricity FOR the grid, not for individuals. Incentivising the needs of the co-op over the individual is a little tricky, but not insurmaountable, Here's one idea:

  1. The co-op owns the batteries, but members host them.
  2. Instead of paying members based on how much electricity they store (which could lead to selfish behaviour), we pay them a flat rate for hosting the battery.

For example, let's say Alice agrees to host a co-op-owned battery in her garage. Rather than Alice getting paid $0.05 per kWh stored, she might get a flat $50 per month for providing the space and basic maintenance. This way, Alice is incentivized to host the battery, but she's not tempted to hoard electricity for personal use during peak times.

3.1.2 Employees VS Owners

I left this till last because I think it is the most difficult to solve. The incentive structures of capitalism don't disappear just because it is a co-op.

Now, here's where things get tricky. Running an organization this large and complex this isn't a hobby - it will need full-time employees. But remember, our co-op is owned by the members (the folks with solar panels and batteries). This sets up a potential conflict:

  • Employees want good salaries and benefits (naturally!).
  • Owners want to keep costs low so they can get cheaper electricity.

In a typical company, the owners (shareholders) usually have more power. But in our co-op, it's flipped on its head. The employees running the grid will know way more about the business than the average member. This knowledge imbalance could lead to some issues. For example, the employees will be incentivized to push power prices up for the owners as high as they can while staying cheaper than other commercial options.

Imagine this scenario: The co-op managers (employees) might push for selling electricity to members at $0.12 per kWh, arguing that it's still cheaper than the $0.15 per kWh from the big power companies. The members might not realize that with the co-op's efficient operations, the price could actually be $0.10 per kWh. The extra $0.02 is padding the co-op's budget, potentially leading to higher salaries or unnecessary expenses.

This tricky economic issue could be partially mitigated by making a joint supplier/employee co-op so that employees have skin in the game. This will just trade a power imbalance for a political imbalance between employee-owners and supplier-owners. This combined with appropriate board management, auditing and transparency, I think, will yield more fair results than the current privately owned state of business.

4 Benefits

Some of the benefits I see are:

  • Power Prices to the consumer
  • Environmental: Larger organisations of Solar Panel owners can share the size and power as legacy generators, who still have a vested interest in fossil fuel generation.
  • Community/Political: This gives back power to the people 💪💡⚡💪💡⚡We are so used to outsourcing our fundamental needs to people in suits far away. A supplier co-op lets regular people engage with society, power and economics in a hands on way,

5 Conclusions

I think the idea is neat. If you like the idea or want to use it you can buy me a beer. This concludes the licensing agreement.