Beyond Utility 2.0: Part 4 “Next Steps”

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Principles, Structure, and Policies of Energy Democracy

Energy democracy can best be described as an electricity system that empowers the individuals and communities that have the energy resources of the 21st century (e.g. wind and solar) to economically benefit from their use. It shares the principles of utility 2.0 – an efficient, low-carbon, and flexible electricity system – and adds two more key principles: local control and equitable access.

  • Local – communities should have authority to make decisions about their energy economy, with weight given to economic benefits not just energy costs. As ILSR’s research has shown, local ownership of renewable energy systems has a substantially higher local economic impact, sufficient to outweigh marginally higher production costs.105
  • Equitable – all individuals should have access to ownership and authority over the grid, even if they don’t own property or have substantial wealth. Since the resources of a 21st century electricity system (wind and sun) belong to everyone, all residents of a community should share in the wealth generated from them.


This is the fourth of four parts of ILSR’s Beyond Utility 2.0 to Energy Democracy report being published in serial. Click to see the first or second or third post. Download the entire report and see our other resources here.

The structural center of a democratized electricity system is grid management that cannot discriminate against its users, similar to management of roads. Road networks don’t differentiate between the Postal Service or UPS, and the distribution grid should be similarly open to resources from any provider. The grid manager should not have a financial interest in building new wires or power plants at the expense of its competitors. The rules of the grid should also enable peer-to-peer transactions via equal access and transparent pricing (for energy, voltage and frequency response, ramping, etc). This would mean that a wind farm on a Native American reservation can sell power to a solar-dominated microgrid in Minneapolis, and vice versa.

In this, energy democracy mostly overlaps with New York’s utility 2.0 debate, except for the former’s more explicitly political perspective. Shifting to an independent electricity network manager can resolve the continued economic and political conflict of interest that has public utilities lobbying in front of legislators and utility commissions against policies supporting rooftop solar, energy storage, and other decentralized sources of electricity.

The following graphic illustrates the energy democracy concept, with widely decentralized and renewable energy production, individual and community ownership, super-energy-efficient buildings, and peer-to-peer provision of energy services. The grid operator would coordinate these resources to match energy supply and demand and maximize grid efficiency. Not pictured is the role of the grid operator or manager in prioritizing “software” solutions to energy needs, e.g. shifting when smart appliances do the laundry or wash dishes instead of building new power plants. 

beyond utility 2.0 to energy democracy graphics ILSR.024

We won’t have to look far for the policies to support energy democracy, because many of the them are already in place. Net metering and streamlined interconnection, for example, enshrine the basic right of an electricity participant to generate energy from their own resources and for their own needs. These and policies like value of solar or feed-in tariffs build on and complement net metering by emphasizing the importance of being able to share excess electricity production with the grid at a fair price. Community energy projects or “shared renewables” (via virtual net metering) further expand the opportunity to be a power producer beyond those with property or a sunny rooftop, and reinforce the notion that a community can secure more of its energy dollars collectively, not just individually.

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Energy democracy also relies on equitable access to capital and financing, access that has been sorely lacking. On-bill repayment and financing that eschews credit scoring are crucial to expanding the economic benefits of the 21st century electricity system to all.

The following graphic illustrates the types of energy policies and technology that will play a role in a 21st century electricity system, and how they overlap with the utility 2.0 and 3.0 (energy democracy).

beyond utility 2.0 to energy democracy graphics ILSR.026

Although it’s not expressly a policy, energy democracy requires community organizing and good management. Ensuring equitable access to the energy economy, for example, means substantial outreach and organizing in cities and even neighborhoods to educate and empower all grid customers about their opportunities. Energy democracy also requires the same smart energy management policies and tools of utility 2.0. Vehicle-to-grid rules should enable electric vehicles to operate as components of community microgrids, providing balancing, ramping, and other services as well as absorbing excess renewable electricity production. Standardized, smart appliances and tools (like Nest thermostats) should enable electricity consumers to manage their energy use (production, consumption, and storage) in response to real-time grid signals, without real-time attention.

Achieving a local and equitable energy economy means adopting the principles, structure, and policies that make grid participation accessible to everyone: upper class and working class folks, whites and people of color, etc. Whether a user wants to just manage use, produce energy, or operate a microgrid, intelligent devices (e.g. WeMo switches or smartphone apps) should provide people with simplified energy management options accessible anywhere. The interface should automatically integrate real-time grid pricing and smart household appliances to provide participants with simplified choices. Managing energy should be as easy as managing a mutual fund by selecting a “moderate” or “aggressive” portfolio. And these tools have to be ubiquitous and affordable – perhaps provided freely like CFL bulbs – to ensure access.

Both utility 2.0 and energy democracy (or utility 3.0) will mean substantial changes to utility business models. Both will lead to an efficiently managed grid that relies much more heavily on low-carbon resources. Both will fundamentally change the relationship between incumbent electric utilities and customers. But only energy democracy will create an equitable energy economy, one that aligns the technological opportunity of a widely distributed, renewable grid with the economic opportunity for communities to seize control of the $364 billion market for electricity.

Energy democracy has one further advantage over utility 2.0: the creation of a self-interested movement for clean, local power. The thousands of Americans empowered to control their energy use and become “prosumers” will also be proponents of policies that expand their access and economic opportunity. And, insofar as these opportunities involve low-carbon generation of electricity, energy democracy can be a faster path toward meaningful action on climate change.


Already, utilities and regulators across the United States are trying to adapt the rules of the  electricity system to the new paradigm of distributed and renewable technology. It’s a crucial opportunity: will the rules reinforce utility hegemony or give rise to a democratic energy system?

We don’t yet know.

So far, the rules have changed incrementally, layering the principles of a version 2.0 utility on  top of a 20th century system that largely secures a utility monopoly over the use of and profit  from the electricity grid. Renewable energy and energy efficiency standards have wrought  enormous change on the technology and use of energy. Decoupling and restructuring have introduced competition and reduced perverse incentives. But no policies have completely challenged last century’s paradigm

In some sense, the smallest rules have had the biggest impact. Net metering, feed-in tariffs, and other tools empowering customer-generation have contributed to exponential growth in  distributed solar. These energy democracy policies have created an entire class of increasingly  self-reliant customer (and businesses to serve them) interested in challenging the utility  dominance of the grid. They’ve had their taste of ownership and control over their energy  future, and they’re not interested in turning back.

The rise of community power suggests that the discussion of utility 2.0 falls short as a  technocratic or financial discussion about the sustainability of the utility business. The new  energy owners aren’t likely to be satisfied with a 2.0 utility that remains in control of  364  billion in annual electricity revenue.

Energy democracy is the answer.

While the 21st century electric utility will have incentives driving it toward a clean, efficient, flexible grid, energy democracy ensures that the benefits of this transformation are widely  shared with utility customers. It means that customers wield substantial decision making power  over their own and their community’s energy economy. It means that all utility customers will  have access to ownership and authority, especially those that have disproportionately paid for  the externalities of the 20th century grid. It means that technology should make participation in  a networked, transactive energy system simple for utility customers whether they are amateur  engineers or “just pay my bill”-ers. It means shifting more of the  364 billion spent on energy  from centralized, monopoly utilities to their value-building customers. It means a self-interested political movement for decentralized energy and local climate solutions.

It will be an exciting time.

This article originally posted at For timely updates, follow John Farrell on Twitter or get the Democratic Energy weekly update.


105. Farrell, John. Advantage Local – Why Local Energy Ownership Matters. (Institute for Local Self-Reliance, September 2014). Accessed 11/6/14 at

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John Farrell

John directs the Democratic Energy program at ILSR and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. His seminal paper, Democratizing the Electricity System, describes how to blast the roadblocks to distributed renewable energy generation, and how such small-scale renewable energy projects are the key to the biggest strides in renewable energy development.   Farrell also authored the landmark report Energy Self-Reliant States, which serves as the definitive energy atlas for the United States, detailing the state-by-state renewable electricity generation potential. Farrell regularly provides discussion and analysis of distributed renewable energy policy on his blog, Energy Self-Reliant States (, and articles are regularly syndicated on Grist and Renewable Energy World.   John Farrell can also be found on Twitter @johnffarrell, or at

John Farrell has 518 posts and counting. See all posts by John Farrell