Convergence Toward a Hybrid Centralized/Decentralized Power System Model in Developed and Developing Countries


by Dr. Varun Sivaram*


In the future, both developed and developing economies may converge toward distributed electricity systems. The emergence of technologies for efficient distributed power generation and storage alongside those for intelligently operating a distributed system holds benefits is attractive regardless of an economy’s stage of development. Distributed power systems can be resilient, affordable, and clean, providing a pathway to decouple the historical link between economic growth and climate change inducing emissions. Some regions of the United States, notably the states of New York and California, are the furthest along in the world toward crafting a regulatory regime conducive to a distributed power system, and their experience to date holds lessons for developed and developing economies alike.

The term “leapfrog” is commonly used to describe a potential future in which developing countries skip the development of extensive power grid infrastructure and leapfrog the last century of power systems progress in the developed world. Many make an analogy to mobile communication, arguing that the proliferation of mobile phones across the developing world has enabled countries to leapfrog the development of a network of physical lines that countries like the United States and Europe initially developed prior to the shift from landline to mobile telephony.

However, the “leapfrog” phenomenon in mobile communications is an imperfect analogue for a potential leapfrog in power systems. The central reason is that whereas landlines offer little benefit to mobile users, enabling the mobile system to leapfrog the development of landlines, a centralized power grid does offer benefits even to owners of distributed energy systems. For example, a rooftop solar panel installation will not provide 24×7 power, and even a more elaborate home distributed energy setup will need to be oversized, for example to enable appliance start-up, if it has not connectivity to the grid. By contrast, distributed energy systems can be most efficiently used when they are connected to the grid.

These considerations suggest that a leapfrog phenomenon will not proceed by simply replacing a centralized grid infrastructure with an extremely decentralized one. However, there is scope for a hybrid approach which leverages the benefits of both “microgrids” and “macrogrids.” The convergence theory, which to the author’s knowledge has not been described elsewhere, is that developed countries will approach the hybrid solution from a status quo of centralized power systems and developing countries will approach the hybrid solution by building up decentralized infrastructure meant to supplement or supplant dilapidated or nonexistent central grids.

Approaching the hybrid solution from the centralized paradigm of the developed world

Using the United States as the exemplar of a centralized power system, efforts in New York and California to integrate more distributed energy resources (DERs) foreshadow the direction that developed countries will take toward a more decentralized power system.  Through New York’s “Reforming the Energy Vision” (REV) and California’s “Distribution Resources Plan” (DRP) processes, the two states aim to integrate substantial quantities of distributed energy resources (DERs) into an electricity grid that evolves based on market animation.

The changes ahead for New York and California and, over the longer run, the rest of the United States and the developed world, can be decomposed into three categories. First, new decentralized, modular, and increasingly inexpensive power generation and storage technologies are making DERs a feasible alternative to centralized generation technologies, eroding the scale economies advantage that the latter has traditionally enjoyed. Second, new communication and control technologies are enabling both distribution system operators (traditionally, utilities) and end consumers to better utilize DERs. And third, an evolving power regulatory structure, from traditional cost of service regulation to performance based regulation to, eventually, market-based compensation, will enable the free market to realize the economic value of DERs.

Concretely, one can imagine the following possible future power system that broadly fits the vision of the REV and DRP processes. Imagine a power system in which the central power grid, consisting of centralized power plants and high-voltage transmission lines, is relatively minimal. That is, the entire capacity of the central grid skeleton is merely sized to meet a critical base level of demand, including powering critical loads, such as hospitals, and serving provider-of-last-resort (POLR) loads that are uneconomic for the market to serve. The remainder—conceivably the majority—of the load is served by DERs integrated into a distribution system. This distribution system is a hybrid of private and regulated assets configured to efficiently coordinate and dispatch stochastic power flows. And the DERs are aggregated by third parties who compete in a robust distribution-level market to provide a range of energy services including providing energy, reductions in peak demand, ancillary services, and resilience benefits.

Figure 1: Evolutionary process of a centralized grid to a future hybrid model in developed countries (Source: IEA Smart Grid Technology Roadmap, 2011)


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Many contend that the technology already exists to enable such a system, and the important remaining progress can be classified within systems integration and within business model and regulatory evolution. On systems integration, technical bodies need to specify standards that enable a heterogeneous and presently evolving fleet of DERs to communicate across a distribution system platform and transact a standard set of services. Organically rising connectivity via the “Internet of Things” is not sufficient to achieve this communication; rather, intentional design of standards is essential. Second, the regulatory model must abandon the existing paradigm of guaranteeing cost recovery and incentivizing capital expenditure. Instead, a future regulatory model should require distribution system operators to operate a well-functioning market and fund the capital and operational costs of that market from market-based earnings.

There are numerous advantages of such a power systems paradigm for countries in the developed world. First, a more decentralized system based on a robust marketplace can reduce rates and make electricity—especially clean, distributed electricity—affordable. Although some might argue that DERs are affordable today (e.g., rooftop solar), their apparent cost-effectiveness arises at least partially from subsidies and simplistic utility tariff structures. Second, the new power system could be more resilient, because greater integration of DERs will reduce the risk of cascading failures that are more likely in a highly centralized system. Third, the new power system could empower consumers with greater choice over their energy usage, and the existence of a robust market could actually enable new models to deliver value and services in a departure from the existing commodity model. Such a change could portend greater innovation and more responsive energy decisions by consumers, increasing welfare and curbing greenhouse gas emissions.

Approaching the hybrid solution from the decentralized paradigm of the developing world

The surprising conclusion of this brief is that the developing world is converging toward a similar, hybrid model of the electricity system despite a dramatically different starting point from the developed world as well as very different priorities.

One can use India as an exemplar of the state of power systems in the developing world, recognizing that many of the derivable insights may apply across the developing world. Across India, centralized electricity grids presently underserve the population. There is a chronic gap between supply and demand, which by some private estimates is as high as 22 percent. Moreover, electricity losses in the grid can exceed a quarter of centrally generated power, which is dissipated or stolen en route to final delivery to consumers. The majority of state utilities carry unsustainable debt burdens and provide electricity at subsidized rates to some customer segments that perpetuates the vicious cycle of insolvency.

Unlike in the developed world, the developing world will not be able to follow an incremental process to direct the existing centralized power system to a hybrid alternative. Rather, many contend that because the central system is irreparably broken, the path forward involves circumventing, instead than transforming, the existing system. Extremely decentralized energy systems, most likely based on distributed solar power, are the starting point for a “leapfrog” strategy that improves energy access without expanding the reach of the central power grid.

Recent work by Groh et al. (2014) demonstrates that a collection of extremely decentralized energy sources can self-assemble in an organic, bottom-up process to form networks of greater complexity and connectivity. This theory of “swarm” aggregation posits that greater levels of aggregation offer higher quality energy services to consumers, which intuitively agrees with the observation that a centralized grid in the developed world provides power of high quality and reliability. But this bottom-up aggregation need only reach a hybrid centralized/decentralized state to optimally serve consumers if adequate smart grid technologies can coordinate the operation of the hybrid system.

The optimal end-state of this bottom-up aggregation mechanism resembles that of the evolutionary transformation of the centralized grid in developed countries. In the developing world, interconnected decentralized energy systems, composing a networked system of micro-grids of varying sizes, connects to a central grid backbone. This backbone will bear considerably less burden than it currently must bear (and fails to do so effectively). Therefore, less major infrastructure transformation is required of the central grid, which avoids a central grid transformation that may be impossible for political, technical and economic reasons in the developing world.

To enable such a system to function effectively, however, some degree of central coordination will be necessary. Just as in the developed world, a distribution system operator or platform provider must help to intelligently coordinate a hybrid grid to ensure that power and information flows are optimal. As a result, similar smart grid and systems integration technologies may be necessary for deployment in the developing world as a consequence of a process that initially begins as an organic, bottom-up self-assembly.

Figure 2: Stepwise “swarm” aggregation process from a decentralized to hybrid power system in a developing country (Source: Groh et al., 2014)

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Conclusion and Future Research

The idea of convergence proposed in this brief is attractive, because it suggests that progress in the developed world to enable a functional hybrid power system may in fact be repurposed to support hybrid systems in the developing world that can initially arise from bottom-up self-assembly. And just as power systems converge in form and function (which is a surprising insight, given that different forces are pushing changes in the power sectors of developed and developing countries, respectively), so too might the development level of developing and developed countries converge as well, given the well-established correlation between access to high quality power and economic and social development.

However, elegant as this theory is, there is considerable empirical and technical work to be done to demonstrate the idea’s feasibility and enable its realization. Therefore, this brief urges further research to answer the following questions:

  • How stable are hybrid centralized/decentralized systems that involve complex (non-unidirectional/radial) power flows? Are they stable, meta-stable (stable under certain conditions), or unstable? What systems integration technologies and protocols can enable and enhance stability?
  • Is there an incremental path that takes existing systems in the developed world and ends up at a hybrid system with a robust market? That is, does path-dependency rule out or enable such an evolution?
  • In the developing world, can swarm aggregation actually work out in practice? Existing theoretical work is thin, and empirical work nonexistent. Which stages of the aggregation process are bottlenecks?
  • Where are new technologies (for example, in energy generation and storage, distribution communications and operation, etc.) needed for technical and economic enabling of hybrid systems?
  • What policy support is required in the developed and developing world to enable the respective progress toward convergence?
  • Are the optimal end points in developed and developing countries really one and the same, or are they different/separated? If the latter, are there still helpful lessons and technologies that the developed world can offer to the developing world as the two power system paradigms approach convergence but do not ultimately reach it?


The article published is the paper presented by Dr. Varun Sivaram( Douglas Dillion Fellow, Council on Foreign Relations)during the International Conference on “Climate Change Paradigms” Organised by Centre for Public Policy Research- Centre for Strategic Studies on 20-21 November, 2015. His views are personal and does not in anyway represent views of CPPR.*


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