Value, and the Value of Energy
Beauty is in the eye of the beholder, and so is every other expression of value. The concept is simple enough, what is perceived as beautiful, valuable, by one person may be perceived to be more or less beautiful, more or less valuable, by another. It is an easy point of agreement.
It is also an easy expression of the three characteristics of value.
Value is emergent, without viewers the beauty is imperceptible. There were many painters painting during Van Gough’s lifetime, many of whom were much more highly valued at the time. In the following hundred and thirty-years tastes have evolved to the point at which Van Gough’s work has become an essential patrimony of the human race.
Value is subjective, the individuality of the viewer quantifies the beauty, value, desire, unease resolved by the object of their appreciation at a specific moment in time and space.
And Value is relative, utility is measured against and defined by other sources of utility, and the degree to which that perception is shared by others. The resale value of prestige cars is a function of their relative value, Red Ferrari’s being a prime example.
Isn’t it fascinating to be alive and to be capable of perceiving beauty, and aren’t we so perfectly diverse in our programming that there are so many different viewers to see all the sides of beauty. Revealed in the space between individual perceptions of all those different viewers is opportunity. The differences in our perception of value allows for the emergence of peaceful transaction and price; where win-win can banish the violence of the forceful, and a win-loss understanding of what it means to be in the world.
Now let’s make this about energy. The value of energy follows all the same rules. Energy’s value is emergent as it is not valuable without someone to value it. And here we meet utility; a person values energy because they have a use for it. Energy can allow us and our tools of sensing, choosing, and acting to do work in a state change, and that work can be of value. The potential for value can range from positive to negative. The utility and value of energy are synonymous. The utility of energy is a subjective product of the work its motive force is applied to - different people have different uses. The who defines what to satisfy a why, and the what requires a where and a when. From the where and the why, an opportunity cost arises both between varying uses, and between varying supplies.
The marginal value for one use at one moment in time and space can now be directly compared through price to another marginal value for an alternative use at another moment in time and space. This is the relativity of energy’s utility. Every externality flows from here, the impacts upon climate, environment, and society included.
Energy’s utility then, its value, very simply depends upon a reliable supply, and a reliable supply allowing us to take accurate account of its externalities.
Capital formation is dependent on the risk adjusted rate of return of energetically dependent means of production. For example, one country is less investible than another due to the destabilisation of their energy system. One country’s industry is less valuable than another’s due to the Russian induced energy crisis. Energy security really matters. In the realpolitik of a world with both friends and enemies, coercive power is relative. Our sovereignty may be defined in law, and threatened by force, but we defend it as a function of our economic activity, underwritten by our energy security.
Here we might turn our attention to the grid and to electricity. The supply of electricity within the energy supply is not the only mode of energy available, but it poses a particular challenge. The electricity grid is uniquely inflexible in one aspect, it does not move as a part of its function. Rather, energy moves within the grid. If the value of energy is its utility, and if the utility is dependent upon the when, the where, and the what of the work it enables, then the value of the energy within the grid is dependent upon being available at the right time, in the right place, in the right quantity and quality.
It follows then that what defines the reliability, the utility, the value of the supply of electricity is its liquidity, the capacity of the grid to match supply with demand. Just as the liquidity of capital is the lifeblood of our economies, so the liquidity of electricity is a singularly important input to every form of productivity in modern society, to the formation of our society’s capital base.
The utility of the grid is measurable by its output - how accurately can it supply as a platform for individual uses? How little does it constrain relative value creation? How much does it enable the optimization of opportunity costs? Less loss, more efficient supply, greater relative use, fewer externalities. That’s the goal. There is more to this story:
Energy generated at the wrong time, that is to say, when it doesn’t match demand, could have near infinite negative value as it can crash the system. If it crashes the system the entire economy loses, not just the buyer and the seller
Energy in the wrong place is not fungible to the point of demand and can only be treated as waste in the legacy system
Demand in the wrong place cannot be satisfied by energy in all other locations in the same system, rather only by supply constrained by the historical development of that system.
Increasing the liquidity or flexibility of the system, facilitating more effectively the matching of supply and demand, maximises potential value gains and minimises the cost of preventing massive value losses. For this reason, the ideal form of this network is a platform, where the signals of platform participants can be used to organically account for time and space in the value of energy.
Failures and inefficiencies in the grid are not simply lost motive force or lost electricity, they are lost value, lost prosperity, for everyone. Our growth should not be constrained by the limitations of a legacy grid.
A system that matches supply and demand to maximise the utility of energy ensures the lowest marginal cost of electricity, bringing value most to those at the margins. That the system simultaneously helps the decarbonisation of energy while removing long-run constraints on economic growth is not co-incidental, they are both the products of a system that expands choice.
