From Airbnb to solar: electricity market platforms as local sharing economies

Distributed energy resource (DER) technologies such as rooftop solar change the structure of production and consumption in the electricity industry. These changes will be mediated by digital platforms in ways that will sharply decrease scale economy entry barriers in generation, making local generation and self-supply not only possible but economically competitive. Digitally-enabled platform business models and local electricity markets are increasingly part of policy debates in electricity distribution and retail due to the proliferation of digital and DER technologies. Here we propose a two-stage model to represent the effects of transaction cost-reducing innovation on two aspects of such transactions: gains from trade in sharing, and the ability to express and satisfy heterogeneous, subjective preferences in a poly-centric system. Our core insight is that excess capacity varies inversely with transaction costs; digital platform technologies and business models enable asset owners to rent out this excess capacity. We analyze the equilibrium comparative statics of the model to derive observable predictions, and find that having a local electricity market platform option makes the opportunity cost of excess capacity economically relevant. As small- scale transactions in energy capacity become more feasible, our results suggest that ownership of DER capacity will be driven less by one’s expected intensity of use and more by relative price concerns and subjective preferences for energy self-sufficiency or environmental attributes.