AI, Outage Risks, and Market Opportunities with Lynne Kiesling

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In a discussion with economist Lynne Kiesling, the evolution of the electric utility model is examined, highlighting the shift from monopoly utilities and central planning to a more decentralized and flexible approach. The traditional model, which once successfully electrified the nation, is now seen as outdated, creating perverse incentives that reward capital spending over performance. The conversation emphasizes the need for markets to evolve to address risk allocation, demand-side flexibility, and performance-based regulation, particularly in the context of AI-driven data centers that are challenging the old paradigms.

Kiesling argues that markets serve not only to allocate resources but also to correct errors, suggesting that the risks associated with outages and other factors should be better priced and traded. The discussion also touches on the importance of demand flexibility, where automated devices can respond to pricing changes, potentially enhancing grid resilience. Furthermore, the article contrasts different regulatory frameworks, advocating for performance-based systems that prioritize reliability and efficiency over mere capital investment. As AI and data centers rapidly increase demand, particularly in Texas, the need for a shift from a capacity-focused mindset to one that values capabilities and flexibility is underscored, positioning Texas to lead in the energy transition.