Can Vigilance for Jevon’s Paradox Become a Competitive Advantage?

Jevon’s Paradox encapsulates the counterintuitive phenomenon where improvements in efficiency or conservation of a resource paradoxically lead to an increase in its consumption or other (perhaps downstream) unintended consequences. This concept challenges simplistic assumptions about cost-reduction efforts, highlighting the complex interplay between technology, human behavior, and resource utilization. We typically aren’t vigilant for the effects of these dynamics as we advocate for and create new technologies. Perhaps there is an incentive to start.

In the past, I’ve dabbled with the idea of productively exploiting this phenomenon (i.e. strategically reducing the cost of a resource to stimulate its consumption) in the realm of synchrophasor analytics. However, it occurred to me while observing a conference panel discussion last week that I may be able to take it a step further. Consider the proposition: vigilance for the unintended consequences of a cost-reducing technology during the process of creating that technology may actually yield a competitive advantage (i.e. yield a better technology and even a better business). My intuition on this feels quite strong in at least one example as you’ll see below, but my gut tells me this is should generalize across multiple domains.

Interconnection!!

I was fortunate to attend (and speak at) the first EnergyTech VA conference this last Thursday. After my session was finished, I went to the panel on How Can Technology Help the Interconnection Process? The discussion was more specifically focused on software and automation for use in the evaluation and “study” of interconnection requests. To disambiguate for the non-power-systems reader, an interconnection request occurs when a third-party wants to connect a commercial asset to the electric grid such as a solar or wind farm, battery energy storage, classical rotating machines, or even industrial loads like data centers or LEGO factories. What is meant by “study” is the request has to be evaluated to ensure that it does not compromise the integrity of the grid for the sake of both those that are already connected as well as those that wish to connect in the future.

Now, in full transparency, I have not and do not do interconnection work. Its not my thing. For those that care, my thing happens to be something called synchrophasor technology… mwaha… mwahahaha… MWAHAHAHAHA!! Having said that, I have done some considerable work on the development of programmatically extensible, large-scale, transmission outage reliability assessments and as such have a visceral sense for the problem despite my lack of direct experience.

My Contrarian Curse

As I was listening to the panel discussion my mind whiplashed back and forth between blatantly obvious agreement with the position of the panel (which for me included vivid solutioning fantasies) and trying to find a counter argument so that I could “feel smart”. I always like to search for a contrarian opinion because if you find a good one, it can be a high value position to adopt or even simply to share. Sometimes this leads good places, sometimes it doesn’t. I liken this proclivity to my affinity for finding doppelgängers for my friends and colleagues – as entertaining as I often find it, its sometimes more of a curse!

The logic chain of my inner monologue started with the notion that I had just spent 45 minutes advocating for a balanced approach to the adoption of technology in the energy sector but yet I was then sitting in a discussion where technology (and a specific technological approach) is the presumptive solution for addressing a fairly complex problem. The truth is I agree with the presumption almost categorically, but I wanted to reconcile these two ideas in my head. From here I went to the notion that we’re claiming the net effect of the approach would reduce the cost of a currently very costly process (I mean cost in a holistic sense and not measured directly in dollars and cents) which in another sense means making it more efficient. Ahhh! There’s a short semantic hop to Jevon’s Paradox. Presumably, reducing the cost of an interconnection analysis would then allow us to address the uncertainty and delays in the process by running not just fast studies but vastly many more studies, certainly combinatorially and perhaps even speculatively. In essence, we are currently using studies sparingly because they are costly but as they reduce in cost we will be able to use even more of them to re-run analyses and essentially keep the state of the queue “up-to-date” in human-scale time (i.e. hours). Even here, the “use case” for the analysis evolves as a result of its cost reduction. I can then “abuse” it a bit and use it for things I may have deemed wasteful in the past. Thanks, JP.

But wait… I heard that word “abuse” in this context already – and there it was not a euphemism. My first contrarian question then arose. Could there be something nefarious lurking? I believe this may be possible because, as everyone would agree, the historically low-cost nature of interconnection queue application fees (the table stakes) are low enough that players abuse the system. How so? The low-cost of the interconnection queue application fee originally stems from market dynamics of a low-volume queue. As the volume of the queues exploded, the low-cost allowed the players to exploit the system and submit applications they had zero intention of following through on – essentially a form of clean energy gambling. They believed that the cost was so low, that it made sense to submit multiple applications to see which one would work, even if they only had the intention to build a single one – a new use case supported by its low-cost. I’m oversimplifying, but you get the idea.

In some ways, this is how the “problem” that was discussed on the panel became what it is today. It emerged from a hidden discord between the high-cost analysis and the low-cost application fee when the volume of the queue exploded. The low-cost point of entry into the process incentivized abuse thereby creating a bottleneck at the point of the high-cost analysis. What does this tell us aside from that we should increase the cost of the application fee and reduce the cost of the analysis? Well, it tells us that in the environment where we are operating, high-volume drives competition and gamification/abuse of the system – using the queue as a means for gambling as opposed to its original use case/design. Wait… doesn’t this resemble a natural but latent instance of Jevon’s Paradox? Essentially, is this a scenario where the cost of the resource is low enough that it can be used for more uses than it was intended when it was originally priced? Or is this just an example of classical supply and demand dynamics? To be fair, I could argue both points, but the former is way more interesting for a blog post. I like to argue JP here because its not simply that the prices should be raised to address demand but because there is a second order effect of the low prices in the emergence of novel use cases.

The takeaway that we want to garner from this observation is that we are already operating in an environment where the players will behave this way if incented to do so AND the resource we are proposing to reduce the cost of is directly linked to this existing exploitation. This should both tingle our spidey-sense and raise our skepticism.

So, my contrarian line of inquiry then leads to the question: If we reduce the cost of the interconnection analysis in a high volume environment, do we inadvertently do more than simply address the bottleneck? Do we end up with another mechanism that could be gamified and abused? Its not obvious to me that there would be but it is definitely not obvious to me that there wouldn’t be either. How might we wrestle with this idea if we believe ardently that we do want to use technology to reduce the cost of this process? Meaning – we’re committing to this path despite the possibility that we’re cutting one head from the Hydra only to find one or more emerging later as a result. Should we even care about this? I think so. And here’s why:

Conclusions

I think that as we develop the technologies that reduce the cost of this high-volume, competitive process we should remain vigilant for the unintended consequences of Jevon’s Paradox. If such consequences exist, and we are able to anticipate them in advance, that could lead to superior product innovations, better service models, and pricing that reflects the value that is actually exchanged as a result. All of these potential outcomes scream opportunity for competitive advantage. So, does a competitive advantage matter? If we’re in the business of building technologies for reducing the cost of the interconnection process, presumably that is also a competitive domain and perhaps the nature of JP vigilance could be the competitive edge required to dominate in the marketplace.

Can I formulate this idea in general terms? Hmm, let me try. The trigger for vigilance would be when we are in the market to develop a transformative technology that would dramatically reduce the cost of a currently expensive (read constrained, scarce) resource. Subsequently, we should then take into consideration what demands might emerge when the cost falls so much that the resource is used at 10X, 100X, or 1000X its current rate and ask ourselves: does this lead to superior product innovation or market insights? What additional use cases might emerge? How do those use cases shape user archetypes and user flows? How does this perspective shape pricing models? How might you differentiate yourself in your sales and marketing by showcasing your deeper understanding of the domain you’re serving?

This, I believe, is the opportunity for maintaining vigilance for Jevon’s Paradox. At the very least, I think this is true for the gird interconnection queue. How might this be true in other contexts? Could this be a restatement of another tried-and-true innovation philosophy? I don’t really feel motivated to the do research to answer that question ? So, for now, I can simply recommend that we ask ourselves: Can vigilance for Jevon’s Paradox become a competitive advantage for our product or business?