Transforming the Electricity Grid: From Centralized Monocultures to a Polycentric Ecosystem

Abstract

The electricity supply system faces major challenges. The physical and social vulnerability of the monoculture of hierarchical, centralized systems urgently requires radical transformation of their organizational structures as well as their infrastructures. These transformations to low carbon are often characterized as ‘decentralization’. However, decentralization is a process that only signifies a move away from centralized models. This does not necessarily result in a decentralized architecture, but rather a model in which the dominance of ‘commercial private’ combined with ‘monopolistic public’ is replaced by cooperation and community. The research question is: what will be the design of future electricity grids after the transformation? The integration of distributed renewable resources and the growing need for resilience requires great diversity and flexibility from socio-technical smart grids. These involve digitization, enabling the transformation of power grids into networks of clustered, self-healing microgrids with distributed energy systems: generation, storage, transmission, demand response, and internal energy management. Several fundamentals of Common Pool Resources theory (Ostrom) on the analysis of sustainable management of natural resources are reviewed on their relevance: the Socio-Ecological System framework, distinct property regimes, the Polycentricity concept, and the Institutional Analysis and Development (IAD) framework. The transformation leads to ‘distributed’ rather than ’decentralized’ models. Governance no longer takes place from a single control point, but from many, spread across multiple levels, similar to ecosystems. End users play a key role and become partly coproducing prosumers. Governance is polycentric rather than decentral. The IAD provides as its most important condition that, at the legislative level, there must be minimum recognition of the right of ‘renewable energy communities’ to organize themselves as microgrids. This is immediately the biggest social acceptance challenge, as the current monoculture incorporates several lock-ins: incumbent powerful actors, centralized hierarchical control legislation, and obstructive market conditions, including taxing systems.

1. Introduction

Access to affordable, reliable, and clean electricity systems is essential for the sustainable development of any society. Conventional power systems face significant stability and reliability challenges that involve far-reaching governance issues. These challenges are linked to the increasing complexity of social and technical systems, as well as evolving socio-political circumstances. This includes the need for climate change mitigation (carbon neutrality) and adaptation (reducing vulnerability to climatic disturbances) [1]. Additionally, there is a need to enhance and expand the generation and distribution capacities of the grid to accommodate the electrification of existing energy sources and the growing demand for new applications.

Electricity demand is projected to rise sharply and will also change in character and demand patterns, driven by the proliferation of electric vehicles (EVs) and increased energy bulk demand in industries (P2X [2]), as well as the development of data centers [3], which are evolving from current capacities of 5–10 MW to hyper-scale data centers with artificial intelligence (AI) servers with demands exceeding 100 MW.

To address these challenges, power grids must transform their organizational structures and infrastructures. The primary structural transformation involves adaptations necessary to make the grid sustainable and resilient. Standardized, uniform, and hierarchically designed and governed electricity grids have become increasingly fragile and vulnerable to instabilities [1]. Rising internal complexity—partly due to mitigation measures such as the installation large locally weather-dependent generation units—along with greater vulnerability to natural disasters and sudden changes, such as earthquakes, floods, storms, heatwaves, and wildfires, is leading to an increase in malfunctions and blackouts [4]. Moreover, concentrated centralized infrastructures face serious threats from hostile activities, including sabotage, cyberattacks, warfare, and terrorism [5,6].

The combined physical and institutional fragility of centralized systems underscores the urgent need for an energy transition, a term that refers to the transformation of centralized electricity grids into polycentric smart grids, enhancing sustainability and resilience in electricity supply. This transition involves shifting from traditional energy provision methods to a new comprehensive energy system [7]. The theoretical starting point is the recognition of renewables as natural resources. The theory of common-pool resources (CPR) unites the physical and social components of systems for the production and use of natural resources. This study therefore examines what the future socio-technical configuration of the electricity supply system will look like, based on a review of recent developments and studies. The overall research question is:

What will be the design of future electricity grids after the transformation of these socio-technical systems into a model with zero-carbon emissions, limited environmental impact, and reliable supply?

There is general agreement on the idea of a major role for ICT and digitization in a future SmartGrid (SG). Although there is no consensus about this concept (Section 2.2), within the SG vision there are four crucial structural elements in electricity grid management:

• Electricity networks are recognized as socio-technical systems (STSs), which also requires theories that combine the social and the technical;
• SGs address the emerging issues in public grids of vulnerability, security, and resilience;
• The SG is required for integrating renewable energy (RE);
• The SG is crucial for integrating distributed sources and systems.

We start with an elaboration of these four elements, which form the basis for the structured literature selection (Section 2). This leads to a discussion of several key concepts, such as microgrids (MGs), distributed systems, and STS innovation and its social innovation component (Section 3, Section 4, Section 5 and Section 6). The characterization of the type of system that emerges from this requires a theoretical approach that describes and analyzes the social and physical aspects in an equivalent and integrated manner. Following the description of this common pool resources theory and its application to electricity systems (Section 7), there is a discussion and overview of conclusions (Section 8) that can be drawn regarding future electricity provision.

2. Approach and Method

2.1. Four Elements

The first of the four elements indicated in the introduction is the recognition of the STS character of power supply systems. This obviously also applies to existing networks, but recognizing both the physical–technical and socio-political components of the system is essential for the urgent transformation addressing the second element, the rapid rise of issues related to vulnerability, security, and resilience. These call for restructuring the grid with transformations required to address the growth of RE capacity. Its integration into the net-zero carbon grid and adjacent sectors like heat and transport is the third element of the paradigm shift from the centralized model towards the SG [8,9].

The fourth crucial element is the highly ‘distributed’ character of the future grid. As most renewables are geographically distributed energy resources (DER), most capacities of infrastructures harvesting these energy flows will also be distributed. Hence, since the basic definition of distributed generation (DG) [10], there is also an increasing awareness of the need for infrastructures that enable the integration of varying production from distributed RE sources [11]. Such systems—particularly storage, demand-response (DR) systems, and energy management systems (EMSs)—need to align with DG, and therefore these will also become integrated distributed energy systems (DES).

Publications were selected and assessed from the perspective of CPR theory, i.e., recognizing the STS character and other elements of the socio-technical configuration of power supply systems. The selection from the Scopus database and the search strategy used are described in Supplementary Materials. The literature this yielded on the development and implementation of new systems was assessed through the lens of CPR theory with regard to the structural elements described above. This implies that publications primarily addressing technical dimensions of the new configuration must at least reflect on how these are socially designed, regarding how the new elements are embedded in organizational structures and governance, or how processes of social acceptance (SA) unfold.

Conversely, studies on social structures, such as energy democracy, community energy, and energy justice, should also consider how these concepts will materialize in models of actual electricity generation, distribution, and end use [12,13]. This is definitely not self-evident, as many technical studies pay little or no attention to the processes of SA of technological ‘innovations’. Similarly, many social science studies, such as those on community energy [14,15], do not provide clear indications of technical options and physical concepts, such as energy density, capacity, loads, conversion, or flows in the electricity grid.

The results, in terms of STSs and understanding its consequences, are elaborated in relation to the design of future grids. These findings are then discussed within the most applicable theoretical perspectives regarding natural resource provision and use [16]. Harvesting RE flows ultimately represents the use of natural resources.

2.2. Transforming to Smart Grids

Using the metaphor of developing a highly complex system akin to a sophisticated jet aircraft with self-monitoring, self-healing, and self-controlling subsystems, Amin [17] proposed a similar design approach for the electricity grid, which he termed the ‘smart grid’ [18,19]. The term ‘smart grid’ (SG) has since been widely adopted to describe transformative technologies that can evolve power grids into networks of clustered, self-healing microgrids [20]. Resilience is achieved by clustering physically connected and functionally interoperable MGs, enabled by new management models, new roles for stakeholders, and the extensive deployment of smart grid technologies [21]. Looking at MGs from the side of current utilities, they become equivalent generators able to disconnect and to operate autonomously once a fault affects the public grid [22].

Information and Communication Technology (ICT) is the primary enabler of smart grids, but digitalization alone does not make a power supply intelligent. This depends on the objectives of the actors who implement digitalization. It rather serves as a facilitator of the broader transformation into complex and resilient STSs. SGs aim to integrate variable RE sources while leveraging them through flexible demand and storage systems. Such crucial assistance to self-healing components [18] differs from using ICT to strengthen central control. According to [19], “a smart grid consists of a series of independent small power systems, or ‘microgrids,’ linked by a stronger, smarter high-voltage power grid backbone.”

The distinguishing features of SGs involve the implementation of essential qualities that current electricity grid monocultures cannot deliver [23]. However, SGs face obstacles arising from conflicting paradigms [24], especially concerning DES, internal control by MG communities, and the empowerment of active end-users versus traditional top-down demand-side management. Four vital features characterize smart grids:

• Integration of variable distributed RE sources, such as solar, wind, hydro, tidal, and wave energy.
• Introduction of flexibility in energy flows and deployment of various capacities, including real-time demand response (DR).
• Recognition of the socio-technical character of electricity grids, requiring transformation of their organizational model to interconnect DES beyond hierarchical control.
• Deployment of ICT as a fundamental shift in real-time energy management systems (EMSs), replacing centralized oversight.

2.3. Social–Technical System Character

RE resources are primarily geographically distributed flows—solar radiation, hydro, wind, waves, and geothermal—and therefore differ fundamentally from the conversion of high-density energy stocks [25], such as fossil fuels and uranium. The crucial differences in conversion systems, the completely distinct spatial distribution of resources, and the enormous growth in the use of space as a resource imply a genuine transition in the design of power supply systems. This transformation encompasses technological advancements in production and distribution and requires a comprehensive overhaul of these STSs. Recognizing the STS character is essential in transition theory [26], which implies new organizations, new business models, new policies, and new governance structures. It includes a redefinition of electricity as a co-produced service [27]. To investigate the model of the power supply system, both the co-production and its social roots, as well as the physical components, should be analyzed.

2.4. Resilience Through Diversity and Flexibility

The primary transformation involves dismantling the highly centralized electricity model, both in physical configuration, governance structures, and introduction of users’ engagement. The uniformity and hierarchy of centralized models, characterized as a technical and social monoculture, are currently increasing vulnerability, threatening the reliability of electricity supply [28]. Within the monoculture of the centralized grid model (Figure 1), stability has long been based on installed baseload power generation, mainly coal and nuclear. Depending on geographical differences, there are naturally subtle variations between countries, for example, in the relationship between state (public) influence and the role of commercial enterprises. Particularly regarding the components that concern RE feed-in, many variations already exist, primarily with differences between feed-in on the HV grid, e.g., large wind farms, off-shore wind, and large hydro, and various ways of feed-in at the level of distribution networks. However, the basis of the model in economically developed countries is as shown in Figure 1. The centralized grids have, in many jurisdictions, globally been operating in baseload and peaking regimes for decades [29,30]. Since new variable renewable driven systems have been operating in combination with dispatchable systems, such baseload capacities have shown to become relatively inflexible, because they are inert and sluggish.

The term resilience is obviously borrowed from the domain of ecology. As the electricity grid is an STS, its resilience also includes both physical and social components. Four domains of resilience are distinguished: social, economic, engineering, and ecological resilience ([31], p. 5). The integration of environment-dependent DER alongside intensifying climate risks introduces compounded challenges for future net-zero power systems [32]. Grid resilience is the adaptive capacity of the STS to maintain and overcome disturbances that may be caused by social, environmental, economic, and institutional factors [33]. The persistence of inertia and monoculture increases vulnerability and the likelihood of severe outages, resulting from disturbances in any of these four domains. High-penetration RE systems also introduce escalating variability challenges, necessitating a strong reduction in grid inertia. For example, breaking the increase in domino effects and extending recovery times post-disruption can be achieved through compartmentalization of the centralized network and enhancing grid intelligence.

The SG’s intention is to introduce flexibility by adding real-time monitoring and data exchange, but it also applies compartmentalization, as the original SG definition is a “network of integrated microgrids that can monitor and heal itself” [34,35] and ([19], p. 570). The self-healing compartments are MGs that consist of interconnected small-scale power generation, storage, and internal distribution systems, functioning as unified entities [22,36]. These MGs, based on DESs, enhance flexibility, efficiency, and reliability in energy access, allowing for independent operation—islanding—during outages. By introducing diversity in capacities of generation, storage, and end use, as well as flexibility in energy flows and demand patterns, MGs contribute significantly to overall grid resilience [21].

3. Microgrids: Cornerstones of Transformation

MGs consist of interconnected small-scale generation, storage, and distribution systems functioning as unified, controllable entities [37]. An MG is a sophisticated distribution system for the enhancement of efficiency, sustainability, and reliability, with energy management through real-time data exchange and RE generation [38,39]. MGs integrate diverse DESs, including generation, distributed storage, transmission infrastructures, and end-user demand loads [40].

MGs offer diversity, both between them—each adapted to specific social and geographical contexts—as well as within each MG. They feature a variety and a mix of energy sources, applying varied technologies, e.g., generation, storage, and automated energy management, while connecting different types of end users. Within the technologies, the AC and 230 V are also challenged by hybrid MG tests of LV-HV and DC-AC [39,41]. Hence, the variability of MGs offers flexibility, efficiency, and reliability [38,42], making them crucial for expanding global energy access. The compartmentalization allows islanding, a capability prohibited in most centralist grids, which enhances resilience by avoiding blackout domino effects and maintaining power during outages [43].

The prime contribution of MGs to overall grid resilience lies in breaking the ecological and structural monoculture of centralized grids. MGs will exhibit significant diversity in the composition of participants and the character of resource mixes, and, consequently, in size. This ranges from small villages sharing PV systems or wind turbines to entire regions with large industrial demands. Even the strongest pillar of centralized grids, base-load capacities such as nuclear power, is undergoing transformation. Worldwide nuclear power peaked in 1979, and is declining, with hardly any new power plants being constructed. However, recently, the development of Small Modular Reactors (SMRs)—currently over 100 projects of development worldwide, 5 under construction with possibly 2 in Russia and China working [44]—signals a shift toward smaller, more geographically distributed and flexible generation. The emergence of specific geographically distributed large demand facilities, such as rapidly growing data center operations, is prompting these end users to build SMRs close to their locations. SMRs are envisioned for modular land-based, marine, and transportable applications, suitable for industrial co-generation and local heat-power integration [45]. However, community acceptance remains a key issue [46]. Integrating SMRs into community MGs with power primarily covering industrial loads may offer collateral secondary benefits, e.g., residual heat and employment.

MGs may also employ multiple storage technologies (Section 5.5) to integrate variable renewables. The capacities of the variation in distributed storage will be linked to advanced EMSs [38], which optimize efficiency and renewable utilization [47]. Hence, energy management has to be ‘distributed’ as well. The concept of the MG emphasizes the direct connection of a set of end users, combined with production and storage within a certain territory, a clear distinction from ‘virtual power plants’ or other ‘aggregators’ [48].

Stakeholders include prosumers, MG operators, energy service providers, utilities, or possibly distribution system operators (DSO)—not controlling the MG but providing technical services—and local authorities’ agents. Through material participation, prosumers [49] transform from passive consumers into active co-producers of infrastructure, giving substance to concepts such as ‘Community Energy’ [50,51], or the EU’s policy concept of Renewable Energy Communities (RECs) [52,53]. When discussing the structure of MGs as STSs, the social composition and operational decisions will determine the MGs’ structure. This move away from the centralized system is, in the literature, often characterized and labelled as ‘decentralized’. However, this simplistic term might be misleading.

4. Distributed, Not Decentralized

The shift towards high end-user engagement and MGs with integrated DESs is often referred to as a move towards ‘decentralization’ [54,55]. Decentralization is a complex process that signifies a transition away from centralized models. The terms ‘decentralized’ and ‘distributed’ are frequently used interchangeably in the literature, leading to confusion [56]. Decentralization involves transferring control from a single centralized authority to multiple smaller entities. This can result in varying and sometimes undefined structures. This complexity makes it crucial to distinguish between decentralized and distributed systems, especially in the context of STSs where socio-economic structures intertwine with technical structures. Clear definitions are essential for understanding the transformation of power supply systems.

The term ‘decentralized’ often describes a governance maneuver: a shift in decision-making authority to lower levels of organizational hierarchy. This represents a fundamental institutional transformation away from centralized governance of the public grid. The variability in the use of the term ‘decentralization’ can conflate processes with end goals, leading to a problematic labeling of future hybrid systems. Energy decentralization is called an ‘energy fable’ [57], a frame reflecting the dominance of the discourse of centralization as the ‘natural state’ of power supply systems [30].

In contrast, the term ‘distributed’ typically refers to the geographical dispersion of RE resources. While DESs are often conflated with natural dispersion, it is essential to recognize that distribution as defined in the original concept of distributed generation [10,11] does not arise from the natural resource, but the human choices of constructing infrastructures for electricity conversion and who controls them. From a technical perspective, distributed systems are primarily inverter-based [58]. Even in the case of large-scale RE generation, the ecological definition of their supply and the dimensions of their infrastructures differ significantly from those of conventional power plants.

There are two logical paths for characterizing most new energy systems as ‘distributed’. The first is based on DER, the ‘distributed resources’ approach. Electricity must be generated where the natural source is available. This is sometimes in places where there is little end use and little existing transmission infrastructure, while the source is abundant. Clear examples are offshore wind or solar radiation in sparsely populated deserts. By utilizing locations that offer significant energy flows, large-scale generation is often achieved that, although ‘distributed’, usually results in concentrated feed-in to public HV transmission grids. Note that this concentration implies that a significant part of the gains in terms of reduced vulnerability are lost. Still, although it is large-scale generation, it is not necessarily centrally controlled. Large end users, e.g., industry, may invest in such large RE systems as prosumers for their own use.

The second path is that ‘distributed’ systems implies generation in smaller units as close to end use as possible: close in terms of distance, but also close in social terms, e.g., involvement, control, and property. Examples include photovoltaic (PV) systems, wind turbines, and storage facilities integrated into urban or rural environments, providing direct energy to end users, and often ‘behind the meter’ [10]. Understanding the differences between decentralized and distributed as distinct concepts is crucial for effectively navigating the transformation of energy systems and meaningful participation in RE projects.

5. Social–Technical System Structures

5.1. Innovation

Transforming the power grid involves far-reaching innovation within a complex system, beyond ‘architectural innovation’ [59]. The latter concerns a rearrangement of components “while leaving the core design concepts (and thus the basic knowledge underlying the components) untouched” ([59], p. 10). Radical innovation establishes a new design, as it integrates new technologies combined with evolving social relationships. Innovation is defined as a change in ideas that manifests in products, processes, or organizations, applied successfully in practice. It concerns transforming STSs, including social innovation [60], encompassing scientific, technological, socio-economic, cultural, and organizational components. All innovation involves the emergence of new systems and the decline of old ones. Creative destruction is the process of old technologies and procedures fading away through crowding out [61]. New innovations are outcompeting them and rendering previous knowledge and ideas obsolete [62].

As public grids were introduced in the early 20th century, replacing private, locally centralized grids [63], the grid has become a monoculture. This model is based on economies of scale, standardization, hierarchical control, and centralized public governance [64,65]. In the neo-liberal wave around the turn of the century, the hierarchy remained unchanged. Functions that were outsourced, particularly production, were privatized, but always to market actors, never to civil society, never to citizens’ cooperatives. The model features one-way electricity flows from large power plants to consumers, uniformity in applied technologies enforced by hierarchical authority and control [66]. The centrality and hierarchical control particularly comes to the fore in its relation to customers. For example, in rigid utility’s billing systems laid down in legislation [67,68].

However, centralized grids are facing challenges like security threats, aging infrastructure, limited RE integration, and political threats asking for limiting dependance on imported resources [69,70]. Failure to achieve substantial flexibility may lead to wasted RE because the prime control measure in the hierarchical grid is RE curtailment, compromising low-carbon supply and increasing consumer costs [68]. Relevant innovations include distributed storage alongside short-term community storage, flexible demand–response, co-production of new infrastructure capacities, co-production of energy, and prosumers’ peer-to-peer (P2P) supply. These must be combined with innovations in governance, property regimes, data ownership, data management, and co-production in land use decisions [27]. Institutions securing fairness and justice (Section 6.2) are crucial to achieve these transformations in SA processes. These are tricky, because the required innovations challenge the current institutional structures of the electricity grid.

5.2. SGs Versus Centralized Structures

The concept of the SG represents a significant evolution in energy distribution technologies, emerging in the first decade of the 21st century [17,18,19]. While the term ‘smart grid’ has gained traction, its definition is highly contested. The SGs envisioned as a network of interconnected, self-sustaining MGs with inherent self-healing capabilities contrasts sharply with experts working on ICT reinforcing central control mechanisms [24]. Several key features define the future structure of SGs. By integrating autonomous MGs with DESs, SGs enable two-way communication across both user and distribution levels. This enhances efficiency, sustainability, and reliability through real-time data exchange and the integration of RE sources [71]. SGs boast resilience based on their adaptive capacities, which span socio-economic and technological dimensions and facilitate the scalability necessary for integrating diverse RE sources.

The contrast with the traditional grid underscores the wide geographical, technological, and social diversity inherent in the collection of MGs that form the smart grid. For example, in the current grid, failures on power grid transmission and distribution lines cause about 90 percent of the power outages, and most power losses are also due to distribution and long-distance HV-transmission systems [72]. Localized energy generation, storage, and direct distribution options greatly minimize transmission losses, while reducing high-HV grid infrastructure expansion needs [73].

The current grid model already faces increasing congestion in both HV transmission and regionally controlled distribution networks. It severely creates access-to-grid issues, resulting in strong perceived justice and equities questions [74]. These reveal complex social, institutional, and political issues. Yet, traditional perspectives continue to emphasize technological and economic values, often at the expense of societal values like user engagement, ownership, and equity [75].

Transforming passive end users into active participants is essential for optimizing MG operations. Within each MG, all options for generating the power and using it in a way that is helpful for co-production should be utilized, which implies maximization of pro-/consumption. This means that as much energy as possible is used directly, so P2P energy exchanges within the MG are vital for managing RE generation, storage, and consumption [76,77]. Effective EMSs apply cooperative management of the capacities of collective assets and energy flow exchanges [78,79]. P2P delivery, peer-delivery to shared storage, followed by consumption by peers within the MG, will prove to become a foundational principle for energy community structures [79]. This is often called ‘energy sharing’ [80,81], but it must be considered as sharing co-produced DES capacities [82], whereas the communities doing so may be referred to as RECs [53,83].

Governance in such systems requires self-regulation of P2P operational conditions, ensuring trust and safety through established algorithms in the EMS [84]. Moreover, cooperation in land use decisions by sharing property rights of space, the most scarce resource, is fundamental for optimizing the co-production of RE and DESs, ensuring proximities to demand [85,86]. The emergence co-production and of prosumers—entities that both produce and consume energy—challenges the paradigms of traditional public grids [87]. With the shift towards P2P delivery, increased storage capacities, and a crucial active role for end users (Section 6.1), an energy transformation is underway [88]. MGs demand a departure from conventional management styles, emphasizing collaborative frameworks for energy capacity sharing and advanced control strategies [35,89]. Prosumers contribute significantly to these developments, not only by participating in energy communities but also by co-producing the distributed infrastructure [27,90].

5.3. Technological Advancement Enhancing Flexibility

The integration of advanced technologies into MGs is paramount for enhancing operational flexibility, e.g., real smart meters (Section 7.3.4), that is, sensors for an EMS’s input to leverage energy capacity more effectively. Additionally, blockchain technology offers options for distributed ledger accounting that can replace traditional central control mechanisms, while AI may optimize the EMS for improved efficiency [91]. Energy management within MGs often overlaps with other industrial control systems [92]. These technologies enable real-time monitoring and control of capacity utilization—such as generation, storage, transmission, and consumption—allowing for a dynamic balancing of supply and demand. Flexible load management solutions, including demand response (DR) [93], take precedence over traditional demand-side management (DSM) programs that were aiming at central base-load utilization [94]. DR allows for the optimization of energy consumption patterns in alignment with available RE generation and local or regional energy storage. Flexibility measures like DR and storage are need for the integration of variable RE sources, and ICT is expected to bolster this flexibility.

5.4. Information Technology

Because RE is typically generated in DESs, these systems must adapt supply patterns to dynamic energy flows [95] by including storage facilities and using DR mechanisms. This flexibility represents a significant transformation of the rigid inflexible traditional grid, which lacks the adaptive capabilities required for handling diverse energy sources [28]. Within policy, discussions have increasingly recognized RE as “additional to base-load generation capacity” [96]. This reflects the notion that RE is often viewed as ‘intermittent’, necessitating constant backup from ‘reliable’ sources of electricity [30].

A core principle of flexibility hinges on the self-healing and adaptive capabilities of SGs. The incorporation of ICT, including advanced AI technologies, plays a vital role in enabling this flexibility [97]. This is crucial for managing variations in net-load and ensuring system stability, e.g., power quality, frequency, and voltage control. The challenge remains to effectively balance supply and demand across various time frames, accommodating rapid fluctuations, slower periodic changes, and abrupt disruptions while managing interconnections with other energy systems, such as heat or gas. The role of AI in optimizing energy management is transformative, particularly within smart MGs [98]. AI will be helpful to design the local EMS for each special type of MG. Algorithms should include the variations of all generation capacities, different storage capacities (Section 5.5, EVs, and all types of demand. The latter concerns the specific needs of all individual end users, as well as the variation within the set of end users. The EMS aims at fully optimized use of RE generated power within the MG, while reducing the exchanges with the backbone of the public grid. AI enhances energy management by predictive analytics, based on historical data and weather expectations relevant for RE generation. It helps by applying continuous monitoring of real-time energy flows, storage levels, and consumption metrics. It can help to optimize DR by automatically adjusting energy usage in response to generation, available stored capacity, and demand fluctuations within the MG [99]. It should also include consumer preferences for personalized management.

DR can also help to include price signals from the public grid’s backbone. For example, during periods of high demand or low production in the MG, AI can help the EMS in how to shift loads to times when energy is more abundant in the MG, or cheaper when it is imported from the backbone. It can also help to manage all existing energy storage in the MG by determining the best times to charge or discharge storage units [100]. Hence, AI may become a crucial part of the MG’s automated EMS, automating most decisions about dynamically adjusting operations based the MG sensors producing real-time data. The self-healing competences of the MG may be enhanced by AI’s fault detection and adaption of self-healing protocols, possibly by foreseeing issues before they escalate. AI-driven systems can initiate self-healing protocols.

While the tools of information technology aim for optimal management through real-time data exchange and automated grid operations, strong resistance to these innovations often exists. Institutional lock-ins tied to the existing centralized grids pose challenges to adopting self-healing MGs with DESs. The narrow focus on SGs often prioritizes ICT and data management within centralized models [24], overshadowing the original resilience vision of the SG [18]. Moreover, ultimately, the social acceptance (SA) of all these innovative technologies (Section 6.2) will play a pivotal role in the successful transition to flexibility.

5.5. Storage and Buffering

The new grid model must accommodate variability in RE generation, requiring more dynamic demand. This can partly be achieved by an advanced EMS, deploying flexible demand capacities to absorb relatively high generation, while supplementing low generation, preferably by power from within the MG. Storage systems balance supply and demand dynamically, introducing more absorption capability with the potential return of electricity during high demand and low generation. To enhance resilience, storage assets must also possess diversity: different techniques, property variations, and associated scales (Table 1) [101,102]. For example, sensible heat storage is suitable for seasonal storage [103], and the use of EV batteries is particularly promising for smart absorption by recharging [104,105] and possibly uploading to the grid [106] as part of the DES.

Additional power absorption can occur by storage in fuels, e.g., hydrogen, or in flexible systems that store other useful products, such as desalinated water in basins. Certain types of storage, like pumped hydro, are often large-scale and highly dependent on geography, which may put them outside the boundary of local MGs, and hence, they can only be feed-in and deployed via the public grid backbone.

Wherever possible, for supporting autonomy and investments in DG, storage capacity should be shared within the MG [106], not only for individual prosumers but also through the co-production of shared storage systems, such as neighborhood batteries [107]. In Table 1, examples of storage systems are presented [108,109], distinguished according to their time scale for balancing energy and possibilities for ownership and deployment within the MG [102], installed by individual prosumers or collectively [110], some at larger geographical scales, and still distributed when directly connected to the HV backbone.

Besides balancing loads, storage can be relevant for frequency regulation (e.g., flywheels, batteries), for voltage control for grid stability, and for smoothing out power fluctuations [110] or rapid energy storage and release, e.g., supercapacitors [111]. Some storage is not primarily for feeding in electricity, but applicable for other energy demands. Novel technologies provide seasonal thermal energy storage [112], and thermal storage may also be applied in district heating systems [113], integrated with other heat sources. Hydrogen can be used for storage by using excess power for electrolysis, and then applied in hydrogen fuel cell systems, for example in transportation, or industrial demand.

Table 1. Storage facilities (non-exhaustive), as ‘distributed’ systems for integrated EMSs in MGs.

Storage Techniques	Balance Time Scale	Ownership/Management
Hot Water (Boilers)	Within days	Individual
Flywheels	Short-term (seconds–minutes)	Individual, Collective
Supercapacitors	Short-term (minutes–hours)	Individual, Collective
Batteries (Li-ion)	Short-term (hours–days)	Individual, Collective
Electric Vehicle Batteries	Within/between days	Individual, Collective
Pumped Hydro	Between days; Seasonal	Collective, Large-Scale
Compressed Air Energy	Within days; Seasonal	Collective, Large-Scale
Sensible Heat Storage	Within days; Seasonal	Collective, Large-Scale
Hydrogen Storage	Within days; Seasonal	Large-Scale
Geo-Thermal	Between days; Seasonal	Collective, Large-Scale
Thermal, Molten Salt	Between days; Seasonal	Collective, Large-Scale
Desalinated Water Storage	Between days; Seasonal	Collective, Large-Scale

Table 1. Storage facilities (non-exhaustive), as ‘distributed’ systems for integrated EMSs in MGs.

Storage Techniques	Balance Time Scale	Ownership/Management
Hot Water (Boilers)	Within days	Individual
Flywheels	Short-term (seconds–minutes)	Individual, Collective
Supercapacitors	Short-term (minutes–hours)	Individual, Collective
Batteries (Li-ion)	Short-term (hours–days)	Individual, Collective
Electric Vehicle Batteries	Within/between days	Individual, Collective
Pumped Hydro	Between days; Seasonal	Collective, Large-Scale
Compressed Air Energy	Within days; Seasonal	Collective, Large-Scale
Sensible Heat Storage	Within days; Seasonal	Collective, Large-Scale
Hydrogen Storage	Within days; Seasonal	Large-Scale
Geo-Thermal	Between days; Seasonal	Collective, Large-Scale
Thermal, Molten Salt	Between days; Seasonal	Collective, Large-Scale
Desalinated Water Storage	Between days; Seasonal	Collective, Large-Scale

In current centralized systems, storage is treated by stakeholders and policy-makers mainly as commercial, with enterprises frequently offering storage a service to grid manager, e.g., DSO or HV transmission operators. Investment and operation is severely hampered by institutional market conditions [110]. Legal regulations and energy companies’ ownership (Table 1) may have very unfavorable impacts on investments that are in line with supporting capacities within the MG [102]. On the other hand, certain types, in particular large-scale storage for longer periods to bridge seasonal differences, can be hard to achieve within MG regimes, and have to be arranged at least on a regional scale. From the perspective of SGs, the hybrid nature of future grids [113] requires storage systems in the range of short-term and collective management, which are controlled by an EMS that integrates the control of a DES as well [98,100], without barriers imposed by hierarchical regulation.

5.6. Variable Demand and Demand Response

The importance of directly utilizing variable RE generation has been recognized since the resurgence of distributed wind power [114]. Effective DR systems can be applied to enhance the aligning local demand patterns with the variability of this generation. However, challenges arise when both signals and optimization efforts are primarily centralized, while flexibility should be delivered by end users [115,116]. Traditionally, demand adaptation has been managed through DSM, controlled by energy companies [84,117]. However, in MGs that harness the generation and storage capacities of prosumers, DR must support their investments in the assets of these systems, thereby enhancing the feasibility of DESs. Clearly, the frameworks of DSM and DR do not align, so the critical question is raised who controls the DR system in the MG. DR may be viewed as an essential element, even in cases where the energy company still applies DSM within an MG [93]. In such cases it is very unlikely that acceptance from prosumers is high.

DSM has a long history, evident through technologies like remote switching combined with time-of-day (TOD) tariffs aimed at incentivizing consumption during off-peak periods. Studies on dynamic tariffs primarily explore their potential to alleviate the strain on large-scale generation and transmission capacities [118], yet the flexibility necessary for integrating RE is often overlooked [107,119]. Historically, DSM has emphasized a top-down approach to boost the utilization of centralized, inflexible base-load capacity through strategies as ‘valley filling’, increasing power consumption during low demand periods [94,117]. This biases the perception of DR in MGs [120]. This is true even in the case of ‘virtual power plants’ [71], where generation units like rooftop PV are managed by grid operators. Variable RE supply calls for a real-time approach of sharing energy capacities and P2P delivery [121], a fundamental characteristic in common prosumer-base systems [122]. Nevertheless, this is often merely framed as P2P-trading within sub-markets that operate within or alongside traditional energy markets [123], so mutually applying price negotiation mechanisms. Treating end use merely as an economic activity remains a narrow characterization of end users. They are not merely market actors (Section 6.3); end users’ flexibility originates from daily social practices [114,116], for which empirical studies are required that are now lacking. P2P is about cooperative use of energy capacities, eventually sharing energy, not necessarily trading it [81,82]. DR helps to optimize the use of all distributed capacities in the MG, generation, storage, transmission, and demand absorption, while minimizing the exchange with the public grid backbone.

6. The ‘Social’ in the Innovation of STSs

In the transition to a low-carbon electricity grid, the social component of STS innovation intersects with citizen participation and broader social objectives related to community well-being [124]. There are three main strands to this social dimension:

• The rapidly emerging crucial roles of end users in the system.
• The process of social acceptance (SA) of all innovative elements of the transition.
• The partial replacement a system that is framed as providing public and private goods and services with systems primarily focused on the co-production of common goods.

These three aspects are closely interlinked; we will first describe them briefly before explaining how this ultimately leads to a new model for the electricity grid.

6.1. End Users at the Core

The current centralized and privatized grid model defines electricity as a commodity, and characterizes end users as customers. These clients are affected by non-transparent billing systems created by central systems, which are based on inflexible tariffs established decades ago [67,125]. With the emergence of smart MGs, this paradigm is poised to change dramatically [126,127]. The innovative structure signifies a prominent role in the energy system for prosumers. As a result, these end users are no longer merely consumers; they produce and deliver P2P to each other [121].

Three things come together by including end users in the production-consumption chain: prosumers, co-innovation, and social innovation [128]. They co-produce the infrastructures of DESs [27,121], and the energy generated is no longer produced by commercial energy companies, and not necessarily delivered through grids controlled by DSOs. Prosumers individually own assets such as PV panels and EVs [128], while simultaneously collectively owning other assets, such as wind turbines or different types of shared storage (Table 1). This transition will lead to the emergence of both individual and collective EMSs [89], necessitating that DSOs and energy companies adapt their roles. For example, utilities should focus on supplementing consumption that cannot be co-produced within the MG, and finding ways to absorb energy surpluses from MGs.

Prosumers’ ownership and control of primary electricity already fundamentally alter the agency within existing grids, and this also involves a fundamentally different type of end-user behavior [49,129]. Yet, so far, the control and structure of current grids has hardly been adapted to this fundamental change. Current systems still reflect the historical path-dependent movement towards increasing centralization. The standardization also concerned the definition of end users as consumers of a commodity with highly regulated billing systems [67]. Even studies that classify potential tariff systems and examine the integration of RE generated power typically define tariff systems as billing by energy producers, with individual customers as secondary considerations [130].

In contrast, prosumer-controlled production competes with energy companies’ generation and production. This competitive dynamic could result in what has been described as the ‘utilities’ death spiral’ [131]. To avoid this outcome, electricity companies are urged to redefine their raison d’être, adapt their strategies, and shift their focus away from the cumbersome production of ‘base load’ power.

6.2. Social Acceptance of Transfomations

Innovation is a complex process, with transitions being multi-layered [132]. SA processes of RE innovation are complex, understood as multiple layers in a bundle of processes unfolding at three different dimensions [133,134]. Any innovation requires positive decisions by relevant stakeholders at these various levels. The objects of acceptance are all elements, technical as well as social, of the transformation of STSs.

The layers of socio-political and market acceptance define the institutional frameworks governing these processes. In turn, these strongly affect the possibilities for ‘prosumers’. For instance, incumbents often push back against distributed generation by imposing restrictions on the further connection of DESs to the network. This resistance exemplifies the problematic socio-political acceptance of new institutional foundations for future grids. The current centralized and monocultural grid is characterized by path-dependent lock-ins [135], within several dimensions, such as government organization and policies, dominant technologies and routines, industry standards, and societal expectations and preferences [66]. Path-dependency concerns how past events constrain later developments, leading to outcomes that are not easily reversed or altered.

Such inertia is not merely a result of ‘objective’ physical barriers or financial constraints; it is also a function of the perceptions of actors who frame these challenges as arguments for resistance within socio-economic and political struggles regarding transformations [136]. The entire monoculture of the centralized grid is institutionalized (Section 6.3), and these institutions serve as a principal component of societal resistance, particularly as it relates to lock-in phenomena [134]. Inferior technologies and modes of organization can persist within this framework, driven by the embedding of various institutional, political, and economic commitments, as well as by market structures and state–industry relationships. The existing hardware and associated sunk costs within large-scale infrastructures and monopolies—due to economies of scale in centralized models [137]—have created substantial vested interests among incumbents. Historically, this structure has been institutionalized through strong legal frameworks. As these now create barriers against transformations, institutional changes are needed [135,136].

The structure of SA involves robust engagement from a diverse range of stakeholders at multiple levels. These stakeholders include end users of all types—such as industries, commercial enterprises, public agencies, and households—as well as DSOs, community organizations, energy production companies, local and regional authorities, policymakers, financial actors, legislators, and more. Each of these stakeholders holds different stakes, including ownership, property rights, vested interests, and legal responsibilities.

The most prominent aspect of community acceptance of all innovations with regard RE, SG, DESs, DR, and EMSs [138] involves potential prosumers and their willingness to co-produce. This includes decisions about investments, primarily spatial resources, such as rooftops, land, or building inteiors for storage equipment or transformers [86]. Secondly, financial investments and efforts in establishing DESs reveal processes of SA. Unfortunately, the rare studies on financial investments by end users focus on the individual acceptance of investments in generation capacity that remains under the control of the energy provider [139].

The majority of community SA studies focus on siting RE facilities in affected neighborhoods, which ultimately pertains to projects that interfere with communities. These are usually perceived as external interventions, carried out by community outsiders, usually commercial enterprises. Communities perceive little certainty that benefits will accrue to those who provide the main resource, which is their space [140]. Justice with regard to their perceived property (Section 6.3) is essential for community acceptance [141]. Commercial developers, combined with national or regional authorities, are using the space of affected communities primarily for their own benefits. SA studies show that projects rooted in communities—property, ownership, and justice—and projects with high community engagement and influence in the decision-making process—procedural justice—exhibit much higher levels of acceptance [142]. Furthermore, most SA studies unfortunately focus on individuals rather than processes, examining the acceptance of projects within the existing monoculture, in which individuals are merely consumers or affected residents. This consequently concerns the acceptance of projects that define communities as ‘affected’, whereas using the space for their own DESs becomes an investment in their own infrastructure by a ‘community of interest’ [134,143]. RE, transmission, and storage facilities established by commercial actors and supported by public bodies and legislation to compel communities to offer space and land almost always result in problematic community acceptance processes.

Transitioning from providers in the center to end users as the starting point is a matter of ‘allocative justice’ ([144], p. 129). These concerns three justice dimensions:

• Distributional, of benefits, impact, and access;
• Procedural, concerning the process of decision making;
• Ultimately, ‘recognition’ of the crucial role of end users and of the resources they put into it.

The most important investment in RE and DESs is space and land [27], not because RE itself is a scarce resource—solar radiation is abundant—but the required space for the infrastructures to harvest it is scarce. In in order to reduce the geographical distance between generation and end use, end users need to be convinced or encouraged to invest their space in DESs. The crucial role of justice issues emerges as extremely important from all SA research [145]. The perceived justice is heavily affected by the characterization of electricity as a public and commercial commodity, with end users framed and approached as merely customers.

6.3. Common Good Character of Future Electricity

Currently, the grid model is not only heavily centralized, it integrates public (state-controlled) and private (commercial) elements within a strong market framework. This model is fully institutionalized and dominates the discourse on RE. Many studies simply classify goods and services in the STS of a power supply as either ‘public’ state-regulated, (lower left, Table 2) or ‘private’ market-based commodities (upper right, Table 2). This dichotomy is often taken for granted, even by academics, for example when they consistently label local DES communities as ‘local energy markets’ [88,146]. This persistent framing of co-production of DES in market terminology [30] obscures the essence of sharing and collaboration within the community, both in terms of investing in land use and in the shared capacity to utilize RE sources.

Co-production is essential for what are known as common goods [16], particularly in sustainable harvesting and use of natural resources [147]. The perspective of end users cooperating on establishing and using DESs in a MGs, making it one operational unit in a future hybrid grid [148], represents a full paradigm shift toward recognizing common goods. This is crucial because RE flows are inherently natural resources defined by local ecological conditions. DESs in MGs represent complex STSs with multiple interacting cooperating users for optimal resource use, akin to Social–Ecological Systems (SESs) [147,149] that provide common resources, such as irrigation systems. Ownership and property rights play significant roles in such SESs for the provision of common goods [150].

Table 2. Types of goods and services ([151], p. 24).

		Subtractability of Use
		Low (No exclusive Substraction)	High (Exclusive Substraction)
Options to Exclude others from potential beneficiaries	Rivalrous consumption	Common	Private
	No rivalry in consumption	Public	Club/toll

Table 2. Types of goods and services ([151], p. 24).

		Subtractability of Use
		Low (No exclusive Substraction)	High (Exclusive Substraction)
Options to Exclude others from potential beneficiaries	Rivalrous consumption	Common	Private
	No rivalry in consumption	Public	Club/toll

Table 2 shows the typology of goods and services based on two dimensions: subtractability and access [151]. high subtractability means that one individual’s consumption diminishes availability for others, while private commodities also allow high access. Public goods exhibit low subtractability combined with high access. It means being available to everyone without diminishing their availability. For public goods this is exemplified by state-controlled electricity transmission. Currently, rapidly increasing scarcity in transmission capacity leads to net congestion that limits access, threatening resilience and security.

In contrast to private and public, common goods focus on cooperation by sharing and distributing together, and by cooperating in production rather than competition. They feature high subtractability with restricted, precisely defined access. That means a resource is available in a defined community. This applies to most natural resources, as well as RE sources whose use hardly diminishes their availability [152]. Hence, it applies to DER sources, but not to the space needed to catch them. The use of that limited resource requires cooperation, which becomes critical to establishing a sustainable harvesting and utilization model. A fourth, also relevant type is club goods. These might arise in contexts like an MG; in this case, access is denied to specific consumers. Hence, in order to guarantee access for all citizens, such exclusions must be regulated to prevent injustices [144].

There are many adverse effects of the centralist public/private model for integrating RE and DESs. Where end users are seen as merely customers, the crucial concept of flexibility is also treated as a commodity. With its commodification, flexibility becomes defined as a resource or service to be bought and sold to customers [116], and, as such, it is mischaracterized as a property of the energy system, emphasizing the costs of balancing supply and demand in the market. Existing methods, like DSM with varied tariffs, presume that customers first have to pay fees for using that ‘service’, whereas, in fact, the flexibility is co-created by end users and primarily prosumers [153]. Fundamental questions include [116]:

• Who provides the commodity ‘flexibility’?
• How is flexibility generated?
• Who ‘owns’ the flexibility in demand and storage?

The answers differ drastically in the conventional provider–consumer model versus an autonomous MG, where producers and end users are often the same, prosumers. In an STS, the flexibility of the system incorporates the adaptive capacities of end users, and their willingness to adapt their use, making their daily practices integral to the system ([116], p. 933). Consequently, consumers and prosumers manage their own flexibility and integrate it into the distributed EMS that controls DR and storage. Beside the numerous studies on the technology [118], new empirical research into how to access this flexibility is urgently needed.

Another highly relevant example of reduction of the dominance of private/public narrative in the grid lies in the rapidly emerging role of the digital component in smart MGs. Here, there is also a need to break through the dominance of commercial and private organizations and their values, for example, in the application of AI in the self-regulation incorporated in the EMS [154]. Reconceptualizing electricity as a co-produced common good, rather than as a private commodity or public service, shifts focus to the intrinsic characteristics of natural common resources. The following section discusses these theories and analyze the implications of co-production and commoning for the electricity supply model.

7. Theoretical Input: Co-Production of Common Goods

Studies on how communities manage shared resources primarily focus on SESs [149,155]. Ostrom’s research revealed how communities worldwide have developed effective systems for the management of natural resources [16], for example, by co-producing collective infrastructures for harvesting and distribution with sustainable management systems.

Commons are not merely natural resources; they are intertwined with social activities known as ‘commoning’. These activities are institutional and follow patterns shaped by both formal and informal rules and norms (Section 7.3). In commoning, access to resources is shared, and the use of these resources is governed by negotiated rules aimed at ensuring a broad distribution of benefits among community members. Both the rules and the physical infrastructure are co-produced by the community, reflecting a shared responsibility that is subject to negotiated self-governance. This responsibility can be partly individual or collective, depending on the applicable property regimes of the system’s elements [150]. Commoning refers to the collective management and stewardship of resources, such as RE flows, emphasizing shared use, cooperation, and community decision-making. Communal goods benefit all members of a community, whereas resources reduced to marketable items, emphasizing individual ownership and profit, represent commodities that can be primarily bought, sold, and traded in the market.

Three main theoretical approaches of CPR are relevant for co-production of electricity. In order of discussion, these are the concept of SESs, the concept of polycentricity, and the Institutional Analysis and Development (IAD) framework. The IAD delivers the conditions under which new distributed STSs can emerge, which is how collective choices of co-production of DESs are not obstructed and can mature.

7.1. MGs as Commons: The Social–Ecological System Framework

Any MG with DES infrastructure (example, Figure 2a) functions as an STS, connecting all actors involved in energy provision and co-production of infrastructure, sharing similarities with SESs [149,155]. This theoretical framework, encompassing both social and physical aspects, consists of four interrelated subsystems (Figure 2b): the users/actors (U); the governance system (GS); and two physical components—anything related to the DES, the resource system (RS); and the resource units (RU), which are all variables directly related to the DER that can be harvested with the RS. The system is surrounded by general ecological conditions (ECOs) that determine the availability of the resource, such as climate and the local natural conditions that determine opportunities for RE. ECOs define the geographical availability of solar radiation, wind, marine, and geothermal energies, and hydro resources, but also the circumstances shaping potential ecological impact. Given the diverse geographical availability of DER, along with their equilibrium properties, predictability, and options for storage capacity, the mix of technologies and adjacent DES infrastructures will also vary significantly. Another critical physical component is the characteristic of the human-constructed elements of DES infrastructure (variable RS4 in [149]).

The spatial and temporal distribution of resources is a key challenge in the resource units subsystem (RU; Figure 2b) and is crucial for understanding equilibrium properties and system predictability. Therefore, developing self-governance—designing internal rules for managing the DES and energy flows, e.g., the distributed EMS—is essential. Nevertheless, Figure 2a,b both also show connections between the STS and the physical external world (ECOs) and ‘S’, the socio-political setting, for example, legislation (Section 7.3 on institutions). Hence, besides far-reaching adaptive self-governance, the system is not merely decentral. STS innovation has to deal with multiple levels [26,72,134].

The social subsystems of governance (GS) and users (U) are equally vital to the effectiveness of the hardware. Since the infrastructures, DESs and EMSs, are human-made, both the resource system (RS) and resource units (RU) largely depend on user decisions, ways to cooperate (subsystem ‘U’; Figure 2b), and governance choices.

7.2. The Concept of Polycentric Governance

The framework for understanding STSs operates within a broader theory of common goods [155,156]. CPR theory explains how CPR management requires ‘adaptive governance’ and a high degree of ‘self-governance’ for SESs [16]. The significant variation in STSs, all with their own adaptive capacity and self-governance, represents the ‘self-healing’ MGs in the SG concept [17,34].

At first glance, and shown in Figure 2a, the above seems to indicate a high degree of decentralization. It is indeed a significant move away from centralism in the regulation of the power supply [157], but it is much more about moving away from hierarchy and uniformity. The starting point in CPR theory for replacing a monoculture is the fundamental acceptance of the complexity of systems such as SESs and STSs. This applies to allowing and acceptance of variety in place and time of technical operation, as well as variety in the organizational structure and governance of the systems. The simplistic idea of replacing a standardized, centrally and hierarchically controlled model with many decentralized systems that are also monocultural, uniform, and standardized internally, is untenable in CPR theory [158]. Adaptive capacity requires multi-layering and the avoidance of models in which each small STS itself is controlled from one single point [35,52,159].

The multi-level nature of transformations is explicitly non-hierarchical. On the contrary, it emphasizes guidance from various geographical layers and scales. Without unilateral priority or dominance, polycentrism highlights the importance of two-way flows connecting multiple levels. Polycentrism in energy systems is just one example of the role of polycentric connections across levels and elements of governance in guiding action toward sustainability [160]. It is a misunderstanding to confuse self-governance with complete autonomy. All local and regional STSs will have to operate within certain institutional frameworks. In fact, those are even necessary in order to anchor essential functions of STSs (see Section 7.3). The governance model in CPR theory for adaptive governance and self-governance is polycentrism.

Polycentricity is a fundamental concept of systems with multiple sources of decision-making, all with partial authority, interacting in multi-level governance arrangements. The various centers of decision-making must work together and use mutually agreed mechanisms for conflict resolution. This cooperation mainly concerns co-production [161]. Obviously, in MGs this concerns the optimized production and consumption [40] of the ultimate common good, electricity, but the prime cooperation concerns the co-production the collective DES infrastructure. The polycentric model is multi-layered, so some decisions are taken within wider operational frameworks, within institutional arrangements that apply for wider jurisdiction. Therefore, the third pillar of CPR theory concerns the role of institutions.

7.3. Institutions: The IAD Framework

The key features of self-governance and self-healing MGs can only flourish within a supportive institutional framework. Institutions are the existing patterns of behavior and organization in society, shaped by rules and norms; in short, they are the ‘rules of the game’ ([162], p. 4). They include operating procedures and practices that have developed over time, involving path dependency, which can be persistent [163,164]. Not only the rules matter; there is also a historically developed network in which much of the path-dependent thinking has materialized. “Institutions are comprised of regulative, normative, and cultural-cognitive elements that, together with associated activities and resources, provide stability and meaning to social life” ([165], p. 48).

Radical innovation beyond architectural innovation [59] necessitates institutional change. This applies to the monoculture of current grids, which are highly institutionalized from top to bottom, encompassing rules, primarily legislation, the organizational structure [166], and underlying cognitions and norms. Within CPR theory, the direction of institutional change is guided by the institutional analysis and development (IAD) framework [151,167]. This framework summarizes the conditions that foster, promote, and defend effective natural resources management within SESs and similarly in the STSs that control prosumers’ networks [168,169]. Polycentrism in the IAD framework implies a set of multiple decision-makers rather than central authority, so effective polycentrism requires cooperation. Institutional rules and arrangements should enhance cooperation and within the MG community [170]. Institutions are crucial for building trust [171,172], coordination, and conflict resolution. They should encourage innovation and adaptation, learning from both successes and failures (Table 3).

Table 3. Eight institutional conditions for flourishing common energy based on shared DESs, according to the IAD framework [173].

IAD Condition	Main Application in MGs with DESs	Institutional Foundation (Examples)
1. Clearly defined boundaries	All connected prosumers, consumers and their infrastructures	Support legislation for access
2. Congruence between rules of appropriation, provision and local conditions	Design of MG and rules matches: - locally available resources - end-use patterns.	Remove restrictions for creating MG and siting DES
3. Collective-choice arrangements	Sharing rules about: - investments (space, finances) - accounting P2P-flows + capacities	Legislation and financial institutes must support collective investment
4. Monitoring	Control MG over digital sensors of P2P flows and use of capacities; MG as one end user for public grid	Transfer of control ADM (digital meters) from DSO to MG
5. Graduated sanctions	Rules (also accounting) and sanctions on lagging investments; in case of misuse disconnection	Legislation on cooperative MG arrangements
6. Conflict resolutions mechanisms	Authority for all members in internal disciplinary council	Arbitrage in official courts
7. Minimum recognition of right to organize	The right to decide on: - investing resources (e.g., spaces) - to establish P2P delivery	Abandon legislative barriers on sharing and mutual delivery
8. Nested enterprises (for CPRs that are parts of larger systems)	Rules (incl. tariffs) on delivery/ return to public grid; application safety standards	Legislation for DSO and energy companies

Table 3. Eight institutional conditions for flourishing common energy based on shared DESs, according to the IAD framework [173].

IAD Condition	Main Application in MGs with DESs	Institutional Foundation (Examples)
1. Clearly defined boundaries	All connected prosumers, consumers and their infrastructures	Support legislation for access
2. Congruence between rules of appropriation, provision and local conditions	Design of MG and rules matches: - locally available resources - end-use patterns.	Remove restrictions for creating MG and siting DES
3. Collective-choice arrangements	Sharing rules about: - investments (space, finances) - accounting P2P-flows + capacities	Legislation and financial institutes must support collective investment
4. Monitoring	Control MG over digital sensors of P2P flows and use of capacities; MG as one end user for public grid	Transfer of control ADM (digital meters) from DSO to MG
5. Graduated sanctions	Rules (also accounting) and sanctions on lagging investments; in case of misuse disconnection	Legislation on cooperative MG arrangements
6. Conflict resolutions mechanisms	Authority for all members in internal disciplinary council	Arbitrage in official courts
7. Minimum recognition of right to organize	The right to decide on: - investing resources (e.g., spaces) - to establish P2P delivery	Abandon legislative barriers on sharing and mutual delivery
8. Nested enterprises (for CPRs that are parts of larger systems)	Rules (incl. tariffs) on delivery/ return to public grid; application safety standards	Legislation for DSO and energy companies

Most importantly, viewed from the perspective of the hierarchical grid monoculture, new institutional settings should no longer obstruct adaptive self-governance, but instead foster the emergence self-healing MGs. The IAD framework leads to eight institutional conditions (Table 3) for well-functioning social–ecological systems [173]. These eight conditions are translated to RECs utilizing DESs in Table 3, as a robust foundation for sustainable utilization of RE, shared benefits, and the resilience of the SG.

7.3.1. Clearly Defined Boundaries

RECs must establish clear boundaries for their members, encompassing connected prosumers and consumers in the MG. Hence, the boundaries are primarily defined by rules about who has access to the MG connection. On the one hand, there should be no institutional barriers to participation for any end user within the reach of the MG. On the other hand, access to necessary infrastructure should only be restricted by individuals’ compliance to the common rules, not by creating exclusive ‘club goods’ (Section 6.3). Legal rules should ensure energy justice, e.g., equitable access to electricity [144,174].

Member stakes in DESs must also be defined, encompassing various rules to prevent dominance by larger entities, in particular, energy companies and DSOs. Supportive legislation should delineate this fundamental operational space for RE communities, while restricting power positions inherent in the current centralized grid, such as incumbent energy companies. They may be stimulated to participate, as energy service companies, but they should not be allowed to regulate or control the MGs.

7.3.2. Congruence Between Rules and Local Conditions

The design of the MG and the governing rules must align with locally available DER, seasonal variations, as well as with types of end users and their consumption patterns. This requires ruling out standardized one-size-fits-all approaches, as currently existing in centralized grid monocultures.

7.3.3. Arrangements on Collective Choices and Monitoring

Central to a REC is the participatory decision-making process regarding investments, such as financial. Equally important, but highly complex because of all different property regimes concerning land use, are the investments of spatial resources, e.g., indoor, rooftops, land use of private property or public spaces, etc. [86,150]. Members should collaboratively establish rules for resource sharing and investment priorities. Abandoning hierarchical frameworks aligns with the right to self-regulate, enabling communities to devise their institutions without external interference.

The SG character comes to the fore mainly in energy management. In the EMS, all collective rules and digital monitoring are implemented and can be adapted when conditions change. This concerns all energy flows, P2P-delivery, and the use of all individual as well as collective capacities of generation and storage, including EVs, transmission and electricity absorption. The EMS should also take account of all members’ investments in terms of space, money, and other efforts such as time for organizational tasks. The algorithm applied in the EMS should be based on the local conditions and composition of all elements in the MG. As these may vary over time, the adaptive capacity should be supported by self-governance. It must be possible to adapt the EMS rapidly in response to changes in conditions and in the MG itself, without intervention from outside. MGs must be the starting point, not following hierarchical instruction, that is, within institutional boundaries defined by general norms—e.g., on technical safety, or on socio-economic justice—that do not affect the internal operation of the EMS (Section 7.3.7; condition 8).

7.3.4. Monitoring

Effective monitoring mechanisms are vital for overseeing energy usage. An EMS utilizing digital sensors enables real-time tracking of P2P energy flows and also of available storage and transmission capacities. This implies that the individual sensors combined with the MG’s EMS become the real smart meters, not the advanced metering devices (AMD; see Figure 2a) that are controlled from a distance by the DSO or other incumbents in the public grid. The latter, within the current centralized grid framed as ‘smart meters’, are ineffective for achieving flexibility because of the centralized perspective and adjacent SA problems, such as trust issues concerning incumbents [175]. By operating as a unified entity, the MG can negotiate favorable terms and integrate the public grid’s variable tariffs in their EMS, ensuring internal efficiency. The MG’s connection with the public backbone is the only ADM controlled by the public grid (Figure 2a).

7.3.5. Graduated Sanctions and Conflict Resolution

A system of graduated sanctions is essential for ensuring compliance with community rules on resource sharing and investments. Together with the sixth condition, good mechanisms of conflict resolution, the operation of distributed STSs should be supported by juridical norms and rules within the jurisdiction. This typically is a point where communities need clear and supportive rules for being able to operate. RECs require established authorities for dispute resolution, either through internal councils or external arbitration.

7.3.6. Minimum Recognition of the Right to Organize

By far the most important condition for independently operating MGs is the full right to organize. This is crucial, but it fully contradicts the heavy hierarchical control in current monocultural centralized grids. Members should have the right to organize around shared interests, such as resource investments [176]. Although some first steps in policy are taken to open up options for RECs, for example, in the EU directives [52], legal obstructions exist regarding how MG communities might decide about investing their individual and common space for DES infrastructure. A crucial obstruction exists with regard to co-production by means of P2P delivery. The monoculture of central grid management is protected in most jurisdictions by prohibitions on direct supply of electricity by third parties. Peers in an MG are considered third parties, and existing regulation prohibits RECs to own a grid. The grid is a monopoly and it is prohibited to provide network services by parties other than DSOs, which effectively makes the organizing and self-managing of an MG impossible [177]. Such legislative barriers hindering collective action should be removed, facilitating effective harnessing of shared energy resources.

7.3.7. Nested Enterprises

The last IAD conditions concerning REC governance should be aligned with broader systems, ensuring that local rules correspond with regional and national policies. Engaging DSOs and adhering to safety and tariff regulations is crucial for accessing public grid connections, contributing to compliance with larger energy frameworks. This should also be supported by national and regulations. The transformation of complex STSs requires multi-level governance that balances national mandates with local adaptability, demonstrating the essential interplay between RECs and surrounding regional paradigms [178].

8. Discussion of the Overall Future Grid Design

8.1. A Hybrid Grid with Polycentric Governance

The analysis in Section 7 focused on the fundamental transformation of the monoculture of the central grid. This model dominantly presents electricity as both a public good and a market commodity. Many studies on DESs continue this unidimensional thinking [179,180]. However, the assumption that the use of distributed resources results from public policies or markets should be replaced by the recognition that such deployments are “polycentric acts of cooperation and competition” [181]. More and more studies emphasize the necessity of transitioning away from the market–public paradigm [182] to a multi-level hybrid design that optimally accommodates electricity as a common good [183,184,185,186,187].

Drawing from three branches of CPR theory, this analysis culminates in the perspective of polycentric governance for a non-hierarchical grid. This perspective clearly alters the role of national governments and regulation combined with cutting the hierarchical positions of production and transmission companies [36,54,188]. While this regulatory role will be diminished, it will remain vital in a in a significantly different manner. The most clearly distinguishable elements in which control and supervision are organized differently are listed in

Table 4. General location of authority with regard to important elements of any STS with shared DESs, as presented in Figure 2a,b.

STS Elements	Main Level: Authority Within MGs	Partial Authority at Public Grid Level
Generation DG Figure 2a RU and ECOs, Figure 2b	Partly individual (from household-PV till SNR) Collective in MG	Individual commercial; Feed-in on backbone DG Figure 2a
Storage DES, Figure 2a RS and RU Figure 2b	Partly individual (from household heat and EVs) till collective batteries, district heat, etc.	Large-scale, such as pumped hydro
Sensors Individual Figure 2a RU Figure 2b	Individual Demand and Available DR; U, Figure 2b Available Storage capacity U and RU, Figure 2b; P2P flows	ADM (Figure 2a); Tariff for MG excess; Energy flows & Capacities in backbone
Energy Management EMS Figure 2a RS and GS, Figure 2b	Control over P2P flows; Controlling available storage capacities; Input sensors on individual and collective DESs; Accounting	DSO and TMO Management of Generation and Storage feeding-in on public grid; S in Figure 2b
Distributed Accounting EMS Figure 2a; GS Figure 2b	P2P flows of delivery; Accounting available capacities (incl. investments); Tokens, possible blockchain	Contracts; Tariffs; Metering; Financial S in Figure 2b
Institutional Grid Arrangements GS Figure 2b	Internal governance rules; Mutually agreed EMS GS in Figure 2b	Ensured MG self-governance; MG treated as one unit S in Figure 2b
Institutional Social and Political arrangements S in Figure 2b	Property regimes on Resource contributions (GS Figure 2b): - Spatial (land use); - Financial	Land use and Fin. Institutions, S in Figure 2b; supp./imp. DES and P2P
Institutional arrangements S Figure 2b; e.g., Legislation; Market regulations	On ensured access U Figure 2b; Ensuring justice in conflict resolution S → GS Figure 2b	Safety standards RS Figure 2a Non-obstructive taxing; Ecological norms S Figure 2b

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8.2. Final Model and Governance Shift

To make the new polycentric hybrid grid possible, obstructions from the centralized lock-in of the hierarchical model must be opened. Regulation should refocus mainly on public values—safety, quality control, justice—while incumbents undergo transformation [166]. Their roles must evolve to support service provision via the public backbone, which becomes supplemental rather than baseload. Incumbents who cannot deliver innovation might become victims of ‘creative destruction’ [62,189,190]. Legal frameworks should explicitly recognize DESs and community MGs as self-managed, P2P networks operating as one unit behind the public grid’s meter [22,36], with clear rights to generate, store, and share energy, and clear rights for self-organization (Section 7.3.6).

8.2.1. System Architecture: From Uniform Control to Integrated Distributed Autonomy

Because resources (DER) are spatially dispersed, systems that optimize them are inherently distributed [191,192]. The power system should therefore pivot to DESs coordinated through self-healing MGs [18,21,193], with self-governance enabled by automation and digitization [20,193]. Each MG optimizes with its distributed EMS from DG via storage and DR to final demand, all primarily within the MG boundary (Figure 2a,b). With the EMS and all internal data, it also creates better conditions for robust digital resilience and data privacy. Interconnected backbone grids then form the primary regulation layer of the SG (Figure 3), as proposed by Amin [17]. This departs from the current centralized top-down model (Figure 1) and moves toward autonomous, peer-managed operation, independent islanding [43] when needed, yet interoperable with the backbone (Figure 3).

8.2.2. Co-Production and Community Energy

Within MGs, energy consumption and system co-production are organized through cooperation, not as a competitive commodity. End users invest together in a DES, making each MG a manifestation of community energy [194,195,196,197]. Yet today, RECs struggle with incumbent utilities, restrictive legislation, and authorities at all levels [52,198,199], as documented in the community energy literature [52]. Cooperation includes shared investments of space and financial resources, and efforts by community members, local authorities, and energy service companies (ESCOs) as technical providers [200,201]. Property and ownership of a DES are only part of the equation [202]; investments of spatial properties are crucial because infrastructures must be sited near demand. Spatial planning should shift to prioritize locations for DESs within communities, for example, by design for DG and storage. Current planning, building rules, and permitting often obstruct DESs in villages, neighborhoods, buildings, and business parks [203,204,205]. Unlike roofs, windows, or sewer connections, currently, there are no analogous design obligations to ensure that buildings and districts make optimal use of onsite energy supply.

8.2.3. Social Acceptance

Co-production depends on community resources and multi-layered property regimes [150] and on land use planning that allows communities to use their local environment for generation, storage, and supply [206]. However, under the private/public delivery model, renewable’s projects in ‘host communities’ often face contentious SA processes, especially when projects are not developed by, and in the interest of, the host community. Evidence shows that community involvement in decision-making, ownership, and control [86,134,142] improves acceptance, primarily for reasons of justice and trust.

On the other hand, processes of socio-political and market acceptance may be even more problematic. The transformations required for self-governance in MGs encounter significant resistance in society. Institutionalized lock-ins come to the fore in the market paradigm, with electricity as a commodity supplied by commercial companies. This paradigm is also rooted in the dominant roles of the state, which reflect the monopolistic roots and the centralist hierarchy of the grid (Section 6.3). Laws reinforce the protected monopoly of distribution companies and DSOs, whereas top-down spatial planning overrules property rights, at least at the level of authorized users and the sense of ownership [86,150] of communities with regard to the resource of space for DES infrastructures.

Another institutional example, in which both market and social-political resistance converge, is the necessary transformation of energy taxation [35], e.g., taxing end-user kWh consumption. This topic has been remarkably under-investigated. Tax systems must recognize the fundamental distinction between sharing capacities of DESs within communities and commercial energy sales. There are studies on the general impact of carbon taxes, but hardly on the system of taxing end users, like kWh excise duty and VAT, which most taxing systems do. Sometimes even prosumers have been coerced to sell all their power to the grid instead of engaging in direct self-consumption [207]. To prevent barriers for establishing DESs in MGs, all RE flows behind the meter, and flow in and out of storage within the MG, behind the meter, should not be taxed. Only when it is excess that is fed in to the public backbone could it be considered a market commodity ready to tax. Treating local P2P energy sharing as commercial transactions subject to full energy taxes or VAT heavily discourages co-production of RE and storage close to end use. There, it is most effective, saving long-distance transmission infrastructure and enhancing resilience. Current practices of taxing shared energy flows within a community multiple times—such as loading and recharging at storage facilities—should be discarded. New tax policies should reward flexibility, self-consumption, and storage, for example, by providing tax exemptions on equipment installed to serve these functions. Furthermore, tax rules could be adapted to avoid taxing innovative accounting methods as financial instruments, such as EMSs optimizing with distributed accounting based on tokenization, for example, blockchain-based systems. Most of these goals could be achieved by discarding the meters of energy distribution companies (DSO’s AMDs) within the range of MGs, replacing them with smart sensors within the MG.

8.2.4. Regional Scale: DG, Distributed Storage, and Co-Located Demand

At regional scales, DG and large storage facilities (Table 2) should connect at the LV or medium-voltage distribution backbone (Figure 3). Where possible, they could be co-located with large loads from industry [208,209]. Siting large PV or wind systems close to large consumers reduces long-distance transmission, lowers spatial impacts [75], and improves justice outcomes in SA [74]. Policymakers should facilitate co-location of industrial loads and P2X (e.g., hydrogen) near supply sources [210], including ‘energy hubs’ aggregating industrial demand and storage [211]. Data centers are rapidly growing bulk end users [212,213] that preferably are sited near large RE generation. Proposals to pair hyperscale data centers with SMRs aim to relieve HV transmission [214,215], but these options remain uncertain. Prior waves of nuclear optimism have not reversed the world-wide decline since 1980, and large nuclear investments seem to crowd out renewables [216].

8.2.5. Role of the Public Backbone and Flexibility

Net surpluses from MGs must feed into the public backbone. HV transmission will remain a public function—often via a state-controlled entity—including regional operation (Figure 3). Capacity will likely need expansion due to electrification, e.g., EVs [104,105], and new loads like hydrogen, data centers, and AI [210,213]. Yet the backbone’s role shifts from delivering fossil and nuclear baseload generation to moving surplus DG and MG exports to other users. Because DESs cannot cover all demand at all times, supplemental regional, national, and sometimes international capacity is required. This backup capacity must be flexible instead of ‘baseload’, with expanded storage—especially seasonal—to bridge variability. Governance must evolve from baseload-centric dispatch to flexibility-centric coordination. Some flexibility services will span borders, but distant siting of such large functional capacities intensifies SA challenges [217].

8.2.6. Institutionalizing P2P and MG Autonomy

Current regulations impede cooperation and sharing of energy capacities [177]. Participants in MGs are still billed as individual commodity users; their AMDs are DSO-controlled ‘smart meters’, and tariff systems still reflect the utility’s generation, even when most electricity is distributed and community-generated. Communal storage faces double charging: fees/taxes for injecting into the DSO network and again for withdrawing, undermining investment and contradicting sharing economy principles [218,219,220]. P2P delivery is currently reliant on exemptions; this must end if RECs are to function at scale [172]. The legal form of energy communities remains under-specified [220,221]. New legal entities are required to institutionalize MG communities and provide a stable foundation for RECs [176]. If an MG can operate as a single end user vis-à-vis the public backbone, taxation can be levied at the MG point of interconnection, the AMD (Figure 2a).

In summary, all regulatory reform concerns the institutional structure of the electricity grid. The autonomy of MGs is limited to self-governance within the framework of general public standards. These norms, on a national level or international level (e.g., EU [222]), relate to fairness issues, for example, qualified access guarantees and conflict resolution, to ecological values, such as avoiding serious ecological consequences of installing DESs [223,224], and to safety standards in both technical electrical systems, as well as data systems. Together with the regulation of the underlying backup capacities and the maintenance of the public backbone, these standards form the national level of the hybrid polycentric grid. Due to its vulnerability, this level no longer centrally controls top-down, but it facilitates the SG consisting of networks of clustered, self-healing microgrids.