Critical infrastructures:
Aligning institutions and technology
Oratie
In verkorte vorm uitgesproken op woensdag 27 maart 2013 ter gelegenheid van de aanvaarding van
het ambt van Hoogleraar Economics of Infrastructures aan de faculteit Techniek, Bestuur en Management van de Technische Universiteit Delft
door
Geachte rector magnificus, Waarde coüega's
Beste vrienden en famiiie, Liebe Familie und Freunde, Dear colleagues and friends,
Isn't it a fascinating idea that we can provide all of our own energy needs? We can invest in wind energy that is produced near our homes or connect to farmers who are producing biogas. Another option is to install solar panels on the roofs of our houses. We would have direct control over how energy is produced, when and how to use it and also contribute to a cleaner environment and a sustainable energy system. We would become 'prosumers; i.e. a combination of producer and energy consumer.
Decentralized power production, close to the end consumer, is getting increasingly popular. Solar panels and wind turbines are becoming more and more part of our day-to-day environment. Germany is a particular case in this respect. Since the 'Energiewende' (Energy Transition Policy), there is a massive increase in the use of sustainable means of primarily small-scale energy production, stimulated by dedicated energy policy programs^ Within less than four years 27 GW of solar panels were installed, which is approximately the complete installed production capacity in the Netherlands. These are significant changes in the energy provision.
The ongoing technical changes in the energy sector increasingly influence the way energy is provided to households. One of the remarkable developments is the growing number of so-called 'energy communities'. These are local initiatives promoting the production of clean energy by using local energy sources. There are some 150^ at this moment in the Netherlands, and the number is steadily growing. Typically, these local initiatives are legally organized as cooperatives or foundations, indicating a not-for-profit orientation. This is certainly different from the traditional energy provision as we know it. Traditionally electricity is produced in large-scale power plants that are typically operated as a profit oriented business. Electricity is transported through high-voltage transmission lines over long distances. Finally it is distributed through low voltage power grids to the final consumers. This 'uni-directional' provision of power now seems to be challenged. Should we care? Is this a serious change in the provision of energy? Or is this just something that will pass? What should energy firms do? Or government? Just wait-and see, or intervene? To be sure, energy is a basic need on which we strongly depend. We also depend on a secure and reliable
^ The effect of this policy is very nicely illustrated in a video animation that was nnade by two colleagues ^ from the Energy and Industry section of our faculty. http://enipedia. tudelft.nl/wiki/Videos
provision of energy otherwise our way of living and our economy would be harmed seriously. Just allowing for 'trial and error' and 'wait and see' is not acceptable for this critical infrastructure.
What happens if we just let go? The production and consumption of electric power needs to be balanced very carefully. If electricity is fed into the grid in an uncontrolled way, the system will break down. Imagine what would happen if we were suddenly sitting here in the dark! Also the quality of power is an issue. We need 220 volt and 60 hertz, otherwise our electric appliances will break. For the case of local biogas production, our personal heath and life even can be threatened. If Farmer Joe feeds biogas uncontrolled into the grid, it will no longer be safe to use our central heaters or gas cookers. A specific quality of gas needs to be safeguarded, otherwise very bad accidents can happen.
Lets have a closer look at a local energy system from a technical perspective.
Figure 1: Illustration ofa local gas based energy system (Source: Alliander network company)
Figure 1 illustrates an ideal case of how a local energy system might look in the not too distant future. This particular example is very much focused on the gas system. At first sight, this is an impressive picture of many different technical facilities. There are local facilities for the production of biogas. There are also solar panels on the roofs of some houses. There are various technical monitoring systems, among others to safeguard the quality of the gas in the pipelines. Figure 1 is an example of distinctive and innovative technologies that emerge in the energy sector. Obviously, these technological aspects are very clearly illustrated in this figure.
What are the consequences of this changing technology for the economic organization of this local energy system? People living in this residential area have expectations with respect to the energy they receive. They want a reliable, affordable and sustainable power supply Who has the responsibility to guarantee that this local energy system operates according to these expectations? Who is making the necessary investments to build such an innovative local energy system? Who is supervising the local energy providers to ensure the delivery of the required technical quality of power without misusing their local dominant economic position? In other words, the rules and regulations under which these local energy systems can be operated need to be clearly defined. This is the institutional dimension of changing energy systems.
In infrastructures, technological and institutional change are closely related to each other. They need to fit into each other, otherwise infrastructures will not be able to provide the expected services. The nature of this interrelationship is only poorly understood. On the one hand, engineers usually focus on the technical aspects of the system design and take the economic institutions as given. On the other hand, economists usually concentrate on the economic organization of infrastructures, without considering or understanding the technical specificities of infrastructures. Engineers and economists operate in worlds apart. This causes very fundamental problems. Economists might be tempted to believe in the market and trust that new initiatives of decentralized energy production are technically feasible. Similarly, engineers might design very advanced local energy systems without considering who is taking the risks and responsibilities of building and operating them.
There is a strong need to understand better this interrelation between technology and economic institutions. This faculty of Technology, Policy, and Management belongs to the few places in the world that are dedicated to this field of research and education. Let me stress that the above-mentioned changes in the energy sector are just some examples of what is going on in other infrastructures as well. For instance, the Internet is a completely new infrastructure that evolved in the past 20 years as a consequence of advances in the field of ICT The Internet required different institutions than those that were developed for the operation and design of telephone or telegraph infrastructures. ICT is also an important driver for substantial technical changes in other infrastructures such as energy, transport (railroads, aviation, public roads), postal services, and water management. Likewise the institutional changes in these infrastructures are considerable. The so-called liberalization, privatization and re-regulation of infrastructures are illustrative in this respect. There is more room for competition and choice for the customer. Infrastructure services like public transportation, energy or postal
services are no longer considered 'public utilities' but rather commercial services. Private sector involvement is stimulated. For instance, there are public-private-partnerships for building new bridges, tunnels, or highways. Infrastructures are also increasingly internationalized. They are crossing borders thereby creates a need for increased international collaboration and cooperation. The European Union is a good example in this respect. Hence, the Yules of the game', i.e. the institutions of infrastructures, change significantly which in turn has consequences for the technological developments and innovations in these sectors.^
What I present to you today is a typical example of how institutional economics can contribute to a better understanding of the design and management of complex systems like infrastructures. This approach was developed in this faculty in the past 16 years since this chair was founded by Professor Melody. This specific approach of aligning institutions and technology that I will outline to you, is the result of joint projects with my close colleagues and friends: Professor John Groenewegen (my predecessor), Professor Claude Ménard (University of Paris 1, Sorbonne-Pantheon), and Professor Matthias Finger (EPFL Lausanne).
Specifying the nature of the interrelation between technology and institutions
The challenge we face is to relate the complex engineering systems of infrastructures to their economic organization. But what are the relevant features of infrastructure technology that make a difference from an economic perspective? How can we be able to design the institutions (i.e. the rules and regulations) that are required to operate local energy systems, as I just illustrated to you? Our argument builds on four premises.
Infrastructures are socio-technical systems
Infrastructures are engineering systems that function in a specific social context. They perform intended functions, for instance the safe and reliable provision of energy. Human actors purposefully design these systems and monitor and adjust them to meet expectations. There is a close relation between the technical design and functioning of the infrastructures, and social interactions that safeguard and support these functions. To be sure, not everything in infrastructures is purposefully planned. Many changes simply evolve as a consequence of unplanned or unexpected activities of infrastructure users. An illustrative example is the development of the wind energy industry in Denmark in the late 1960ies.^ While the Danish government was stimulating the development of nuclear power production, there were local initiatives for
^ Finger, Matttiias and Künneke, Rolf (Eds.), 2011. International handbook of network industries. ^ The liberalization of infrastructure. Edward Elgar, Cheltenham, Northampton.
building small wind turbines. These local initiatives became the basis for the current important wind energy industry in Denmark. It is both the technical opportunity of producing power in a different way and the institutional circumstances that allow for these kind of bottom-up activities. For economists this means that some deeper understanding about the technical functioning of infrastructures is needed.
Coordination is essential
Activities in the technical system need to be coordinated otherwise the infrastructure cannot perform according to expectations. For instance, if power is produced at location A a specific part of the network is needed at a specific time to transport it to location B. To allow for these complementary technical processes, certain rules and regulations (i.e. institutions) are required. Hence, we are interested in illuminating how the technical coordination and the institutional coordination of the actors' activities are related.
Focus on 'Critical Technical Functions'
In analyzing infrastructures, we are interested in the technical functions required for reliable operation of these vital facilities. We identify four categories of 'Critical Technical Functions' that need to be performed technically as well as institutionally, otherwise infrastructures might fail, i.e. do not meet users expectations:
• System control: the system needs to be operated according to certain technical requirements. For gas this would be a certain caloric value and chemical composition. For electricity voltage (220 volt) and frequency (60 hertz) are important technical parameters otherwise appliances will not work or break down.
• Capacity management: The physical capacity of the system needs to be balanced in such a way that the production capacity meets the actual demand. For the case of electricity this is a very important feature. Production and use of electric power always needs to be in physical balance otherwise the systems might collapse. This is referred to as 'load balancing'.
• Interconnection: Networks need to be connected with each other to improve technical functioning and/or deliver certain services. Technical reliability can be improved through the interconnection of the local network with the regional or national energy network. In case of emergency different means of power provision are available.
• Interoperability: Different parts of the technical systems need to be equipped technically to meet the technical requirements of the system. For instance, solar PV panels need to fulfill certain technical requirements in order to be connected to the electricity network.
" Van der Steen, Marianne, Groenewegen, Jotin P. M., Jonl<er, Martijn, Künnel<e, R. W. and Mast, Eel<e, 2008, Evolutionary innovation systems of low carbon electricity: Insights about institutional change and innovation ' in the cases of CHP and wind energy. In: Timothy Foxon (Ed.), Innovation for a low carbon economy. Edward Elgar, Cheltenham, pp. 175-202.
Focus on the 'Rules ofthe game'
We refer to the field of institutional economics to specify the institutions that are necessary to support the Critical Technical Functions. Basically institutions refer to the formal and informal rules and regulations that influence economic behavior. These rules are needed to structure human interaction. In order to engage in any kind of economic transactions, the participants' rights and obligations of ownership and decision-making must be determined. For instance, who owns different facilities within energy networks, such as production, distribution networks, gas storage facilities or metering devices? What are the decision rights or obligations ofthe different participants or actors involved?
Critical infrastructures: Our framework
Our basic idea is that in infrastructures the four Critical Technical Functions need to be coordinated technically as well as institutionally in a consistent way otherwise the systems will not provide the expected services and might even break down in the most extreme cases. Institutions and technology need to re-enforce or match each other. We refer to this as aligning institutions and technology. Let me provide an illustration for the case of load balancing in the electricity sector. Technically there is a need to monitor the production and use of power very closely. To realize this technical task, a system operator needs to have appropriate decision-making rights to enforce the necessary control and interventions. Without suitable institutions the energy system cannot function. Of course the problem is to identify those institutions that are appropriate or suitable. This is what we are after in our approach.
How to align institutions and technologies also depends on the objectives and expectations ofthe users ofthe infrastructures. Striving for a sustainable energy system implies choices for a specific range of technologies and institutional arrangements. For instance, if there is an excess supply of wind energy that cannot be absorbed in the electricity network, surplus power could be transformed into hydrogen gas at high costs. In this way wind power would be utilized in the maximum possible way. Under these conditions, sustainability of power production would be an important performance criterion. If there would be a societal expectation to minimize the costs of power supply, another trade-off between institutional and technological coordination is appropriate, like turning-off wind power and using more cost efficient fossil-fueled power plants as a back-up. This example illustrates that the performance expectations shape the applied technology and institutions in infrastructures.
To sum up, our research interest can be summarized as follows:
The alignment ofthe institutional and technological coordination of Critical Technical Functions in infrastructures to meet societal expectations.
Our research framework is illustrated in Figure 2. The two columns represent technology and institutions. Technology is described in terms of Critical Technical Functions, institutions by property rights and decision rights. The issue of alignment is approached at three different levels of abstraction, i.e. critical access, critical governance, and critical transactions. On the one hand, the way in which institutions and technology are aligned determines the system performance. On the other hand, objectives with respect to the expected system performance also shape the technical and institutional design of infrastructures.
Critical infrastructures: our framework
Figure 2: Critical infrastructures: our framework
Critical issues of alignment
Critical access
Critical access refers to the generic design of infrastructures. At this level, we relate the general rules to the technological architecture of infrastructures. The accessibility of infrastructures on this generic level determines the institutional and technological coordination of Critical Technical Functions. Very roughly, we can distinguish between open access and closed access.
We associate closed access to a situation in which only dedicated actors or agencies are entitled to monitor and control Critical Technical Functions within an infrastructure. For instance, the provision of network services is strictly
regulated and primarily the task of dedicated network companies. Prior to liberalization, the production and trade of electric power was also assigned to dedicated (monopolistic) firms. Under these conditions the coordination of Critical Technical Functions was the result of directed technical and institutional coordination. The relevant components of the infrastructure were monitored and controlled in orderto safeguard specific anticipated relations between them. These anticipated relations determine under which conditions infrastructures can function according to expectations or when it is necessary to intervene in a predetermined or a priori planned way. In other words, possible failures are anticipated as much as possible and the systems modified before problems occur. In electricity systems this task is typically delegated to a system operator, such as TenneT in the Netherlands. The technical architecture of a closed access infrastructure can be characterized by centralized hubs that monitor and control the Critical Technical Functions. The technical relations between the nodes and links are largely pre-determined. To summarize: In the case of closed access, the coordination ofthe Critical Technical Functions is the result ofa planned and directed coordination effort of dedicated entities within a technical architecture of centralized hubs and pre-determined relations between the nodes and links. Open access, in contrast to closed access, refers to infrastructures that are accessible for all actors and agencies that are willing and able to contribute to its services. Imagine an individual has invested heavily in decentral energy production and would like to deliver power to neighbors. The owner digs cables through his or her backyard to nearby houses to supply them with electricity. However, infrastructures require coordination by definition. For instance, how is the power quality safeguarded, or is there a backup in the case of technical failures? Critical Technical Functions need to be safeguarded otherwise the infrastructure will not meet expectations. The means to realize this are fundamentally different from closed access infrastructures. The coordination of open access infrastructures relies on protocols, standards or procedures that firms or agencies have to adhere to if they want to participate. To make this spontaneous development of electricity networks possible, the technological architecture would have to be adapted to allow for open access. For instance, appropriate energy storage facilities would have to be available (for instance electric cars), or households need to be equipped to balance their individual power needs. This way, open access allows for spontaneous coordination of the components of the infrastructure. The infrastructure evolves according to anticipated and unanticipated combinations of its components, which can result in functions and services that have not been foreseen. Hence, we would expect that open access infrastructures perform differently than closed access infrastructures.
What is the significance of open access and closed access for our critical infrastructure scheme? How does it contribute to explaining the interrelation between technology and institutions and the expected performance of infrastructures? Firstly, the technological and institutional coordination requirements are fundamentally different as illustrated by the examples. Hence there is an issue of alignment. If an increasing number of households decide to become 'prosumers' making the system more open, technical changes of the distribution network are required otherwise the local system will collapse. The distribution network needs to be equipped to transport electricity in two directions. A possible surplus would have to be delivered into the high voltage network. Furthermore, load balancing would have to be performed in the distribution network, and not only in the high voltage network as presently is the case. These changes result in a different technological architecture of electricity systems, the so-called 'smart grids'.
Secondly, if the electricity system would evolve into a more open access system, different drivers for development and innovation would have to be considered. We would have to rely much more on consumer driven, bottom-up activities. This has consequences for the system performance. In the case of closed access a limited number of standardized services can be planned and guaranteed. From a political perspective this might be attractive for safeguarding social service obligations or national interests. Open access infrastructures, in contrast, are potentially able to provide a broad range of diverse services that are directed towards different groups of users or customers. Hence, by changing the technical or institutional design, different system performances have to be taken into account.
Critical governance
Digging one step deeper, critical governance is concerned with the technical and institutional coordination requirements in a specific context of a given infrastructure at a specific location and time. The general rules and technological architecture are taken as given.
From an institutional perspective the general rules need to be further specified for a given infrastructure in space and time. These specific rules are concerned with the division of tasks with respect to the monitoring and adjustment of the Critical Technical Functions. Which firms, public or private agents have the authority to monitor or adjust different Critical Technical Functions? For instance, regulators can be assigned to determine under which conditions electricity producers or traders can use public networks. A system operator is made responsible for monitoring and adjusting the short-term operation of
an electricity system and for intervening in case of emergencies. These so-called micro-institutions^ create very important conditions for the coordination of Critical Technical Functions.
From a technological perspective we are interested in the specific coordination requirements of a given infrastructure. Critical Technical Functions need to be monitored and adjusted according to local conditions and performance parameters. For instance, an electricity system based on hydropower behaves different technically than an electricity system based on offshore wind energy. Wind does not always blow, hence there must be ways to balance the production and consumption of power, for instance by storage of excess energy, alternative means of power production or demand side management. In hydro-based systems, the technical management of the water reservoirs is important for making power available in different seasons ofthe year. This example illustrates that there are different needs for technical control and system adjustment even within specific infrastructure sectors that result in different technical requirements of the Critical Technical Functions.
Critical governance is concerned with the alignment of the technological requirements of monitoring and adjustment with the institutional requirements of allocating control- and intervention-tasks between micro-institutions. The increasing interest in decentralized energy production raises several important issues of 'critical governance'. For instance, how does one perform capacity management in decentralized energy systems? Are there technical solutions to balance power at the level of single neighborhoods, for instance by power storage in electric vehicles? Is there a need for a local system operator? Who would be assigned to perform this function? A private firm, a publicly owned network operator, or a local cooperative? Who is responsible for the necessary investments in the system? Who is taking the financial risks? Under what prices and conditions can these facilities be used by households and firms? Without resolving these questions, the large-scale application of decentralized power production is not possible. Even worse, it endangers a safe and secure provision of energy. Critical transactions
Critical transactions is about the coordination of Critical Technical Functions among different actors who are part of a specific infrastructure. Under these conditions we assume the general rules as given, likewise the division of control-and intervention tasks (i.e. the governance ofthe sector).
The technical operation ofthe Critical Technical Functions needs to be coordinated throughout the different nodes and links in an infrastructure. Take again the
^ The notion of 'micro-institutions is introduced by Ménard. See for instance: Ménard, Claude, 2011, Hybrid Modes of Organization. Alliances, Joint Ventures, Networks, and other 'strange'animals. In: Robert Gibbons and John Roberts (Eds.), Handbook of Organizational Economics. Princeton University Press, Princeton.
case of load balancing in the electricity sector. If there is an unexpected failure ofa power production unit, immediate action needs to be taken otherwise large parts of the system will break down. Hence several technical activities need to be coordinated instantly. New sources of power supply need to be identified and connected to the grid. Possibly also the power flows in the systems need to be adjusted. The degree of criticality of these technical operations depends on two aspects:
The technically acceptable time period to react. In the case of a failure of a power plant, the technical balance between production and consumption of power needs to be re-established within seconds or minutes, otherwise there will be serious consequences for the entire system. The longer the technically acceptable time period to react, the lower the degree of criticality. For instance, the case of extending the network can be planned over a period of several years
• The technical scope of control. Certain Critical Technical Functions are related to the technical control of the entire system, whereas others might be restricted to a sub-system (like the regional distribution network), or only the control of specific components. For instance, load balancing of electric power is a Critical Technical Function that has an impact on the entire system. In this sense, the degree of criticality is very high. The other extreme of a low degree of criticality would be the development of a super grid in the North Sea that connects the different wind farms in the neighboring countries. This can take several decades of planning and design. If this is not successful, in the worst case only single wind farms might be affected.
How can these critical transactions be organized? Using transaction cost economics, we are able to identif/ different modes of organization depending on the degree of criticality of transactions^ Figure 3 illustrates different cases of critical transactions. The vertical axis indicates the speed of adjustment, from very short time periods of seconds to the very long run of even decades. The horizontal axis indicates the scope of control, from system to subsystems to components.
The red upper left cell of the matrix indicates the most critical transaction. This is the case of load balancing in traditional energy systems. Under these circumstances a very specific economic organization (which we label as 'authoritative supervision^) is needed to safeguard the critical technical function. Typically in electricity infrastructures there is a system operator with specific decision rights to make the necessary interventions.
Another extreme case of a critical transaction is indicated by the lower right cell ^Künneke, R. \N., Groenewegen, John P. M. and Ménard, C, 2010. Aligning modes of organization
with technology: Critical transactions in the reform of infrastructures. Journal of Economic Behavior & Organization, 75, 494-505.
of the matrix (in green). This might for instance refer to the above-mentioned development of a super grid in the North Sea. Still some coordination and planning is needed, but there are little restrictions with respect to the safeguarding of critical technical functions. Hence, there is much room for different modes of organization.
Figure 3: Modes of organization to secure Critical Technical Functions (simplified version of Künneke et.al. 2010)
For each of these combinations indicated in the matrix we are able to specify modes of organization that satisf/ the institutional and technological coordination requirements. This framework allows us to analyse in detail the institutional and technological characteristics of infrastructures that can be related to their expected performance. If the technical characteristics of the electricity infrastructure change, as I just outlined, what kind of rules and regulations would support this development? Correspondingly, institutional changes can only be successfully introduced if the technical characteristics of infrastructures change. If a decentralized sustainable energy system is stimulated by certain policy instruments, there is a strong need to support specific technological changes as in the development of so-called smart grids. Without these technical changes, this policy will not have the intended results and the performance of the infrastructure will not meet expectations.
This framework also allows us to assess differences between infrastructures. There are important technological differences between infrastructures that significantly influence the economic organization of these sectors. In other
words, the economic organization that might work well in the energy sector might not be applicable for the railroad sector.
Research opportunities
Let me explicate some important fields of research ofthe chair of Economics of Infrastructures for the coming five years. I relate this to the developing research programs and initiatives in our TPM faculty.
Social responsible innovations in infrastructures
Take for instance the wind turbines located at the highway A12 near Waddinxveen. There has been a long discussion in this community about whether or not these wind turbines should be placed, and if so, where. Ultimately it was agreed that they would be situated in an industrial area near the highway and far from residential areas. Very often people are in favor of wind energy, because it is clean green' power. But when it comes to building wind turbines in their neighborhood, there is another perception about the pros and cons. Wind turbines are ugly, they pollute the horizon, cause noise and cast shadows. The same holds for long distance power transmission lines. They are needed to transport electric power, for instance from offshore wind parks to the hinterland. But would you like to have a transmission line in your backyard? Most probably not. The value of your real estate might drop, it disturbs the view, and the electromagnetic radiation might harm the health of people living in its proximity. At the same time, our energy system needs to be technically adjusted to the new needs and requirements of sustainable power production. Obviously there is a tension between this need to transform our energy infrastructure and the social acceptance of these changes. Often a lack of social acceptance causes a more serious barrier for innovative infrastructure than the problems of technical development. Locating new wind turbines or building electricity transmission lines are very illustrative examples. Are people just poorly informed? Do they need to be convinced about the social benefits of wind energy? Are they just ignorant or irrational? In our view, the problem of social acceptance needs to be approached in another way, based on the idea of Value sensitive design'^
The general idea of value sensitive design is to incorporate the values of citizens into the technical and institutional design of new parts of infrastructures. There might be various value sensitive technical solutions that address concerns of society. For instance, very silent wind turbines can be designed. Or wind turbines might be placed on locations were shadow cast is not disturbing. Another less straight forward option might be to involve actively the local residents in the
^ Van de Poel, lbo and Kroes, Peter, forthcoming. Can technology embody values? In: Peter Kroes and Peter-Paul Verbeek (Eds.), Moral agency and technical artifacts. Springer, Dordrecht.
technical operation of the wind turbines. There is an anecdote of a turbine operator who placed a switch in the houses near a wind park that allowed the occupants to switch off the turbines when disturbed. As a result, there were no more complaints and the wind turbines were only occasionally shut down in the neighborhood. Obviously this institutional change in the technical operation contributed to the social acceptability. This illustrates that it is not only technology that matters. Also the institutional design can be amended in accordance to the norms and values. To give a very simple and straightforward example: Would you be disturbed by a turning wind turbine if its generates income for you? Or would you be happy to notice that every turn raises your earnings? Obviously social acceptability also depends on the property rights and decision rights with respect to the investment and operation of infrastructures. We can use the critical infrastructure framework to investigate more precisely which different constellations between institutions and technology would meet different societal norms and values. This involves a detailed analysis of critical transactions, critical governance and critical access related to a certain desirable system performance. This results in a consistent set of institutional arrangements and technological characteristics in which these norms and values are structurally embedded. Currently we are conducting research projects for the Dutch Science Foundation (NWO), in which we apply these ideas to the cases of offshore wind, shale gas and smart meters. In line with these pilot projects we expect to develop further and apply this research approach in collaboration with the Delft Center for Wind Research (DUWIND), especially related to the development of offshore energy systems. We also aim to contribute to the newly developing EU framework on research and innovation Horizon 2020 with our approach. Social responsible innovation is very high on the political agenda and there are many challenges in different infrastructures to which our research can contribute.
Participation and self governance
This topic is closely related to the work of Elinor Ostrom. Our faculty has a specific relation not only to the work of Elinor Ostrom, but also to her personally. In 2007 Ostrom initiated an international research initiative to develop further and extend her frameworks and ideas. Together with other colleagues from our faculty I was actively involved in this very interesting research collaboration. I was inspired by her work, and fascinated by her warm and open personality. In 2009 Elinor Ostrom received the Nobel price in economics, together with Oliver Williamson. As a very lucky coincidence, we were able to welcome both Nobel price laureates at our annual conference in Delft in 2010. The work of Williamson and Ostrom belongs to the intellectual pillars of our framework.
Self-governance is an important issue in Ostrom's work, especially with respect to socio-ecological systems like local forests, lakes or rivers. Under which conditions are local communities able and unable to safeguard the sustainability of local ecosystems?
In our faculty we relate her approach, among others, to the self governance of infrastructures. As I illustrated in my earlier examples this a very current issue. Under which conditions would it be possible to trust the operation and management of local energy systems to local communities? Environmental objectives are often an important driver for these initiatives. Ultimately we want be able to answer the question, under which conditions can these energy communities contribute to a reliable, clean, and affordable provision of energy? Self governance is a significant phenomenon certainly not restricted to energy but also seen in other infrastructures. The Internet is a prominent example here.
Participation is a related issue. How can infrastructures be designed to enable and support engagement and collaboration ofthe users while being transparent and trusted? For instance, how can citizens be engaged in the development of more effective and efficient public transportation systems? How users are sure that they can trust the electronic meters for gas and electricity? These questions are not only about technical design but also concern the rules and regulations of how and under what conditions certain services are provided. Who owns the data? Where are they stored? How can they be amended?
Complex systems
Designing a complex system like an infrastructure is a challenging task because it is the result of emerging technical systems and institutional frameworks. Our framework can contribute to a better understanding of the nature of some interrelations between technology and institutions, and how this is related to the quality of services provided by these systems. Within the complex systems research program of the TPM faculty, the critical infrastructures framework provides a tool for designing institutions in a systematic way to meet performance criteria such as robustness, reliability, security, cost efficiency, etc. Within the complexity program there is quite some emphasis on quantitative and qualitative modeling in order to identify the drivers for the development of complex systems and the opportunities to influence them in order to meet performance expectations. What are possible system structures and system behavior under different conditions? How can a system adapt to new structures? What is its development path and process? Agent based modeling is one of the many approaches that can be applied to deal with these questions.
Another interesting line of research is related to the development of indicators, signaling the performance of complex systems like infrastructures. Such qualitative and quantitative indicators could be very useful as an early warning system for the often hidden changes and processes that take place in infrastructures. This would allow one to take precautions to prevent unexpected and unintended developments or to stimulate desirable system changes. In order to be able to develop such an early warning system, new data sources can be explored, including data mining on the Internet
Education
The research agenda that I just presented to you is closely related to the educational activities in which the 'Economics of Infrastructures' group is involved. Indeed, there is a very strong interrelation between research and education. Students are very inspiring with their genuine curiosity, their critical questions and comments. As part of their engineering study program, economics provides very important complementary knowledge that enables them to frame better and analyze typical engineering problems. We are certainly not educating future economists in Delft but rather excellent future engineers with profound economic knowledge in relevant fields of interests. For our alumni this is a distinctive competitive advantage. This multidisciplinary approach provides the very enjoyable experience of working together with colleagues who are educated in very different disciplines.
Since this chairwasestablishment Professor Melody some 16years ago. Economics of Infrastructures has contributed significantly to the educational programs ofthe TPM faculty. In the bachelors program of Technische Bestuurskunde' our group offers courses on the industrial organization of infrastructures and the basics of their economic regulation. In addition we also contribute to integrative courses, together with engineering sciences, public policy and law. In masters programs there are advanced courses on infrastructure regulation and governance. Our critical infrastructure approach that I presented today, is integrated into the masters curricula on 'System Engineering, Policy Analysis and Management', and 'Engineering and Policy Analysis' For our students it proves to be a very useful approach for bridging the disciplinary boundaries between engineering and social science. Many master's thesis are based on and supported by the body of knowledge of the Economics of Infrastructures group.
There is a steadily growing number of PhD students contributing to this field of research, especially in Lausanne, Paris and Delft. Together with my colleagues Professor Finger and Professor Ménard, I am organizing one week courses for
our PHD students to educate them on our approach to the economic governance and management of infrastructures. We are offering these summer courses for some eight years. Our PhD students in this area organize yearly workshops to exchange ideas on how to develop further and apply our framework in their research projects.
Acknov\fledgments
Being able to celebrate with you my appointment as professor is a very enjoyable occasion to thank colleagues, friends and family who supported me on this journey. I am very thankful to the Board of Delft University of Technology for appointing me. Thanks to the Dean the faculty Professor Theo Toonen and the heads of the present and past departments Professor Jeroen van den Hoven and Professor Margot Weijnen for their trust and support. I owe many colleagues in the Faculty of Technology, Policy and Management my deep appreciation for their collaboration and inspiration that I received from them for many years. A special word of thanks goes to my close collaborators from the Energy Delta Gas Research Program (EDGaR) and the Delft Research Institute for Wind Energy (DUWIND). I am happy that my PhD supervisor is with us today. Professor Peter Boorsma from the University of Twente. He sparked my interest in infrastructure regulation even against my initial resistance as he recently reminded me. I am very thankful to Professor Bill Melody who brought me to Delft and taught me much about the economics of various infrastructures. Thanks to my colleagues from the section 'Economics of Infrastructures' for providing an environment in which we are able to develop our body of knowledge and generate innovative ideas. I am happy to have collaborated for many years with Dr. Aad Correljé who is an important pillar on which I can lean. My special gratitude to my close collaborators and friends Professor Claude Ménard, Professor John Groenewegen, and Professor Matthias Finger. I am very fortunate to be working with them and profiting from their deep knowledge in the field of institutional economics and political science.
I am very proud that my mother, who is 87, and my mother-in-law, who is 85, are both able to share with us this memorable event. Thanks to my four children, their partners, and my grandchild for their support and understanding. Thanks to my wife Annet, who is the most important person to me.
Ik heb gezegd^
Thanks to John Groenewegen, Aad Correljé, and Donna Mehos for their helpful comments on earlier versions
