Why Holarchies?
Overview
Large engineering systems are rarely controlled from a single central decision maker.
Instead, they are organised as collections of smaller subsystems, each responsible for coordinating the resources under its control while simultaneously acting as part of a larger system.
This organisational structure is known as a holarchy.
The concept was introduced by Arthur Koestler, who described complex systems as being composed of holons—entities that are simultaneously complete systems in their own right while also forming components of larger systems.
A household is a complete system.
At the same time, it forms part of a distribution feeder.
The feeder forms part of a primary substation.
The substation forms part of a transmission network.
The transmission network forms part of the national electricity system.
Each level operates independently while contributing to the objectives of the levels above it.
Why Centralised Coordination Does Not Scale
Traditional electricity markets largely operate from the top down.
A central optimisation determines dispatch decisions for the entire system before local operators subsequently resolve any remaining network issues.
This approach worked well when electricity systems contained relatively few generators and passive consumers.
Modern electricity systems are fundamentally different.
Millions of distributed energy resources now make independent decisions.
Electric vehicles.
Heat pumps.
Household batteries.
Rooftop solar.
Flexible industrial demand.
Attempting to coordinate every device from a single optimisation rapidly becomes computationally expensive while requiring enormous amounts of information to be communicated centrally.
As systems grow, purely centralised coordination becomes increasingly difficult.
Divide and Coordinate
Holarchies provide an alternative.
Rather than solving one enormous optimisation problem, the overall system is decomposed into many smaller coordination problems.
Each level of the hierarchy solves the decisions that are relevant to its own resources while exchanging only the information required by neighbouring levels.
This dramatically reduces computational complexity while allowing decisions to remain closely aligned with local operating conditions.
The overall system emerges through cooperation between many smaller decision makers.
Local Decisions, Global Objectives
A key property of a holarchy is that every level pursues both local and global objectives simultaneously.
For example,
a household attempts to minimise its own electricity costs.
A feeder attempts to operate within its thermal limits.
A substation attempts to balance power across multiple feeders.
The national system attempts to maximise renewable utilisation while maintaining security of supply.
These objectives are not independent.
Each level continuously influences every other level.
The challenge is coordinating these decisions efficiently.
Holarchical Coordination in FP-AMM
FP-AMM adopts a holarchical architecture for both market coordination and price formation.
Rather than determining a single national electricity price, prices are formed throughout the hierarchy.
Each level continuously estimates its own operating condition and produces a local price reflecting the scarcity of the resources under its control.
Examples include:
- household flexibility,
- feeder capacity,
- transformer utilisation,
- transmission congestion,
- national energy scarcity.
These prices are then combined to produce the final price observed by participants.
The following sections explain how the electricity network naturally forms a holarchy and how distributed prices emerge from constraints at each level of the system.