The need for competition between decentralized governance approaches for data exchange in smart electricity grids-Fiscal federalism vs. polycentric governance

•Fiscal federalism is applied to the governance of information management.•The analysis focuses on the facilitation of innovation by the governance approaches.•Central and decentralized governance approaches fail to secure innovation.•We apply the polycentric governance approach to define the optimal size.

The institutional framework of the electricity sector is challenged by digitalization. With smart metering, data on energy consumption and production becomes available. Information management shall secure the efficient exchange of this data (e.g. from smart metering) in smart grids. Currently, national as well as regional governance approaches for information management systems are being developed. We discuss how the scale and scope of an information management system has an influence on the level of innovation in the process of the data exchange. We define information management as a club good and apply the insights from the theory of fiscal federalism. We conclude that neither of the extremes of national (central) and decentralized governance approaches for information management will be optimal. Rather, we identify the need of polycentric governance approaches that compete with each other to define the optimal degree of decentralization.