The democratisation of energy: four key technologies to follow it through
30th June 2017
Jo-Jo Hubbard & Paul Ellis
The rapid global deployment of solar is catalysing the decentralisation and democratisation of our installed power base. However our distribution systems and energy markets themselves remain deeply centralised. Historically, this has been no bad thing. Centralisation has meant stability and the opportunity for whole-system optimisation. However centralisation may now be the problem, not the solution. A quartet of fast-developing new technologies at the grid edge imply that we will soon have a better alternative.
Renewables: where it all began
Many millions of people across the world can now generate their own electricity and/or access power off-grid courtesy of the rapid development of small-scale renewable technologies. Solar stands out in particular. The price and accessibility of panels today means this build out can be led by the consumers themselves. This has been a key factor in the fourfold increase in solar capacity we have seen over the last 5 years. Globally, almost 400GW of installed solar capacity is forecast by the end of 2017.
However, the speed of this build-out has bought with it many new issues. Our dispatch and distribution systems were designed for a centrally controlled reality, in which a) power flowed one way- from the centre to the grid edge; and b) market participants were large corporations. Domestic renewable production is upending this paradigm and increasing the cost and complexity of balancing supply and demand in the grid. This has caused a sharp rise in the cost of electricity, with consumers without generation inadvertently subsidising those with it.
Moreover, given that small scale generation is connected to local- not national- distribution networks, millions of generating assets are now invisible to the central controller. Add to this the millions of storage assets and billions of connected devices coming on line… From the centre, this looks like chaos.
The transition to a decarbonised, democratised energy system (as opposed to just installed capacity base) will require a) transitioning to smart grids capable of local optimisation, b) better enabling and incentivising desired consumption behaviour, and c) re-distributing the benefits of those actions in a fairer, more transparent way. Four technologies stand out in enabling this transition.
1) IoT & connected devices: greater data visibility, choice and control
Machine to machine (M2M) connections are forecast to grow nearly threefold between 2015 and 2020 to reach 12bn devices. Almost half of these will be in the connected home. These connected devices are unlike their dumb counterparts in that they create and respond to messages (data) and they are capable of transacting. This will enable energy consumers to make more informed, granular decisions over their consumption. It will also reinforce the trend of shifting control away from the centre.
Going forwards, these in-home connected devices could offer services beyond domestic comfort and potentially participate in balancing or optimising in their local grid. This would unlock an extra revenue stream for households and enable greater system efficiency & renewable penetration.
However, given the low value of these individual trades, automation will be a key enabler of this market. And trust will be a key enabler of automation. These requirements roughly align with technologies 3 & 4 on our list.
2) Storage: decoupling time of generation from time of use
Rapid advances in storage technologies, particularly batteries, is held by many to be the greatest threat to the utility business model. Even with onsite generation, consumers without storage capabilities depend on utilities for back-up power supply. Consumers with a battery might not.
Cost and capacity loss are key barriers to widespread adoption today, but these issues appear to be in rapid decline. The joined up advances of the automotive and energy industries have already caused lithium ion batteries to halve in price since 2014 and prices are forecast to fall by one third again by 2018-21.
Moreover, households with installed battery capacity also have greater optionality and capability to sell power to other consumers or provide flexibility services to the grid. Again, individual transaction values here tend to be low so automation and trust are key enablers for the community energy market.
3) Artificial intelligence: optimisation without centralisation
Augmented with AI, the increasing number of decentralised, engageable assets could not only represent themselves in the market place, but also observe previous trading outcomes to improve future decisions. This will be key to optimisation of the millions of decentralised assets and billions of connected devices in play throughout the grid.
However, in order to be effective, AI has two key prerequisites. The first is ensuring access to abundant, high quality data. The second is in creating trust and transparency over the automated decisions taken.
Getting the structures around data ownership, access, security and accuracy correct will determine the speed at which AI can advance and the number of players able to contribute to its development. Our fourth technology, blockchain, may offer some solutions to both of these issues.
4) Blockchain: enabling M2M transactions and trust in decentralised markets
In today’s digitised economy, transactions and interactions are conducted on platforms. Blockchain technology presents a way to build these platforms without simultaneously creating a monopoly to own it and all of its corresponding data. When we consider the market positions of the de facto monopoly platform owners of today- think Google, Facebook, Amazon- the significance of this innovation is clear.
We see blockchain as a key facilitator for these other converging technologies in three key ways. Firstly, it provides a secure transaction environment, be it for peers or automated distributed assets, to receive price signals and execute trades in a safe, organised and decentralised manner. Secondly it fosters transparency and trust by guaranteeing the execution of certain processes (pre-programmed through “smart contracts”) and producing immutable, time-stamped records of all transactions. And finally, it offers deeply egalitarian models around data ownerships and access- the fuel for future AI and future good decision making in general.
The data ownership piece here is key, and often overlooked by press looking for sexier blockchain uses such as peer to peer trading. Parties transacting on blockchain can retain ownership of their own data and select conditions for sharing it (financial incentives, good causes etc). This means that many players above and beyond the monopoly platform owners have the opportunity to access that data and enter the energy services market. The fact that blockchain platforms are open to innovation and extension also means that those parties will be able to extend the functionality of the platform themselves. The result: in greater market participation and a user driven innovation platform the evolves at the speed of the fastest innovator.
The key enabler for blockchain will be a mind-set shift, away from reliance on a single point of accountability and towards wider industry collaboration.
We were invited to write this piece after being awarded “Technology Pioneer” status by the World Economic Forum, and as such it originally appeared on their blog here.
It has been re-published with their kind permission.
What does blockchain mean for energy?
3rd May 2017
We get asked this a lot, so we decided to set out our thoughts here. We think blockchain has the potential to change three key aspects of the energy industry:
1. Who (or what) can trade
2. What can be traded
3. How markets are organised
We’ll delve into each of these ideas below:
1. Who can trade: Everyone… even machines!
At its core, blockchain technology is deeply democratic and inclusive, allowing all members of a network to transact on an equal footing.
A blockchain platform and its protocols can stand in for many of the trust functions for which we have typically looked to large, established & expensive corporates e.g. verified identity, staked reputation, transaction processing systems etc.. Using blockchain platforms, small companies can transact on an equal footing with larger companies, and individuals can trade directly between themselves in a peer to peer (“P2P”) economy. In energy this might manifest itself in enabling solar panel or battery owners to engage directly in the market and transact “local” or “green” energy with one another.
Sort of like a “local market” for energy then - where the marketplace is owned by the shoppers and stall-owners, and there is no single controlling company to demand access or trading fees.
On blockchain, users can extend the functionality of a platform themselves by deploying their own pieces of code (aka “smart contracts”). The result is a cost efficient, user-directed platform that will evolve at the speed of the fastest innovator, not at that of a single governing corporate.
This same ability to deploy smart contracts that automate business logic is also a key enabler of the machine to machine (“M2M”) economy. Using blockchain, machines can be equipped with wallets and a set of behavioral instructions that enable them to function autonomously - for example, we might expect Electric Vehicles to be able to purchase and pay for their own services. They could even trade their own power, re-selling it to the grid when the price was right.
Eventually the M2M economy will enable all connected devices to transact vertically along supply lines, reducing cost and friction along the way.
2. What can be traded: e.g. tokens & data
Blockchain technology is the first native medium for transferring value digitally, without involving intermediaries such as banks and credit card companies. The blockchain itself provides a record of ownership and an assurance against double-spending.
Native tokens can be introduced on blockchains to represent of something with a perceived value. Many instances of “tokens” in the energy sector pre-date blockchain e.g. carbon credits and renewable obligation certificates. Some companies are already investigating whether these existing tokens can be more efficiently and securely managed on a blockchain, whilst other companies are creating new tokens for products that previously had no value ascribed to them. For example, SolarCoin is a new crypto-currency that rewards owners of solar panels with one coin per MWh of production wherever they are in the world. These coins are exchanged for the production data of participating solar panels and can either be used to purchase solar related goods, or converted into fiat currency.
Indeed, blockchains enable new, fairer data valuation and ownership propositions in general. Our increasingly digitised, AI-enhanced world feeds off data, and yet few mechanisms exist to compensate those generating it. Currently data generators, interacting individuals, IoT devices, smart meters etc. have little visibility or control over how their data is collected and used. In some instances (e.g. on trading platforms) they are even paying for it to be aggregated and sold back to them. Blockchain technology allows for network participants to retain control of their own data. This means that they individuals can choose whether to keep data private, share it, or monetise it.
These new models for data ownership and permissions foreshadow interesting future partnerships across industries e.g. electrical equipment manufacturers teaming up with energy suppliers to offer free electricity in return for operational data.
3. How business is done: micropayments and collaboration
Blockchain systems create economic alignment between multiple parties interacting for a shared purpose. And it achieves this at a fraction of the cost of the alternatives (being A) expensive and complex legal frameworks or B) separate entities paid to coordinate and provide certain guarantees). This may result in:
1) Smaller scale transactions becoming economically viable. These might include micropayments for micro-services such as charging an EV in front of a traffic light, or flexibility actions from domestic household appliances.
2) The industry fostering newer, better models of co-operation, as de jure monopolies created to co-ordinate and share industry data are no longer necessary. Instead, market participants can collaboratively maintain and co-operate their own data platforms, thus removing a cost base, processing time, a barrier to innovation and a single point of failure or attack.
Drawing on the above we can conclude that blockchain is:
- A way to transfer- not copy- digital assets without an intermediary
- Both a technology and a completely new way of doing business
- Capable of delivering fairer, more efficient and more inclusive market places where multi-party coordination is required.
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