The energy industry used to be a simple beast
Vertically-integrated utilities sat in the middle of the system, like benevolent spiders spinning a web out to the last customer looking for a connection; deciding where and when to build generating capacity, deciding how to bridge the distance between generators and loads; keeping the system in balance through the deft application of all of the levers available to a centralised controlling entity.
It doesn’t look like that anymore.
In Australia, in the years between 2011 and 2016, more new generating capacity was installed on residential roofs than was connected to transmission networks.
If AEMO forecasts are accurate, network businesses like Western Power in WA face the prospect of leaking more than $110m in revenue every year by 2025 as a result of the load defection brought about through the proliferation of roof-top PV and the up-take of distributed energy storage. Of course, under revenue-cap regulation, monopoly networks pass through these losses in the form or tariff increases.
But networks are no longer monopolies. Consumers are, for reasons of cost, certainty, control and even conscience, electing to satisfy their energy needs through other means including roof-top PV, on-site generation, micro-grids and storage.
There’s an inconvenient truth facing the traditional energy supply industry but it’s a truth we have to recognise in order to maintain the viability of the system and the truth is this: at some stage, it will be cheaper and more reliable to self-supply than to rely on the network to provide low-cost and reliable energy.
It might happen in ten years, in might happen in two (according to some research for some consumers it’s already happened — (Newman & Green 2016)) but we need to accept the fact that if the only purpose of energy networks is the provision of energy then we’re putting them up against some stern competition in the form of distributed energy resources.
But there is an alternative to this steadily emerging obsolescence and, oddly enough, it can help to preserve the value of existing network assets while at the same time, reducing the risk of investment for those co-creating the energy system of the future.
Re-imagining the network as a decentralised and “trustless” trading platform.
The rapid penetration of distributed energy resources means we now have a distribution system characterised by bi-directional flows of energy and hundreds of thousands of active prosumers.
At a residential level, consumers are spilling energy into the network and feeling under-rewarded for their contribution but a network that allows consumers to realise value from their investment in DER presents an additional value proposition that could encourage even greater investment in distributed renewables and a new era of network management.
This new paradigm could see ever increasing levels of automation and resilience led not by a small number of large-scale centralised investments but by millions of micro-investments distributed across the system.
A network that allows consumers to sell energy to their peers in a trustless environment, is a trading platform. It’s a component of the distributed economy that allows consumers to realise the value of their investment in DER by allowing them to monetise their excess energy in much the same way as Uber and AirBNB allow people to monetise excess capacity in the form of their cars and spare rooms.
And trustless? A trading platform that requires third-party settlement and reconciliation of millions of transactions between hundreds of thousands of traders across 15-minute trading intervals would be impossible to support physically but the emerging technology of the blockchain can facilitate the financial settlement of these transactions in the same trading interval in which the energy is produced and consumed.
The future is now
Blockchain-enabled peer-to-peer energy trading has the potential to transform energy networks into trading platforms and invoke a transactive economy that moves away from bilateral retail arrangements to multi-lateral trading ecosystems that preserve networks’ relevance to consumers.
And it’s not just network service providers that benefit from maintaining the relevance of one of our most important social assets.
The people that have the most to lose are the people that have the least ability to influence their exposure to rising network costs and the impact on grid-supplied energy. The financially and socially marginalised, renters, the huge number of Australians living in strata-titled housing and even those whose homes are oriented in the wrong direction or are exposed to shading from nearby buildings or trees, these are the people who will bear the impact of falling network utilisation if we don’t find a way to incentivise prosumers to stick tight to the network.
Unlike the centrally-managed power systems of the past, the future of the energy system, will be co-created by the prosumers and investors that will decide where and when to install DER.
Power Ledger is already working with a number of property developers who are looking to implement a new model of development that incorporates community-owned energy generation and storage into urban residential and commercial developments (greenfields and in-fill sites) to create developments that have virtually no impact on peak demand and are funded by consumers.
These developments don’t necessitate network augmentation, so they’re cheaper to develop, but they may still have an energy requirement (off-peak charging or storage devices) benefiting networks by improving asset utilisation.
As an industry we have no alternative but to actively participate in the transition to a distributed energy economy where the grid becomes the vehicle that provides the economic incentive for prosumers and consumers to realise their own low-cost, low-carbon and resilient energy future.
At Power Ledger, we’ve recently released a White Paper on how a blockchain-based trading ecosystem can be a unifying element that allows multiple application hosts to create trading applications that allow consumers to co-create their energy future and continue to build on the value of an enormously important social asset — the grid.
This article was originally published by HelloGrid.