Why sharing solar is the next big thing in energy industry

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As more than 200,000 solar households in Australia get ready to lose their premium feed-in-tariffs at the end of the year, most are wondering “what’s next” for their electricity arrangements. But the same question is being posed by big utilities, who are facing a scale and pace of disruption that could never have been anticipated.

Much has been written – on this website and elsewhere – about the impact of the (still) plunging cost of solar and the arrival of battery storage.

New build solar

But the disruption and the opportunities being offered by those technologies is likely to be accelerated massively by the introduction of new software such as the “blockchain” system that has already taken root in financial systems.

This technology holds the promise of lower bills for consumers, more localised and community-based energy, greater resilience for the entire electricity system, and huge implications for incumbent business and regulators as they struggle to keep pace. And all this as regulators and market operators, as well as the fossil fuel lobby, look to old solutions to new problems, and continue to play down the benefits and promise of these new technologies.

These technologies will allow for smaller and smaller participants to transact energy in the retail and wholesale markets, through peer-to-peer rating and community-focused energy systems – such as micro-grids – and in some instances may by-pass some incumbents altogether.

Two of the closest observers of the transition of the energy utility business model have been Lawrence Orsini, the principal of US-based firm LO3, which has recently set up shop in Australia, and the team at Accenture Australia, led by Ann Burns and Simon Vardy.

The New York-based Orsini, who is in Australia to present at a major networks and utilities conference in Sydney this week, says the business models of utilities are being “shaken apart” by the changes in technology and the arrival of the “sharing” economy.

LO3 is involved in the Brooklyn micro-grid project in New York, part of their reshaping the power vision project, and in Germany. But he says the most interest has come from Australia, and several trials are expected to be announced in coming months.

The Australia interest, he says, comes as a result of the uptake of solar, the anticipated boom in battery storage, high energy costs, and the fact that the grid has not been built to be resilient.

That latter comment may come as a shock to those who justified the massive spending on infrastructure in recent years on meeting the 99.998 per cent reliability standard that is designed to allow just 11 minutes of outage per customer a year.

But the South Australia blackout proved a lie to that. And rather than being the fault of wind energy, as many pretended, the experience has underlined the fragility of Australia’s reliance on large centralised generators and huge networks that transport the energy hundred of even thousands of kilometres.

Just about everyone agrees that the way to provide a more secure, and low cost grid, is to focus on localised energy, featuring local power and sharing – a concept that Orsini describes as “transactive energy.”

The blockchain technology is important because it can off er a “cryptographically secure”, distributed ledger that can track where electricity was generated, where it can travel to and who used it.

“There is no question about where you got your kilowatt hour, where it came from and how it was produced,” he says. It is transparent and secure, and will make it easier for new and smaller players to be involved, right down to the individual solar household. In effect, another major step towards the democratisation of energy.

Orsini says his company is focused on the physical transaction of energy, not the financial transactions. They key, he says, is in the need for fast acting load responses, storage, controllable generation and reaction time.

“So what we need is a transitive grid,” Orsini tells RenewEconomy in an interview. “We are going to hit a tipping point where this is going to shift very fast.

“Any energy system that is running high on renewables, in combination with non renewables and storage, needs to move to market model that recognizes the value of a “negawatt” (the power you don’t use) as well as the value of megawatt. The grid architecture will change very quickly.”

Orsini says the Brooklyn project has already provided some valuable lessons, in particularly the interest from consumers in where the their electric came from.

“I was skeptical that people would have an interest in where energy coming from, but Brooklyn shook that up a bit. I didn’t understand how much of  a driver was renewable energy, for solar on the rooftop, for community projects, and for their environmental benefits. In Brooklyn they want their electrons to be Brooklyn electrons.”

He says one of the biggest drivers in Australia will be location-based models for energy production, transportation and consumption.

“If you are buying your electricity from far away – and if you not paying for that cost, then it is socialised. You never see the real cost. As soon as you start paying for the real cost then the grid re-organises itself.

You will want to pay for stuff that is closer. We used to have no choice but to have a centralised, monopoly grid, but we didn’t need to do that any more.”

Orsini pointed to research by consultancy firm Accenture that suggested that 80 per cent of consumers wanted to “participate” in the market, not as active traders perhaps but certainly not as passive as they had been.

“I still don’t know that that computes with me,” Orsini admitted.

RenewEconomy recently interviewed Accenture energy experts Ann Burns and Simon Vardy, who are in no doubt that the shift in attitude of consumers – enabled by solar and storage – and the role that blockchain will play in that.

“The consumer will drive the agenda more and more,” says Burns. Sharing and community focused energy is “not something that can be prevented.”

Vardy says that blockchain has the capacity to “cut out the middle men” which may include retailers and generators, and the uptake will be driven by the changing consumer landscape and the emergence of the “millennial” as the largest consumer cohort – a position they will reach by 2020.  

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  • john

    I have enough area in my back yard growing hay which i donate to supply the whole road.
    To do this however would be very expensive, however I can see no reason why a co-operative could not be formed with all to contribute and the borrowed amount to achieve this working.

    So very rough figure 8 households using 20 kWh each per day = 160 kWh.
    Add 40 for margin total output minimum 200 kWh per day.
    Array size and batter system needed with a 40% day 60% night split.

    Day is easy lets have a margin of at least 30% then it is 80 + 24 = 104 kWh
    Night with 33% margin 120+40=160
    ok total needed day is 264 kWh per day and 96360 kWh year
    Lets say 100,000 to be safe.
    1 off 5 kw system output = 8000 kWh therefore;
    Very rough figures 62.5 kw system would do the power.
    batteries needed for that 60% 60,000 /365/10=16.4 ok lets use 20

    capital cost of 64kw system roughly at $1080 per kw = $69,120
    20 Redflow batteries at $12,000 =$120,000
    Total outcome cost $190,000
    Cost of power over 15 years per household, using 876000 kWh
    $0.2168 per kWh now i am sure this can be beaten on this scale.
    21.7 cents per kWh for power and i have i think over built the project to be conservative.

    • MrMauricio

      Wow!!! That is incredible really!!!

    • Andy

      20x$12000 = ?

  • Rod

    I don’t take much from the grid but have considered Green Energy.
    But I just don’t know where it is coming from or even if it is Green.
    Or is the retailer just skimming some more off the top and selling me FF power.

  • howardpatr

    Blockchain, EVs in the garage, the next generation of batteries, (perhaps magnesium), supercapacitors that can also store significant amount of energy, along with community owned storage faculties in the suburbs.

    Shame Mogodon Frydenberg can’t or won’t see the future and demonstrate some enthusiasm for innovation. Guess the Mad Monk has got to him as well as Turnbull when it comes to anthropogenic climate change and the renewable energy future?

    • Mike Dill

      It does not matter if they ‘get’ climate change. Solar, wind and soon storage will be cheaper than the grid. Economics will prevail while governments dither.

      • Tobias J

        Yes, its all about the cost curve.

  • mike

    Vardy says that blockchain has the capacity to “cut out the middle men”

    He means of course introducing a new, additional, complex, hackable, centralised, proprietary, rent-seeking middle-man.

    • howardpatr

      But if the rent seeking is to high they won’t get takers but point nonetheless well made, (Airbnb and Uber and the mega corporations adding to global inequality and tax avoidance).

      All the same things keep happening – like supercacitors; see

    • Carl Raymond S

      Well that would be a bad utilisation of blockchain. Blockchain itself is essentially peer to peer, with a very small transaction fee (.0005 or thereabouts), near impossible to hack (unless one has access to a big bank of supercomputers), decentralised and open source.

      Having the right number of energy traders will be key. Too many and there won’t be enough people to trade with. Too few and there won’t be enough competition to keep the transaction fee down.

      The other key will be trader agnostic powerwall software. Consumers must be free to switch traders with a click in a web page. We went through all this with mobile phones – remember when numbers were not portable between carriers? Resist the lock-in!

      If somebody is clever enough, the ultimate would be a totally decentralised serverless trading solution, along the lines of Napster and Skype. Probably a bit too communist to see light of day. Somebody has to maintain the grid, therefore somebody has to make a profit.

      • mike

        You’re thinking of Bitcoin, and I would agree, but blockchain in the context of the article is not the same thing.

        • Carl Raymond S

          My understanding of blockchain is a public ledger that records point to point transactions in an untamperable fashion without requiring that the two parties know or trust each other.
          If this is something else, please elaborate.

          • mike

            Yes, with the Bitcoin blockchain that is true, it’s a public (open source) ledger that records point to point (aka peer to peer) transactions in an untamperable fashion without requiring that the two parties know or trust each other.

            With private blockchains such as those discussed in the article, the code is centralised, and the verification is done by a single entity, you have to trust them.

            If you go for example to the power ledger website, you’ll see lot’s of marketing jargon, but very little tech. Where’s the source code? Where’s the blockchain? Why can’t it be downloaded? Where is the distributed network of peers verifying this blockchain? Where are the independent cryptographers/programmers who could vouch for the system?

            The power generation is obviously distributed among the customers, and they may have a blockchain client but that would only give them a view of the centralised account, much like your online bank account.

            When (not if) power ledger gets hacked (potentially by insiders) what happens to the funds?

            If this leads you to ask what’s the point of using blockchain in this context, the answer is there is no point except to obfuscate the reality of the business model.

            I’m short of time but I will try to get back and elaborate further.

    • Chris Fraser

      Yea, much better to keep lining the pockets of the established, empire-building, desperate, monopolistic, craven, rent-seeking retailers.

      • mike

        Open source, peer to peer would be the ideal.

    • Tobias J

      Just as bitcoin works in an open and decentralised manner so can these energy trading blockchains. Why must these be closed and private blockchains? The debate about whether a database that is permissioned can be considered a blockchain is ongoing.

      • mike

        Yes, like I replied to Chris Fraser below, open source, peer to peer would be the ideal, I did not say they must be closed and private.

        That’s a good point about permissioned database, as that’s all you really need for energy trading. You don’t need a cryptographically secure, permanent, tamper-proof record of all energy transactions. Just account for them in a spreadsheet or traditional database with the trading facilitator or energy retailer is all you need, not really much more complicated than a regular billing system.

        • Tobias J

          But its the secure and tamper-proof record that brings in users. We would know that no third party is diddling us through inaccurate accounting, collecting a fee or whatnot. Its the trust that creates the network effect and creates the biggest marketplace. We wouldn’t want a third party disconnecting us from the network because of some arbitrary reason either.

          Physical access to the grid then becomes the issue. I have no doubt smarter people than I will come together and work it out in much the same way that the mechanics of bitcoin have developed and work successfully. Its all part of the healthy shift towards decentralisation.

          • mike

            Yes Tobias I agree if it was secure and tamper-proof and open source ala Bitcoin that would be really great, but these business models are centralised and closed-source (you cannot download the source code).

            The excess solar power that people generate and feed back into the grid, you could say that’s peer to peer I suppose, and one might have an agreement to sell to the local hospital, but you don’t need a blockchain to do that; blockchain only adds unnecessary complexity and cost.

            The monetary value is still traded through a centralised ‘exchange’, not through a peer to peer market. To put it another way, it’s a traditional client-server topology, it’s not actually the people in control, as howardpatr mentioned it’s like going through Uber or airBnB.

            There are models being developed, mostly in academia, that propose true blockchain-based energy trading and cryptographically secure value-token management, these will be the real disruptive game changers.

  • nakedChimp

    first block, last word.. “participated” is wrong, probably should be “anticipated”.

  • JHM

    A missing element here is that along with block chain micromarkets come automated trading. It is really not necessary for any human to trade in these markets, rather computer algorithms can do all the trading.

    Imagine, for example, that you have a home battery with a processor on it that can quote bid and ask prices in microseconds on charging or discharging. A simple algorithm makes prices a monotone decreasing function of your batteries state of charge. Basically, the lower your charge gets the higher price your battery is willing to pay to charge. Allow a certain spread between ask and bid, and your battery is set to net a certain amount for each charge-discharge cycle. This makes your battery a little market maker in your local microgrid.

    Other devices can trade as well. Your smart thermostat can set a bid price for power based on how many degrees the temperature is away from target and where the meteorology is taking it. So the more uncomfortable the home is the more it is willing to pay. And also if the temperature is rising outside and the price of electricity is expected to go up, then it may cool the home early to exploit lower power prices.

    AI can optimize this kind of trading. Note that precooling a home is a form of energy storage. So smart batteries and smart thermostats are effectively competing to offer the lowest cost of storage.

    Suppose you have solar panels producing surplus power. This can be sold into the micromarket at market price or stored locally on your home battery. Thus your smart battery can act as selling agent for your surplus solar.

    A smart back up generator can kick in whenever the market price gets high enough. A pretty simple fixed asking price will suffice. Batteries will function as the effective market maker, so the generators will only kick in when batteries are getting critically low, low enough that discharge asking prices are above the generator asking price.

    Charging EVs have an obvious way to trade. The driver sets a certain state of charge required by a certain point in time. An automated trading algorithm seeks out the minimum cost to charge. The lower prices fall the faster it charges. If it has the ability to anticipate lower prices on the future, then it delay charging until prices fall. Some sort of futures market within a micromarket would facilitate this.

    Finally, there can be an interconnection with the macrogrid. The micromarket will draw grid power only when it is cheaper than internal resources. As batteries effectively function as a market maker, the grid connection will mostly be drawn when power is cheapest and the state of charge is lowest. So the bulk of imports from the grid will simply soak up underpriced surplus power. This is exactly what is most problematic for utilities and wholesale power producers. Microgrids with micromarkets and automated trading will squeeze the grid for the lowest prices possible, whether or not this remains profitable for grid players. The attempt to set prices above micromarket prices will lead to a decline in consumption of grid power. So the addition of automated micro trading is critical for making the micromarkets incredibly efficient economically. The greater the economic efficiency, the less the macrogrid players will be able to compete with inefficient pricing structures. Gas peaker plants and costly transmission infrastructure will lose value very quickly.

    Now for consumers who do not wish to make decisions about how to structure their automated micro trading or do not wish to be exposed to market volatility, the simple alternative is to enter into service contracts with micro trading companies. Any sort of DER aggregator could provide this service. Essentially they would operate the trading algorithms, finance the service plans and reap the arbitrage between consumer and markets. Such a financial product may well include financing for the DER equipment itself. Multiple aggregators can compete within the same micromarket, so this will force them to compete for customers and keep the cost of trading service low. Indeed, these entities will mostly compete on developing the started trading algorithms, pushing micromarkets to economic efficiency. But if the micromarket is well structured then ordinary participants can just as well manage their own automated micro trading and bypass the aggregators. This too will force aggregators to keep their profit margins low.

    With all this potential for market efficiency, the most essential risk is over investing in any power generating hardware or transmission hardware. If a micromarket is over supplied, then the return will not be good. Fortunately, batteries can be easily unistalled and redeployed to other micromarkets. Also batteries age with use, so some degree of excess will be consumed over time. So local oversupply of batteries is not much of a risk. The flip side of this is that gas peaking plants and transmission assets are not easily redeployed. An oversupply of grid assets will lead to write downs. Thus there is an enormous asymmetry of risks.

    • Ken Fabian

      Not only should smart systems be able to track prices and buy and sell on that basis they can be linked to predictive services (based mostly on weather prediction) of upcoming supply and demand. Batteries can be topped up from the grid off-peak ahead of predicted or during persistent overcast conditions or be instructed to sell more and run lower than usual, taking advantage of high price periods when we tell the system we are going away for a holiday. Depending on how such contractual arrangements are made – as long as the terms are mutually acceptable – part of household or community storage capacity could be made available to grid operators for load levelling or emergency services during system outages. The possibilities are there and they look likely to increase rather than reduced overall grid reliability.

      Will every solar and battery fitted home or business be able to bypass electricity retailers entirely – a big cost saving right there – and buy and sell directly into the wholesale electricity market?

    • Tobias J

      So like Bitcoin makes everyone a bank, p2p energy trading will make us all power generators. I love it.