Navigant Research Blog

Understanding Peer-to-Peer, Blockchain, and Transactive Energy

— March 9, 2017

Coauthored by Richard Shandross

These days, clean energy media and the utility industry are abuzz with talk about peer-to-peer (P2P) energy, the idea that power generation and consumption can be fully decentralized. More specifically, startups in multiple places around the globe have latched upon the concept of utility customers who own renewable energy resources—prosumers—selling their power directly to their neighbors or others in their town or city. They promise platforms that empower customer choice, support local green energy, and sometimes even save or make the customer money in the process. It’s a very appealing idea, and the customer excitement it generates has not escaped the eyes of utility management. Many utilities are considering their own play in this space, and several have announced products and/or partnerships.

Invariably, the solutions involve blockchain technology. Blockchain is the epitome of decentralization, and some implementations allow users to enter into smart contracts as part of a complete transaction platform. Because of this pairing of P2P energy transactions with blockchain technology, many people equate transactive energy with blockchain P2P. However, transactive energy represents a broad set of activities that includes much more than this type of solution.

Possibility of True P2P Energy Transactions

A more fundamental question is whether true P2P energy transactions are even possible. Traditionally, P2P transactions occur when peers make their resources directly available to other participants without central coordination. There are a few select scenarios in which this can occur between prosumers and consumers (for instance, in microgrids that can be isolated from the main distribution grid). Yet, for the majority of customers, this is not how distributed power transactions will work. Two factors typically prevent transactions that are being labeled as P2P to deviate from true P2P:

  1. Unless the two parties run their own power line between their respective sites—which is highly unlikely—the power generated by prosumers and the power used by consumers must travel over a utility’s distribution network. The operation of this network is coordinated by the distribution utility, not the peers in the transaction.
  2. Because the distribution network is used, the prosumer will be paid for the power it exports, and the consumer will pay for the power it uses, according to the utility tariffs applicable to them. The two parties do not determine the price; rather, they use the blockchain platform to negotiate and implement their own, separate transaction. That transaction is in addition to, rather than in place of, the standard transaction with the utility.

In other words, the distributed nature of blockchain technology does not mean that everything about what is being called blockchain P2P is distributed. The purchase and sale of power on a distribution grid involves centralized control.

We will discuss situations in which a true P2P energy transaction is possible in a separate blog. But for the vast majority of cases, a different type of connection between prosumer and consumer is needed to achieve the goals of customer choice, support of local generators, green energy, etc. An alternative already exists, which is to intentionally include distribution and/or supply companies in the transaction. An example of this would be a model in which:

  • Consumers pay their current retail tariff—including taxes and distribution charge—or a shade below it (as an incentive) for locally sourced power. This tariff could incorporate pricing signals that incentivize behavior that supports grid operation.
  • The distribution network operator receives a small fee for the use of its infrastructure.
  • The supply company earns a small fee for operating the transactive platform—which could be based on blockchain to save on transaction and processing costs.
  • Prosumers are paid a price significantly above wholesale, but below retail.

Role of Blockchain and Transactive Energy

What about the role of blockchain in the electric power industry? That is a big subject, one that is currently under construction by many parties in the industry. Here are a few possible ways to employ blockchain—any of which could have a significant impact on the power industry or portions of it:

  • Data logging: For example, Grid Singularity in Austria is setting up a platform for monitoring and sharing of power/energy production data worldwide.
  • Asset valuation: Another Grid Singularity innovation, the blockchain would store immutable performance data for an asset.
  • Certificates: P2P market ledger for renewable energy certificate trading and purchase.
  • Bill payment: Would allow unbanked customers to pay bills via cryptocurrency. Another use would be third-party bill payments by NGOs, charities, relatives, etc.
  • Conditional energy supply: Smart contracts could be employed to allow condition-based choice of generation sources involving weather, prices, or other complex conditions.

Transactive energy and blockchain are both exciting, emerging technologies that are currently in nascent states. There is potential for them to be employed together to positive effect. However, they should not be equated with each other and, except in rare situations, they do not enable true P2P energy transfer.

 

Energy Efficiency Becoming a Resource Force

— March 9, 2017

Energy efficiency used to be a fun little side show in the energy industry, a feel good story about shutting off lights and wearing more sweaters. This is no longer the case, as the size of utility and government-run energy efficiency programs have grown and program energy savings rival the production of large power plants. Electricity usage growth historically mirrored GDP trends, but these are no longer connected because usage has stagnated in many parts of the world while GDP expands.

A couple of recent industry events and reports highlight the magnitude of energy efficiency’s value. In early February, the Independent System Operator of New England (ISO-NE) held its Forward Capacity Auction for the 2020-2021 power year. 640 MW of new energy efficiency and demand response cleared in the auction, an amount ISO-NE describes in its news release as “the equivalent of a large power plant.” In total, about 3,000 MW of existing and new energy efficiency cleared, approximately 9% of the total capacity market.

Additionally, a new report issued February 16 by the Appliance Standards Awareness Project and the American Council for an Energy-Efficient Economy (ACEEE) claimed that the average American household saved nearly $500 on utility bills in 2015 due to state and federal energy efficiency standards for appliances, lighting, and plumbing products. Average household savings by state ranged from 11% to 27% of total consumer utility bills, with a national average of 16%. Total business utility bill savings from standards reached nearly $23 billion in 2015. Business savings equaled 8% of total spending on electricity and natural gas.

A Navigant Research report, Market Data: Global Energy Efficiency Spending, highlights these trends and others on a global basis. Such funding is expected to grow from $25.6 billion in 2017 to $56.1 billion in 2026. Europe and North America have fostered these types of programs for decades, while other regions and countries, particularly China, are expected to significantly increase energy efficiency investments in the future due to economic, technical, and environmental drivers.

As energy efficiency spending and savings expand, utilities and solutions providers will have to adjust their business models to find new ways to profit and create value for consumers or they will risk being left in the cold.

 

Support for EV Charging Presents New Challenges and Opportunities

— March 9, 2017

As new EV models are introduced at increasingly low prices, the need for charging infrastructure is growing around the world. According to Navigant Research’s report, Electric Vehicle Charging Services, plug-in EVs will represent 22.6 million MWh of demand by 2020. Major efforts are underway by governments, utilities, and private companies to capitalize on this new source of energy demand that is necessary to facilitate the transition to electrified transportation. With this new demand for electricity comes both the possibility for disruptions to the grid and significant opportunities for solutions capable of overcoming these new challenges.

Motivations for Change

Around the world, governments are stepping up efforts to support the growth of the EV industry by facilitating the development of charging infrastructure. Perhaps the most significant effort is the recently announced plan for the Chinese government to support the installation of 800,000 new EV charging points in 2017 alone. The main drivers for governments to support the EV industry are to reduce air pollution, enable a new source of economic growth by supporting local vehicle and component manufacturers, and drive new infrastructure investments. These issues are particularly relevant in China, where urban air pollution is a national health crisis and where EVs are a growing domestic industry.

Private companies are becoming increasingly involved in the EV industry. In early 2017, multinational oil major Shell announced that it will begin installing EV chargers at the company’s gas stations. Shell and other oil companies are looking to EV charging as an opportunity to diversify revenue streams, as the current low gasoline prices are reducing profit margins and overall gasoline consumption is projected to continue to decline.

Challenges and Solutions

Finally, utilities in many areas have been major supporters of the transition to electric transportation. At a time when overall electricity consumption is decreasing and more customers are generating their own power, EV charging is likely to be the most significant source of new demand on the grid, and utilities are eager to help it grow. This dynamic is evident in the recently announced proposal by utilities in California to spend approximately $1 billion on new EV charging infrastructure. While EV charging is an opportunity for utilities, they are also faced with a number of major new challenges caused by the technology. EV charging causes considerable spikes in demand, often with little control or coordination. Additionally, charging stations are often located at the edges of the grid on circuits that may already be approaching capacity constraints during peak demand periods.

EVs and charging systems are integral pieces of the rapidly evolving distributed energy resources (DER) ecosystem. For many DER, the overall value and ability to effectively integrate with the existing grid is greatly enhanced by pairing complementary technologies together. Distributed energy storage may emerge as an ideal technological match for EV charging. There are already a number of partnerships between EV charging and energy storage providers aiming to reduce the effect of charging on congested infrastructure and shift renewable energy generation to align with EV charging needs. To fully realize the benefits of combined EV charging and energy storage, along with most DER, sophisticated software platforms are required to align the needs of the grid with those of customers. Software platforms with the ability to monitor and coordinate EV charging and optimize the use of energy storage to limit detrimental effects to the grid can alleviate many of the concerns that have limited the deployment of charging infrastructure to date.

 

The Sensors Are Coming

— March 9, 2017

Data is the key to transforming regular facilities into intelligent buildings. The key to collecting that data is the proliferation of connected sensors. Buildings that gather and analyze information on occupancy, CO2 levels, light levels, humidity, and temperature are able to operate more effectively. As the Internet of Things gains adoption in the broader business world, building sensors are increasingly being connected to the Internet to drive energy efficiency improvements with substantial cost savings. Navigant Research puts the current size of the advanced sensor market at $1.2 billion in 2016 and expects that figure to nearly triple over the next decade.

As data collection has evolved from monitoring building conditions to being able to monitor individual behavior, some of those individuals are beginning to get creeped out. A recent Marketplace article explores some of the sensor technologies gaining adoption in commercial offices and came away wholly uncomfortable at the level of data employers can collect.

Hanlon’s Razor

In all likelihood, these fears are likely irrational and overblown. Gathering, processing, and analyzing data remains a significant challenge in building operations, particularly for existing facilities. Most building owners simply do not have the bandwidth and technological sophistication to use that data for nefarious purposes. It will likely take several years for building technology to evolve to the point where privacy is a rational concern. However, it is an important conversation to have now.

The promise of increased efficiency from better data and concerns about privacy are two sides of the same coin. The information that helps facilities operate well can be used to determine how much time an employee spends at their desk. As technology is developed and adopted, occupants need to be a part of the decision-making process. Building technology providers will ultimately need to ensure both physical comfort and emotional comfort around privacy protections.

 

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