Navigant Research Blog

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

— March 9, 2017

Coauthored by Richard Shandross and Stuart Ravens

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.

 

Exelon’s GE Predix Deal Points to a Cloud-Based Future

— January 16, 2017

IT InfrastructureIn November last year, General Electric (GE) announced that US utility Exelon had signed a major deal to use the Predix platform to analyze data from its entire generation fleet. The enterprisewide agreement covers data from Exelon’s 32,700 MW portfolio of nuclear, wind, solar, hydroelectric, and natural gas power. Initially, Exelon will use Predix to help improve operational efficiency: it is targeting efficiency gains of up to 5% and operating and maintenance cost reductions of around 25%.

This was one of the most newsworthy announcements in the utility IT space in 2016, as it marks one of the first major shifts to cloud-based analytics of a large utility’s OT data. It is also GE’s largest Predix deal to date and helps validate the large bets the company has made in the OT analytics space, particularly its acquisition of Bit Stew (data ingestion) and Meridium (asset performance management).

Utilities and the Cloud

When the cloud was a hot topic in the broader IT world 4 or 5 years ago, there was little to write about in the utilities industry. This changed when utilities started to migrate back-office applications such as enterprise resource planning (ERP) and customer relationship management (CRM) to the cloud. Since then, there has been an acceleration of certain IT systems to the cloud, but utility OT applications have remained resolutely on-premise.

As utilities have become more comfortable with the cloud concept, it was only a matter of time before the OT world caught up with IT. Other IT vendors (e.g., Oracle with its Dataraker product) have already recorded numerous successes analyzing utilities’ grid data in the cloud. However, until now, the vast majority of these projects have been small-scale proofs of concept or have focused on smart meter data analytics.

Real-Time Performance

Exelon’s Predix deal marks a new era in cloud-based OT data analytics, as it involves the analytics of large volumes of operational grid data from preexisting sensors. This data has historically been fed into data historians, where it was then cleansed, extracted, and analyzed. The process was inefficient and relied on significant IT resources. By streaming data as soon as it is created into the Predix cloud, Exelon will be able to build a real-time view of its assets’ performance. And while the project will initially focus on asset performance management, if the project is a success, there is little to stop Exelon developing new use cases, particularly in network management.

GE is excited by the deal—it is one of the three largest software deals the company has ever closed—and expects more data from critical infrastructure to go into the cloud soon. While it has obvious strengths in asset performance management (APM), it also expects network management applications to migrate to the cloud. While we recommend a certain amount of circumspection (after all, one big deal does not signify a lasting trend), if analytics start to deliver the promise for huge cuts in operating costs, regulators will start to demand that utilities use these tools to cut customer costs.

Discussions of the deal with GE late last year highlighted yet again how vital C-level sponsorship is when driving digital transformation within a utility business. Exelon’s C-suite has been instrumental in the company’s adoption of new technologies, and GE has invested a great deal of time with executives to support them in making this change possible. There will be no digital transformation without C-level buy-in: the cultural and technological changes required are too great to be driven from individual departments.

 

2016 Marks a Year of Disruption for the Energy Industry

— December 29, 2016

Energy CloudAs 2016 draws to a close, it’s difficult to identify which events of a tumultuous year will affect the energy industry the most. The UK’s vote to leave the European Union and Donald Trump’s victory in the US presidential election will certainly top most lists for significant events in 2016. However, no one yet knows the extent to which either will affect the industry. I would like to remember 2016 for other events that gained less airplay than Brexit and Trump but still demonstrate the significant disruption that is occurring to traditional energy business models.

For many years, I have discussed the hypothetical risk of competitive disintermediation caused by the future convergence of electricity and telecommunications markets. Until this year, I relied on a handful of small-scale projects and strategies that amounted to little substance to make this point. However, events in 2016 show that the risk is no longer hypothetical, nor will convergence happen in the future: major utilities are planning large-scale telecommunications projects now, while telcoms are entering the mass market for electricity.

The Spread of Smart Grid

Enel is Italy’s largest utility and has led the charge into smart grid technology adoption. Italy was the first country to adopt smart meters, and it also has one of the most advanced distribution automation projects in Europe. However, Enel’s ambitions extend well beyond the utility industry. It is targeting the Italian broadband market, aiming to provide 250 towns and cities with broadband, and the company’s recent Metroweb acquisition sets Enel on this path. Enel has also discussed plans to deliver broadband to its international customers through wholly owned electricity subsidiaries in Spain, Romania, and South America.

SoftBank is Japan’s third largest company and provides fixed and mobile telephony, Internet, and digital TV services. When the Japanese market liberalized in early 2016, SoftBank recognized an opportunity to expand its services into electricity supply. It has partnered with TEPCO—the former Tokyo Electric Power Company—to deliver power products to its telecommunications customer base of 60 million. In a bold statement that highlights SoftBank’s ambitions in Internet of Things (IoT), the company also acquired leading chip manufacturer ARM for $31 billion.

Transactive Energy

Finally, 2016 saw a profusion of announcements of transactive energy proofs of concept. From North America through Europe, across Asia and into Australia, utilities are investigating ways that customers can start trading power between themselves. Again, transactive energy has been something the industry has discussed for several years, but has seen very little activity. The combination of solar PV, storage, and transactive energy platforms threatens to turn the old centralized business model on its head. The three technologies are complementary and each contributes to the accelerated deployment of the others: solar PV provides the opportunity to self-generate; storage enables the use of electricity at other times of the day; and transactive energy allows the owner to sell power to whomever they choose, at an optimal price.

Utilities face innumerable risks. There are threats from new entrants encroaching on the mass supply market, and massive changes in consumer behavior bring their own share of uncertainties. How each utility reacts will depend on market conditions and their appetite for change. Some will do their utmost to force regulators to protect their current businesses, and others will procrastinate their way to extinction. The likely winners will be those that recognize where future value lies and innovate their way to future success.

 

OSIsoft Wants Its PI Database to Sit at the Heart of IIoT

— October 21, 2016

AnalyticsAt OSIsoft’s EMEA Users Conference, the company set out a clear vision for its PI database: to remain resolutely an infrastructure provider and build out its significant number of partnerships. However, the majority of time was dedicated to its customers’ experiences delivering value from their operational data in innovative ways.

OSIsoft Wants to Position PI at the Heart of IIoT

The utility industry will recognize PI as the most widely used SCADA historian. Yet, PI’s scope extends well beyond utilities; it has a strong presence in many industries, including oil & gas, power generation, manufacturing, and pharmaceuticals. The conference had strong representation from across its core verticals, achieving a record attendance of 1,200 people—3 times the number that attended just 2 years ago.

This remarkable growth is indicative of the increasing value of operational data. A decade ago, PI was used to store data from operational control systems, and few people outside of this domain would access this data. Today, OSIsoft wants to position its database at the heart of the Industrial Internet of Things (IIoT). With a strong focus on digital transformation and IT/OT convergence, the Users Conference focused on ways OSIsoft, its customers, and its partners are helping customers deliver value by using operational data in new ways. A large part of this drive is to provide access to PI data to more users, but in a controlled and measured manner.

OSIsoft Must Work Hard to Raise PI’s Profile within Its Clients’ Organizations

This can be a challenge in many organizations, where PI is often not known beyond the departments that currently use it. IIoT, Industry 4.0, and big data create a huge growth opportunity for OSIsoft, but it must work hard to win this new business. The hype surrounding IIoT and big data is driven by myriad cloud-based IoT platform providers promoting the use of relational databases or Hadoop. OSIsoft warns against the proliferation of cloud-based data services, as these lead to the creation of yet more data siloes—the enemy of any large-scale data discovery project that integrates data from multiple sources.

Although OSIsoft has demonstrated success with its product, the company has to make itself heard through the noise of the big data hype machine. And while it is a profitable business, its marketing resources are limited. As a result, OSIsoft is using its biggest group of supporters to help emphasize the message that PI is a critical tool in IIoT data analytics. Many of OSIsoft’s users are also cheerleaders for the product. The Users Conference was full of customers discussing how other users can gain more value out of their PI licenses.

OSIsoft’s Partners Will Be Critical to Its Future Success

OSIsoft has another ace up its sleeve: a long list of partners that are also targeting the IIoT space. This list includes some impressive names: Esri, SAP, Qualcomm, SAS, IBM, Honeywell, Microsoft, and Cisco.

These vendors recognize PI’s strength and want to ensure that their products integrate seamlessly with PI. In the world of IoT, everyone wants to be OSIsoft’s friend—which is unsurprising, given OSIsoft is a monopoly in many industries. However, it is not just OSIsoft’s market penetration that makes it an attractive partner.

From its earliest days, OSIsoft has resisted the temptation to expand beyond its core business. It is resolutely an infrastructure business. While it has augmented the core PI database with various tools—notifications of anomalous events, data visualization, and integration tools—these are not applications. This means that OSIsoft has no competing products with anyone keen to connect their devices or integrate their applications. In the past, I have been critical of this approach, but my stance is weakening. As the IIoT world develops, OSIsoft’s agnosticism toward applications makes more and more sense: it can partner with a whole raft of vendors and consolidate its position as a market-leading repository for operational data.

 

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