Navigant Research Blog

Where Are All the Meter Manufacturers in Transactive Energy Projects?

— December 7, 2017

That’s a question I’ve been asking myself recently. The answer seems to be “nowhere.” In the 110 or so trials of utility industry-related blockchain and transactive energy (TE) Navigant Research has identified, meter vendors are at best the silent, invisible partners of other companies. When asking leading blockchain and TE startups about the meter hardware in their trials, the stock response has been “nothing is available that supports our requirements, so we built our own.” So, why aren’t meter vendors making more noise about a potentially significant growth opportunity?

Blockchain is the hottest, most hyped technology in the energy industry, and TE is its hottest use case. If current TE trials prove successful, I expect rapid adoption, particularly in countries with high penetration of solar, supported by ratepayer-funded incentive mechanisms. TE’s market-based incentives could replace subsidies. Large-scale, fully automated TE platforms have a number of requirements, as discussed in Navigant Research’s Blockchain for Transactive Energy Platforms report:

  • TE pricing requires visibility into local network conditions, including network assets and distributed energy resources.
  • Smart contracts—which determine when transactions are opened and closed—must be hosted locally and fed with market data.
  • Meters measure and record all TE power supplied and consumed.
  • Communication networks will transport data to interested parties.
  • Transactions must be recorded to the blockchain.
  • Significant distributed compute power will support automation of the TE platform.

Meter Vendors Can Support Many TE Functional Requirements

TE markets will have to be settled in much the same way as wholesale power markets are today, in accordance with strict market regulations and technology standards. This is a complex system, where a lot of trust will be placed on the technology platform. Meter vendors have many capabilities that could put them in a commanding position to lead the TE space:

  • Smart meters already provide visibility at the point of consumption.
  • Advanced metering infrastructure communications could provide the data networks on which TE runs.
  • Smart meter data concentrators could be used as nodes for the blockchain, store smart contracts, provide compute power for localized pricing calculations, and so on.

There is another feature that meter vendors have so far overlooked: it is difficult to amend records already committed to the blockchain. Consequently, it is vital to ensure that transaction data is correct before it is recorded. This will be a difficult task in a largely automated TE platform. While smart meter accuracy is generally high—between 99.5% and 99.9%—a validation algorithm is run regularly to estimate missing or erroneous meter readings. In TE, a similar algorithm must run on transaction data. However, it is likely that validation will be distributed alongside the ledger, rather than a centralized batch process. Most meter vendors also offer a meter data management system with an associated validation algorithm.

Despite meter vendors’ requisite hardware and software, they are nowhere to be seen in the TE world. There are many reasons: ongoing major smart meter rollouts command a lot of attention, and there is little money to be made in TE right now. However, I would have expected at least one vendor to have taken the leap into the world of TE. The biggest risk is that meter vendors are trapped in the old utility world, where metering innovation was driven by utilities—with whom meter vendors have decades-old relationships—and adoption of new metering technologies was slow and incremental.

TE adoption will be different. It is driven by startups that have no previous relationship with meter vendors. These startups could develop their own validation algorithms; they could choose to use public 5G networks for data communications; or they may decide to deploy their own distributed compute. If this happens, meter vendors will miss out on potentially billions of dollars of value created by TE. Meter vendors must wake up to the reality of TE and the opportunities and threats the market presents.

 

If You Build It, They May Come: Solving for Customer Experience in TE Platforms

— November 16, 2017

The utility customer of the future lives at the center of an ecosystem of networked and largely automated smart devices. Their household is within their preferred temperature range whenever they are at home; their EV charges when electricity prices are cheapest and is always ready for the morning commute; and they store any surplus electricity generated by their rooftop PV or, if the price is right, sell it in a digital market. Every decision made by each of these devices is a data point used by different service providers to refine and optimize customers’ distributed energy resources (DER) and integrate them with wider grid processes.

Transactive energy (TE) platforms will underpin tomorrow’s consumer energy market. The interface between energy producers and consumers, TE platforms allow parties to interact with one another in an open market while ensuring the needs of end users and the grid are met. These platforms will incorporate multiple technologies—including blockchain and machine learning—which have attracted a great deal of interest from the energy industry. But what should the consumer experience with TE platforms look like in practice?

TE Platforms Must Balance Grid Needs, User Preferences, and Ease-of-Use

TE service providers must supply an appealing product that creates value out of the box while providing options for users who are more hands-on. Optimizing household energy consumption to minimize costs requires a multitude of forecasts, calculations, and decisions. Since electricity bills in the US average around $115 per month, or 0.2% of the median household income ($55,000), the typical consumer has little incentive to manage these processes themselves.

Grid+, a technology startup and TE platform provider, solves this problem by supplying users with intelligent agents—hubs that integrate price signals, user preferences, and grid needs to coordinate a household’s smart device (TransActive Grid and Grid Singularity have a similar approach). While some user preferences may be set manually (e.g., preferred temperature range), most will be automated based on analyses of user behavior (e.g., heating the house prior to the customer’s return from work). The user decides their preferred balance of comfort and profits and they need only supply the agent with enough currency to pay bills and execute the necessary transactions on their behalf. All transactions are recorded rapidly and securely on a blockchain.

Thinking with Portals

Aspiring platform providers must devote as much attention to the end-user experience as they do to their platforms’ underlying technology. Customers balance their own comfort levels, convenience, financial costs and profits, and societal or ethical goals when making decisions about electricity consumption. Automation and machine learning solutions have the technological capability to deliver on that balance, but optimizing behind the scenes won’t be enough to inspire consumer trust or purchasing power.

The reality is that the Energy Cloud customer won’t care whether their platform rests on blockchain or a centralized database or a traditional billing system. They’ll care about outcomes and will need on-demand access to a portal that elegantly consolidates and visualizes their Internet of Things (IoT) ecosystem’s performance: What are their profits from selling power to the neighbors? How well is their PV system performing and have they paid off the install costs? How efficient is their home? Positive, confident results will drive further investment into the platforms themselves (so might friendly rivalries between local users).

For TE platform providers, competition for users will be fierce, and consumers will have their pick of platforms vying for their attention. The TE leaders in the Energy Cloud future may not have the most advanced technology, but they will have a blend of technology, functionality, user interface design, and perhaps gamification that creates an attractive and compelling user experience.

 

Trust in Blockchain

— October 3, 2017

Trust. You can’t touch it or smell it, but it’s a vital ingredient in every commercial transaction. It exists between companies and their staff, suppliers, and customers. The entire worldwide monetary system is based on the principle of trust. One could argue that trust, above all else, is what binds the modern world together. However, trust is not blind: mistrust will also exist between the parties of financial transactions. Consequently, it is hard to build trust, but it can turn to dust in a matter of seconds.

Part of the attraction of cryptocurrencies, like Bitcoin, is that trust is placed in its consensus mechanism and not between a transaction’s counterparties. Anonymous users exchange Bitcoin without the need to measure a counterparty’s trustworthiness. Blockchain technology creates trust across the entire Bitcoin network through its distributed ledger and consensus-based transaction verification. While Bitcoin receives a great deal of media attention, blockchain technology is coming out of Bitcoin’s shadow as a potential game changer for transactions. Many industries are investigating blockchain’s potential to remove the requirement of central market functions, speed up transaction processing, and reduce overall costs. In addition, there are other use cases outside of transaction management. However, there are many issues with the technology that must be resolved before it becomes a mainstream technology.

Ironically, Trust Could Be Blockchain’s Undoing

Few technologies as immature as blockchain receive comparable media interest. Despite any current large enterprisewide deployments, blockchain evangelists have touted it as a technology panacea. It will likely be years before blockchain applications move into the mainstream. Blockchain startups have attracted billions in investment, yet these companies are exactly that: startups. In some cases, little more than a handful of enthusiasts with a good idea and some seed capital.

And therein lies the problem: blockchain could suffer from a huge trust issue. Not in the creation of trustless networks, but trust in the technology itself. The expectation of blockchain’s potential—driven by an unrelenting hype machine—far exceeds its current ability to deliver. It will likely be 4 or 5 years before we see any large-scale blockchain deployments. In the interim, some startups will run out of capital and close, others’ products will fail to deliver on their promises. What is certain is that blockchain developers will come across many issues converting blockchain from an open source software into something that is enterprise ready, scalable, and able to provide viable alternatives to existing technologies.

Expectations Could Be Set Too High

The problem is that 4 or 5 years is a long time to wait. The hype around blockchain is such that expectations can be set unrealistically high. I expect a great deal of negative press if too many startups fail or if too many projects become encumbered by too many unforeseen technology problems. The industry will lose its trust in the entire blockchain industry. A dollar value can be attributed to companies’ trust in blockchain—it’s currently the total amount pouring into trials and proofs of concept. A breakdown in trust will mean an end to project funding and the end of the road for blockchain.

Blockchain has some unique features that could benefit many organizations in the future. But it is not a panacea. It needs time to overcome its teething problems and to demonstrate its value. The hype surrounding the technology could well be its undoing.

Companies investigating blockchain should do so with the full knowledge that it is an emerging technology. It will take time, patience, and investment to adapt blockchain for enterprise-class deployments.

 

The United Kingdom Takes Giant Steps toward Market Transformation

— August 29, 2017

Coauthored by Marc Bartlett

In July 2017, the United Kingdom’s Department for Business, Energy and Industrial Strategy (BEIS) and energy regulator Ofgem published their Smart Systems and Flexibility Plan. This document outlines the United Kingdom’s next phase in its transition to a low carbon future. It is the result of a long consultation period launched in November 2016 with many different stakeholders. The United Kingdom is making significant progress toward a more flexible energy system by removing barriers, encouraging innovation, and placing the customer at the center of the energy market. The plan is bolder than many other countries’ energy policies and sets a foundation for business model innovation. For example, the United Kingdom could well be the first to introduce a residential transactive energy market.

However, publishing a plan is far easier than implementing one. BEIS and Ofgem must work closely with the industry to ensure the UK energy market transition remains on track, they manage the different aspirations of stakeholders, and consumer protection remains at the top of the agenda. The Smart Systems and Flexibility Plan focuses on three areas: removing barriers to smart technologies—with a strong emphasis on storage—enabling smart homes and businesses, and making markets work for flexibility.

Regulations Adapt to Incorporate Storage

Storage is considered an increasingly important technology for the UK energy market. However, the country’s regulatory environment had not adapted quickly enough to address the specific requirements of storage. For example, since the United Kingdom had no clear definition of storage, its regulatory status was unclear. This uncertainty led to the charging of final consumption levies on storage, despite it not being a final consumer. The Smart Systems and Flexibility Plan also incorporates improved planning and licensing processes for storage, encouraging the colocation of storage with renewable generation and providing more streamlined processes to connect storage.

As regulated, unbundled monopolies, UK distribution network operators (DNOs) will not be permitted to directly own storage. BEIS and Ofgem believe that storage services should be tendered in a competitive market and that if a DNO were to own storage, it could hinder innovation and market developments. Yet, there is also an argument for DNOs to become suppliers of last resort. In this case, they would be permitted to provide and own storage where open markets fail to attract investment. BEIS and Ofgem have yet to finalize their plans for storage and will publish further guidance on unbundling storage services from DNO operations.

Smart Households to Play a More Active Role in the Future Energy Market

Demand-side response (DSR) will play a significant role in future UK system flexibility. At present, there is no technology to support residential DSR. However, the nationwide smart meter rollout will provide this foundation. Smart metering will allow half-hourly settlement, enabling the creation of time-of-use and other tariffs that shift peak demand. Household appliances and EV smart charging points will be the primary loads targeted in residential DSR programs. The government has stated its intention to work with industry, appliance manufacturers, and other countries to develop a common standard to ease the incorporation of these loads into DSR programs.

Barriers to New Business Models Will Be Removed

The plan acknowledges the need to evolve existing roles and responsibilities so networks are efficiently managed and barriers to new technologies or business models are removed. It specifies regulated monopolies’ need to plan, engage with new businesses, and explore the use of markets to solve issues. The days of the asset-focused DNO are numbered. These businesses will transform into system orchestrators that create platforms to interact more closely with service providers, system operators, and transmission network operators.

 

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