Bracing For Blockchain: Distributed Ledgers Poised To Drive Adoption Of Distributed Generation

By June 27, 2016Bitcoin Business
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The distributed energy revolution is already underway. In 2008, New York City boasted a fleet of backup generators estimated at about 2 gigawatts, or roughly 20% of the annual coincident peak demand. Nearly 15% of homeowners in the United States own a backup generator, according to Generac, a manufacturer of generators based in Wisconsin. By contrast, the distributed generation revolution is only just beginning. In 2015, only about one million homes, or slightly less than 1% of all homes, had installed rooftop solar panels in the United States, according to the EnergySage.

Unlike backup generators, rooftop solar panels are almost always interconnected with the electric power grid. This is because solar panels seldom produce sufficient power to supply all of a home’s electricity needs at a given time. In addition to relying on the grid as a source of supplemental power, home and business owners with onsite solar systems typically sell a portion of the electricity they generate to distribution utilities under an arrangement known as net metering. To do so, they need to be interconnected with the electric grid.

The reason backup generators are rarely interconnected with the electric grid is that the interconnection process is frequently expensive and administratively cumbersome.

The cost and complexity of interconnecting distributed generation with the electric grid has been described as the Achilles heel for distributed energy.

Many of the value streams created by DG are difficult to capture without significant levels of interoperability. The result is that DG cannot always monetize the full scope of benefits it provides without significantly expanding the capital costs via an enhanced interconnection technology. The development of “plug-and-play” interconnection technologies that enabled greater levels of control, islanding detection, stability, protection, forecasting and similar functionalities would be a game changer.

The key to capturing the full value of interconnection is the ability to arbitrage the economics of supply and demand at micro levels in real time. In other words, distributed generation needs an autonomous system for facilitating peer-to-peer sales and purchases of small amounts of electricity. Until recently, the cost of conducting such peer-to-peer transactions has significantly exceeded the benefits.

Enter blockchain, or distributed ledgers.

Blockchain serves as the public ledger for all bitcoin transactions. The blockchain consists of blocks that hold timestamped batches of valid transactions. Each block includes the hash of the prior block, linking the blocks together. The linked blocks form a chain, with each additional block reinforcing those before it.


Source: Generac
Source: Generac

Under the traditional, centralized ledger model, a single trusted party is responsible for maintaining an accurate database of transactions, which has been described as the ‘golden copy,’ that serves as a reference for all other parties. By contrast, under a distributed ledger system, each member of a group is able to maintain its own golden copy ledger, which, after allowing for some delay in the transmission and encoding of new transaction information, is guaranteed to be identical to the ledger instances maintained by all other members of the group.

A distributed ledger is a transactions database which can be accessed and updated by multiple parties. Distributed ledger systems allow market participants to manage many types of bilateral or multilateral transactions without the direct participation of trusted third parties. Distributed ledgers use encryption and algorithms to aggregate, encode and append transactions to an existing chain of transactions. Using blockchain, distributed generation systems can enter into automated, peer-to-peer transactions directly rather than through a third-party intermediary like an electric utility or energy services company.

In April, the world’s first peer-to-peer transaction of electricity on a blockchain took place on a microgrid in Brooklyn. LO3 Energy and Consensus Systems launched the system using blockchain technology, which matches local suppliers and consumers of electricity using smart contracts.

“Instead of the command-and-control system the utilities have now, where a handful of people are actually running a utility grid, you could design the grid so that it runs itself,” said Lawrence Orsini, the cofounder LO3 Energy, in an interview with The Star.

Smart contracts are the key to “running itself.” Distributed ledgers facilitate the automation of peer-to-peer transactions by using smart contracts. Smart contracts can be executed with virtually no human involvement. Smart contracts are designed to self-execute and self-enforce using software and controls embedded within the assets themselves.

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A recent study by the UK Government Chief Scientific Adviser explained that:

Until now, electricity generating prosumers have not had real access to the energy market, which remains a privileged playing field for the institutionalized energy suppliers. This has greatly limited the economic advantages of micro-generation for end users. Distributed ledgers, in combination with smart-metering systems and next-generation batteries (to accumulate energy locally), have the potential to open the energy-market to prosumer production. Smart meters could be used to account and register the micro-generated energy on a distributed ledger.

William Pentland is a Partner at Brookside Strategies, LLC, a consulting firm in Kennebunk, ME that focuses on issues in utility regulation, market strategy and energy policy.

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Unlike backup generators, rooftop solar panels are almost always interconnected with the electric power grid. This is because solar panels seldom produce sufficient power to supply all of a home’s electricity needs at a given time. In addition to relying on the grid as a source of supplemental power, home and business owners with onsite solar systems typically sell a portion of the electricity they generate to distribution utilities under an arrangement known as net metering. To do so, they need to be interconnected with the electric grid.

The reason backup generators are rarely interconnected with the electric grid is that the interconnection process is frequently expensive and administratively cumbersome.

The cost and complexity of interconnecting distributed generation with the electric grid has been described as the Achilles heel for distributed energy.

Many of the value streams created by DG are difficult to capture without significant levels of interoperability. The result is that DG cannot always monetize the full scope of benefits it provides without significantly expanding the capital costs via an enhanced interconnection technology. The development of “plug-and-play” interconnection technologies that enabled greater levels of control, islanding detection, stability, protection, forecasting and similar functionalities would be a game changer.

The key to capturing the full value of interconnection is the […]

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