The following is a contributed article by Peter Bronski and Arno Laeven of the Energy Web Foundation.
The electricity sector's ongoing and accelerating transition is being accompanied by massive shifts in capital.
This is about far more than sunk costs and stranded legacy fossil-fueled assets vs. growing investment in renewable, low-carbon generation. The far bigger capital shift is from large, bulk power system assets to billions of smaller, grid-edge assets.
Perhaps even more profound than where investment is going is who is making that investment. In the years ahead, customers — rather than utilities — will be the leading investors in energy infrastructure.
Between 2019 and 2030, customer investment in energy assets is expected to explode from $140 billion annually to $2.1 trillion for solar photovoltaics, batteries, electric vehicles, smart thermostats and other such tech. Compare that to a little over $700 billion in utility grid investment globally in 2017.
Those customers won't want to pay twice: once for rate-based utility infrastructure and again for behind-the-meter assets such as rooftop solar panels and electric vehicles. So what are utilities to do?
The standard approach: stop the bloodletting, grab a sliver of the DER market
Behind-the-meter investments in energy efficiency and distributed generation such as rooftop solar are typically seen as eating into utility kWh energy sales revenue. This is especially true in regions of the U.S. where utilities remain vertically integrated and/or that haven't enacted decoupling or performance-based ratemaking to change how utilities are compensated.
Instead of merely fighting tooth-and-nail growing customer investment in distributed energy resources (DERs) as a way to stop this revenue decay, some have suggested that unregulated utility subsidiary businesses could make a strong play in the customer DER market. Rather than cede the DER market to others, utilities could quite simply capture a portion of that customer investment directly, including through M&A of DER companies, as a way to offset declining revenues on the regulated side of the business.
But utilities can — and arguably, should — be thinking bigger.
The new idea: build relationships with assets, rather than customers
Sure, utilities can sprout customer-centric, DER-focused side businesses. But that's only a small part of the story.
First, selling DERs directly to customers through an unregulated subsidiary helps utilities capture some of that shifting, behind-the-meter capital investment, but it also says very little about how grid operators (e.g., vertically integrated utilities, distribution system operators) can better tap into the value those DERs can provide to the grid. It speaks to selling widgets of hardware, not to how to integrate the services those widgets can deliver.
Second, there are plenty of key grid operators — namely independent system operators (ISOs) and transmission system operators (TSOs) — who are very unlikely to get into the business of selling DERs to customers, but who could realize benefits from tapping into the services DERs can provide. Consider Elia, Belgium's TSO, which is tapping into DERs for grid balancing services on the country's high-tension grid.
Third, with accelerating customer DER investment evolving the grid, there remains an open question about how all that DER deployment can securely and reliably transact to provide said grid services.
All of this collectively suggests a radical idea: utilities should stop trying to build better relationships with their customers (and trying to sell those customers DERs), and instead outright focus on building relationships with customers' assets. After all, in light of a DER-rich electricity future, utilities might do better to simply skip the middle human — John or Jane Doe homeowner — and go directly to homeowners' assets: their solar panels, batteries, flexible demand, electric vehicles and so on.
Tapping into DER value: The crucial role for blockchain
This nexus of the utility, customer and DER assets is where blockchain enters the equation.
Blockchain is a decentralized, cybersecure ledger and network. Although often associated with cryptocurrency, it is also gaining serious traction among enterprise companies across myriad sectors, including energy.
For example, the public Energy Web Chain — which launched earlier this year — has fostered an ecosystem of more than 100 energy companies around the world, comprised of utilities, grid operators, oil majors and many others, including Duke Energy, Exelon, PG&E, Shell, Iberdrola and E.ON.
With this ecosystem, we have spent over two years identifying where the most value can be unlocked with blockchain technology. One area in particular has risen to the top, focused on using blockchains to better integrate and manage DERs by:
- Assigning a blockchain-based digital device ID to a DER, staking crypto tokens as collateral against that device's reputation, and other methods that can improve the confidence that any given DER on the grid: a) is what it says it is, b) is where it says it is, and c) actually delivers the service it says it has; and
- Automatically onboarding DERs, making the economic barrier to entry much lower, so that far fewer small assets are excluded from a market that traditionally only sees it as "worthwhile" to deal with bigger assets.
We're already seeing evidence how blockchain can streamline (save $) and accelerate settlement when DERs do provide grid services, not to mention other blockchain use cases such as renewable energy certificate (REC) markets — where PJM-EIS (North America), Iberdrola, Acciona, SP Group (Singapore), and PTT (Thailand) have all launched blockchain-based projects.
Utilities and other stakeholders of course have other concerns, such as the real-time physical balancing of the grid. Blockchain could play a role here too. And EWF is already working with large TSOs internationally on designing, building and scaling such solutions.
But the technology's potential value for integrating billions of assets onto the power grid and meting out measurement and verification and settlement for services provided is unavoidable and will bring benefits immediately.
Of course, utilities need not literally cast the utility-customer relationship into the trash bin. But it's time to start thinking differently about customer-sited DERs — including how maturing technologies like blockchain can be utilities' friend, rather than foe, when it comes to integrating such resources into the grid and tapping into their potential value.