The electricity sector has primarily been monopolistic dominated by vertically integrated utilities. Liberalization of electricity markets over the past several decades has opened doors only for owners of utility-scale generation plants to participate. From the end user’s perspective, the electricity sector remains largely centralized: end users have very little (if at all) say in market dynamics and therefore they have no choice but to be “price-takers”. The proliferation of DERs, reaching high penetrations, offers a beacon of hope: it empowers the end users and their communities in unprecedented ways toward self-sufficiency to the extent that going “off-grid” is starting to become a viable option. The recent FERC ruling (Order No. 2222) has, opportunely, enabled DERs to participate in the wholesale markets. This rule enables DERs to participate alongside traditional resources in the regional organized wholesale markets through aggregations, opening U.S. organized wholesale markets to new sources of energy and grid services. Thus, the bottom-up approach to grid operations inclined toward decentralization of energy systems will likely gain momentum alongside the existing centralized paradigm.
The process of decentralizing energy systems needs three-pronged approach - Infrastructure, Policy, and Technology. Economical DERs installation is the an important constituent of Infrastructure piece, FERC ruling is one of the key constituent of Policy piece, and effective digital layer (software connecting, orchestrating, and managing transactional nature of the grid) is the central constituent of the Technology piece.
NOTE The process of decentralizing energy systems needs three-pronged approach - Infrastructure, Policy, and Technology. —
Blockchain has the potential to empower the Technology piece to carry the information in a tamper-proof manner - thereby opening up the door for peer-to-peer energy transactions in a completely decentralized fashion.
So, what is Blockchain? In a nutshell - Blockchain is a cryptographically secured distributed ledger which has write once, append only system of storing information. It is distributed in nature and is completely or partially replicated on the peers nodes in the network.
For more than a century, the grid has operated in a centralized top-down fashion. However, as the penetration of the distributed energy resources (DERs) grows, the grid edge is increasingly infused with intelligent computing and communication capabilities. Thus, the bottom-up approach to grid operations inclined toward decentralization of energy systems will likely gain momentum alongside the existing centralized paradigm. The growing trend toward the bottom-up approach will challenge the institution of the traditional top-down architecture for grid operations. Easily anticipated are frictions that will arise amongst different actors along the electricity supply chain and in electricity markets (e.g., generation owners, large utilities, small DER owners, policy makers, etc.) as decentralization escalates. Critical in a credible and practical path forward is to coordinate the coexistence of the two seemingly contradictory approaches of grid management, toward the overarching goal of reforming the grid of the future as a reliable, efficient, decarbonized, and economical infrastructure to meet the growing global energy demand.
Blockchain offers tremendous value in charting a credible and practical path forward for coordinating the coexistence of the two seemingly contradictory approaches of grid management.
If you are curious to learn “how can blockchain help with bridging top-down and bottom-up management of the electricity grid”, read our article here…