The digital electricity utility - enabled on the blockchain

Blockchain opens the way for a digital energy retailer to bring wholesale market benefits to residential consumers.

When we refer to the digital utility, it is usually in connection with the process of digitalisation that for the present-day utility, is putting in place the systems and processes that are needed to evolve in a decentralised and more consumer driven energy system.

But what about the utility that exists in only a digital form, without a physical presence?

And while utilities today offer prepaid and post-paid options for their electricity, what about a real time payment option?

Move into the world of blockchain and these are some of the applications that are possible and for which we should prepare – the former as a competitor to today’s incumbents, but the latter a tool that could drive the future business.

Digital retail

And the day may be closer than you think.

These are among concepts being developed by Grid+, a spinoff from blockchain software technology company ConsenSys (Consensus Systems).

ConsenSys, founded by one of the founders of the Ethereum platform, Joseph Lubin, has played a foundational role in developing blockchain in the energy sector. With its involvement in the Brooklyn microgrid in 2015, the project demonstrated that electrical energy could be tokenised on Ethereum and transacted across a distributed network.

Subsequent developments have included an energy trading project, Co-tricity, in partnership with innogy and another energy trading project, also in Europe, between a network of Ethereum aware smart batteries.

What Grid+ envisages next is to enter the electricity retail space in deregulated markets with Ethereum-based utilities. Retailers purchase electricity at wholesale prices and sell it on directly to consumers. Without the overheads of traditional retailers, such as marketing and administration, which typically account for half their costs, the retail fee can be greatly reduced, in turn reducing the final cost to the consumer.

As an example, taking the Texas market, Grid+ estimates its charge currently would be $0.068/kWh compared with the average retail cost of $0.115/kWh.

Blockchain architecture  

In order to do this, Grid+ is developing “a hardware and software stack to create a secure Ethereum-enabled gateway and connect Internet of Things (IoT) devices,” according to a new white paper outlining the proposal.

The hardware gateway, named the ‘smart energy agent’, is an internet-enabled, always-on appliance that stores cryptocurrencies and processes the payments for electricity in real-time. The agent could also programmatically buy and sell electricity on behalf of the user and intelligently manage smart loads, such as a storage battery or smart thermostat.

The software stack works in conjunction with the smart energy agent to make the payments, using a combination of Grid+ designed payment channels and a Raiden Ethereum payment channel network hub.

According to the white paper, the system architecture being developed will allow a typical user to leverage cryptocurrencies while remaining unaware of its use.

“Interestingly, the implementation of a secure, always-on system, with low friction payment rails, provides a missing piece of critical infrastructure in the broader cryptocurrency ecosystem,” it states, pointing to wider application beyond electricity.

Ethereum retail

From the user perspective, the way the system is designed to work is that the customer signs up and purchases an agent. Once the agent is registered, the customer purchases tokens named Bolts from Grid+ with a credit card or bank transfer. These are held in the agent, which reads the household smart meter and then makes the payment for the consumption.

Further, with artificial intelligence in the agent, it should be able to ‘learn’ the customer’s behaviours and energy usage patterns.

For example, it is envisaged that the agent could estimate the user’s next day energy needs and optimise its purchase on the day ahead or real-time markets or in some combination. For customers with storage, the agent could arbitrage the energy and generate revenue.

Ethereum utility development

According to the Grid+ timeline, the company intends to start establishing the first utility in a “targeted region” in the US in Q4 of this year – most likely Texas, California or New England, according to the white paper.

Production of the agents should begin in Q1 of 2018, with service starting for the first customers in Q2. A Raiden data hub should be opened and payment channels migrated in Q4 of 2018.

Artificial intelligence in the agents will start being introduced in Q1 of 2019. At the same time utility expansion and customer growth is envisaged in 2019 with one to three new utilities in Q2 and Q3 of that year, followed by further growth and international expansion from Q4 2019 on.

Currently the best candidate countries are Australia, Germany and the UK, according to the white paper, which points to the most significant factors for starter markets – smart meter penetration, regulatory friendliness, and price of electricity – “higher prices mean more room for competition”.