How Smart Companies are Using Blockchain to Improve Resilience in Wake of Climate Change

One of the more significant constraints to the operation of the Texas power grid is lack of water. I discussed in previous posts how our power system is largely dependent on water for thermoelectric power plant cooling and that due to climate change, the future does not look too bright for having water available for existing much less new water-cooled electric power generation plants. With this significant water constraint, it is key that we deploy at an accelerated rate other power sources that are air-cooled or do not require cooling.

Fortunately, the trend is heading in the proper direction. We see in Texas that much of the new generation that is coming online is utility-scale wind and solar, neither require water to operate. Much of this development is happening out in west Texas and is exported along the CREZ lines to the central and east side of the state. (CREZ is the Competitive Renewable Energy Zone developed by Texas to promote the development of transmission lines to carry wind-generated power from west Texas.)

electric power and climate change resilience

It is great to have such significant investment in these resources as they can reduce the carbon emissions of the state and help mitigate against climate change. However, is it wise to have such a concentration of much our new generation resources in one portion of the state? Not only are we concentrating these resources, we are only providing these resources a limited infrastructure to get the power to where it is needed.  This may be a problem if we anticipate more intense storms in the near term as predicted by the most recent climate change models. Hurricane Harvey provided a glimpse as to what a strong hurricane can do to the power transmission system. ERCOT was scrambling to reroute power as transmission lines succumbed to the high hurricane winds. If it were not for the high-pressure system that pushed Harvey south and east, we would have anticipated significantly greater power outages due to damage to transmission system infrastructure.

To limit this risk, a possible solution would be to focus resources on developing a power system that has more distributed energy resources, whether this is roof-top solar, community solar, battery storage, combined heat and power, geothermal, etc. Much of the reluctance to build out a more distributed power system is cost, as well as lack of visibility by the independent system operator (ISO – ERCOT is the ISO in Texas) of power generation systems that are connected to the power distribution system.

Electric Power System and Climate Change

In Texas, ERCOT knows who is plugged into the transmission grid and is able to manage these resources. It has less of a picture as to what is on the distribution grid and this makes it much more difficult to manage and coordinate these resources to support the overall power system.

Specific to costs, a good example is the cost difference between utility-scale solar vs. rooftop solar. The soft costs, which include financing, customer acquisition, permitting, installation, inspection, of building a utility-scale solar power system is less than the soft costs of roof-top solar. Much of this is due to significantly lower marketing and customer acquisition costs for utility-scale solar versus rooftop solar on a per kW basis.

How Can Blockchain Improve Grid Resilience?

So how do we lower the costs and improve the visibility of distributed energy systems? Blockchain may provide a solution. Blockchain allows for a more transactive energy system to be developed that would likely increase transparency to those interconnected to distribution and transmission systems.

What is Blockchain?

blockchain climate changeA blockchain is a way to structure data in a decentralized fashion. It removes the need to have a centralized authority to collect, manage and share data with other entities or counterparties. Entities can be spread out geographically, across a variety of institutions and participants.  Blockchain uses a distributed ledger structure that hosts shared records in blocks. Each new block or transaction is chained together with the previous block in linear, chronological order with a cryptographic hash. As a distributed ledger, changes to the record will be seen by and must be approved by all participants. This distributed nature reduces risk of fraud. Transactions are all completed automatically based on predefined rules, preferences and algorithms and can only be seen by those with defined permissions to participate in the specific blockchain. The distributed and automated nature of blockchain is expected to improve transactional security, as well as lower transactional and operational costs.

Blockchain Helps Distributed Energy Systems Transact with Grid

There are several examples of blockchain technology being deployed to assess opportunities to improve operation and viability of DER. The blockchain is being used in California Pacific Gas and Electric microgrid project using OmegaGrid as the blockchain provider. The project is a pilot looking at how to use blockchain to determine optimal power flow and locational price for each asset on a five-minute interval.

Another example is Bovlabs work with Enchanted Rock to assess opportunities to use blockchain to bid their distributed natural gas generators into the ERCOT wholesale market. Enchanted Rock recently received some positive press due to the success of its “On Demand Electric Reliability” program with the HEB grocery store chain. During Hurricane Harvey, Enchanted Rock systems were able to keep HEB stores fully operational during the widespread power outages. However, the Enchanted Rock approach is more than providing peace of mind to retail, commercial and industrial facilities. The projects are set up to where when Enchanted Rock systems are not providing power to a site during a power outage, they are looking to sell power to ERCOT and take advantage of market volatility. With blockchain, they are looking to reduce transaction costs of bidding into the grid. The benefit for Texas is that if we can reduce transactional and operational costs of distributed energy systems, the number of systems, whether they are natural gas generators, combined heat and power, solar or battery storage, can be deployed at a higher rate.

Blockchain Helps with Peer to Peer Power Transactions

We see a growing number of distributed energy system companies working to better engage and transact with the grid. The more distributed energy systems, if properly placed along the grid, as well as known and recognized by the ISO, may significantly improve the resilience of the grid.

To further enhance the distributed nature of our power systems, there is growing number of energy blockchain companies that are focusing on peer to peer transactions. According to a recent GreenTech Media blockchain report, 59% of new blockchain companies are focusing on peer to peer applications. A peer to peer approach would remove the third-party intermediary, such as exchanges, energy companies, etc., and allow individual power producers to directly transact. Further, peer to peer transactions will allow the development of a more distributed energy system that will produce energy where needed at the time it is needed. This flexibility can provide a significant boost to power resilience. For example, P2P would allow individual owners of rooftop solar systems to transact on a bilateral basis.

Due to the removal of a middleman, P2P is anticipated to lower overall costs of buying and selling power.  Further, As a side benefit, the opportunity to deploy more distributed energy systems may reduce overall system costs to ratepayers as there is a decreased need to build large transmission infrastructure to export power from one side of the state to the other.

Barriers to P2P

To make this happen will require some changes to our regulatory structure. As the regulations are currently structured in the deregulated ERCOT market, a retail electricity provider (REP) must be a part of any grid transaction. Further, similar to the discussions around net metering and grid defection, there will need to be a discussion as to the role of the distribution utility. Although P2P blockchain technology may allow for a direct financial transaction, the utility lines are still needed to provide the power. Because we have already had similar conversations around grid defection and the viability of the distribution system due to defection and some solutions have already been developed, this may not be a huge hurdle. The more significant hurdle is to figure out what to do with the REPs. What is their role in a P2P market? There will be plenty of time to contemplate this due to the fact that most people do not really want to think about their electricity supply. As long as the lights come on and the price is right, people go on autopilot. I do not see a big push by the public to spend any more time than they do now on buying electricity.

Final Thoughts

My money is on approaches taken by companies like Enchanted Rock and the Local Sun Community Solar

renewable energy climate change blockchain
Local Sun Plant in Sealy, Texas

project in Sealy, TX. These are larger distributed energy systems that can scale. They are able to be placed strategically within a wide geography to take advantage of grid congestion and price volatility. They are not reliant on transmission infrastructure or realize the losses that occur with transmission systems. Finally, they are not reliant on water to maintain operations.

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