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How the Brooklyn Microgrid and TransActive Grid are paving the way to next-gen energy markets
How the Brooklyn Microgrid and TransActive Grid are paving the way to next-gen energy markets
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Lawrence Orsini 1 , Scott Kessler 1 , Julianna Wei 1 , Heather Field 2 1 LO3 Energy, Brooklyn, NY, United States; 2Independent Consultant, Sarasota, FL, United States
Chapter Outline 10.1
Transactive energy
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10.1.1 Energy marketplace 225 10.1.1.1 Growing adoption of renewable energy 226 10.1.1.2 Roadblocks on the path to energy independence 227
10.2
Rise of the community microgrid
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10.2.1 Community Microgrid architecture 229
10.3
The Brooklyn Microgrid demonstration
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10.3.1 The transactive grid and energy blockchains 230 10.3.1.1 The energy blockchain 232 10.3.2 The first blockchain energy transaction 233 10.3.3 Peer-to-peer energy marketplace 235 10.3.3.1 Long-term plans for the Brooklyn Microgrid 236 10.3.4 A new energy paradigm: the prosumer marketplace 237 10.3.4.1 The value of system Exergy 237 10.3.4.2 Regulations and utilities 237
10.4 Next steps for Exergy and Brooklyn Microgrid References 238
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Imagine for a moment an energy consumer who is able to generate and store renewable energy throughout the day, utilize power automatically as needed, and sell surpluses to his/her neighbors through a community microgriddall the while maintaining a connection to the main utility grid. The described “prosumer,” both a producer and consumer of energy, has set preferential pricing thresholds on his/her energy and energy attributes. An installed smart meter will manage his/her configured household energy. Next door, a neighbor logs into the local energy marketplace. Although he/she has not invested in solar photovoltaic (PV) or other renewables, his/her community’s Microgrid and energy marketplace enable him/her to purchase energy his/her neighbors have generated and stored. Through a user-friendly application, he/she can configure buying options that execute automatic transactions within preferred thresholds and The Energy Internet. https://doi.org/10.1016/B978-0-08-102207-8.00010-2 Copyright © 2019 Elsevier Ltd. All rights reserved.
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power his/her air conditioning and other connected devices during the most costeffective hours. For many decades this near real-time, demand-responsive, peer-to-peer energy model was nothing more than conceptual. In the brownstone-lined neighborhood of Park Slope in Brooklyn, New York, a small community Microgrid pilot has been forging the path ahead for the Energy Internet and transactive energy (TE) marketplaces. The Brooklyn pilot, which connected a small group of neighbors through New York-based LO3 Energy’s TransActive Grid (TAG), was the realization of decades of evolution and transformation within the US energy and technology markets and is the brainchild of the team at LO3 Energy.
10.1
Transactive energy
Founded in 2012 and spurred by the events of Superstorm Sandy that same year, startup LO3 Energy and its team of experienced energy professionals, software developers, engineers, analysts, and makersdmany of whom have deep roots in energy marketsdconceptualized the Brooklyn Microgrid as a resilient backup to grid interruptions. Through their combined experience and knowledge of the energy landscape and markets, founder and CEO of LO3 Energy, Lawrence Orsini, expert in commercial energy efficiency programs, energy efficiency policy and regulatory environment, and cofounder and CFO, Bill Collins, a finance professional experienced in investment banking, structured finance, and environmental markets, envisioned a new energy paradigm. The result of the LO3 Energy collaboration is the Exergy system, a technology platform that is layered on top of the existing utility grid and enables rapid adoption and integration of distributed energy resources (DER), which include storage, solar, and other renewables. Through Exergy, consumers and prosumers can transact the value of their DERs. Exergy also enables the connection of consumer/prosumers to grid operators that need to alleviate a specific grid issue. Just as the Internet enabled users to exchange information digitally, LO3 Energy’s TAG is ushering in the peer-to-peer exchange of energy and its attributes across the complex electric power grid architecture. Exergy’s marketplace technology will not only support distributed energydincluding renewablesdbut enables a platform on which neighborhoods can exchange energy and energy attributes. Additionally, the TAG will connect to large utility grids as well as Microgrids and will integrate with emerging grid modernization technologies and distributed generation, otherwise known as the “grid edge.” [1]. To better understand the goals and challenges of LO3 Energy’s projects, including the Brooklyn Microgrid project, one must have a deeper understanding of the changing landscape of energy production and distribution in the United States. This landscape encompasses include current and past trends in renewables, the emergence of the energy prosumer, the rise of community microgrids, and rapid advances in technology and energy devices as well as regulations and cost barriers that present roadblocks to continued growth and adoption in the United States.
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10.1.1 Energy marketplace The convergence of a multitude of environmental events, technology developments, and clean energy initiatives has led to a paradigm shift in the US energy market (Box 10.1). Over the last several decades, disruptive technologies transformed the way consumers engage and interactdfrom the exchange of information and news to entertainment to currency. Following decades of advances, centralized energy markets have finally felt the pressure to adapt to the emerging distributed, peer-to-peer, and direct-to-consumer models.
Box 10.1 A brief history of utility regulation in the United States The US electric utility industry is one of the last remaining monopolies and is one of the last regulated public utilities. Generally, utilities are responsible for generation and distributing power. According to economist Alfred E. Kahn, there are four primary components of regulation of that “distinguish” public utilities: control of entry, price fixing, prescription of quality and conditions of service, and the imposition of an obligation to serve [2]. It is of note that the utility industry is considered a “natural monopoly,” where the consensus to empower monopoly ownership through regulation or government ownership is driven by the desire to control costs and prevent “economy of scale.” As described by Kahn, a monopoly’s “costs will be lower if they consist of a single supplier.” [3]. The Federal Power Commission (FPC) was established in 1920 to license and regulate the power industry. FPC has undergone many changes over the decades in response to the evolving energy landscape from regulatory changes to technological advances. Deregulation movements of the 1990s threatened to break up the monopoly and a competitive landscape emerged. As a result of the deregulation movement of the 1990s, the electric power industry is changing from a structure of regulated, local, vertically integrated monopolies, to one in which competitive companies generate electricity while the utilities maintain transmission and distribution networks. The industry transformed to include electricity-generating competitors to the utility monopoly and regulated utilities continued to maintain networks handling energy transmission and distribution. What arose from the competition were new entrants in the power marketplace: power marketers and power brokersdencompassing electricity buyers and sellers who do not own or operate the transmission or distribution of energy. Power marketers are “persons or companies that sell wholesale power that they generate themselves, purchase from others, or both.” These power marketers are regulated by Federal Energy Regulatory Commission and are considered utilities. The other new entrant in the power marketplace, power brokers, is not regulated and serves to facilitate negotiations between the customer and the marketer [4].
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Technologies such as the Internet of Things (IoT) have allowed innovators to connect consumers directly with electronics and devices, making the smart home a reality and creating new channels of opportunity, whereas Bitcoin, through its blockchain foundation, demonstrated that there were yet-to-be discovered channels for exchanging value. These foundational developments lowered entry barriers and costs for DER and heralded a wave of change in the energy industry.
10.1.1.1 Growing adoption of renewable energy According to a 2015 report from the US Department of Energy [5], demand for clean, renewable energy sources has continued on a steady incline since the early 2000s, whereas inversely, the price of previously cost-prohibitive clean energy sources such as solar and wind continued to fall. Annual electricity generation from solar and wind has increased by a factor of 12 since 2005. Renewable electricity (which includes solar, wind, geothermal, hydropower, and biopower) grew to 16.7% of total installed capacity and 13.8% of total electricity generation in 2015 and accounted for 64% of US electricity capacity additions [6]. Emerging interest in clean, renewable energy sources, as well as energy backup when the main grid fails, has taken place within communities and governments at the local, state, and national levels. In New York for instance, several extreme weather events led to ongoing state-level initiatives including the New York State Energy Plan and Reforming the Energy Vision, which aim to fortify small communities equipped with less robust infrastructure to ensure they can stay self-powered during weather conditions and other unforeseeable events. From 2011 to 2016, New York saw an 800% increase in solar adoption [7]. In fact, many states across the United States have adopted similar initiatives to encourage adoption of renewable energy. According to advocacy group Solar Power Rocks, which rates states across 11 categories of solar, Massachusetts, New Jersey, and Rhode Island are currently leading solar efforts. Although Hawaii receives accolades as the first state to set a renewable energy goal of 100%, the state’s net metering structure along with a lack of rebates and sales tax exemptions means it ranks lower overall. Thirty-four states in all received top grades for tax exemptions and credits, rebates and performance payments (Box 10.2) [8]. Significant efforts are underway in US wind adoption as well. The National Renewable Energy Laboratory, a national laboratory of the US Department of Energy Office of
Box 10.2 Reforming the energy vision Part of the New York State Energy Plan, Reforming the Energy Vision (REV) is an energy strategy aimed at modernizing, strengthening, and rebuilding the state’s energy infrastructure and systems. Governor Andrew M. Cuomo’s REV initiatives has set goals to increase renewable energy sources, reduce greenhouse gas emissions, and reduce building energy consumption [9].
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Energy (DOE), in its November 2016 report, “Assessing the Future of Distributed Wind: Opportunities for Behind-the-Meter Projects,” estimates consumer adoption of wind power to increase by approximately 300% by 2030, and the cumulative capacity is expected to increase by eightfold (three doublings of cumulative behind-the-meter capacity) by 2050 [10]. Texas is currently ranked as the top wind energyeproducing state in the United States, and in March 2017, the small town of Georgetown, Texas claimed its spot among a small number of cities across the country running 100% on renewables, according to research published by National Public Radio [11]. Predictions for growth in consumer ownership of DER solutionsdincluding power generation from traditional sources such as solar, battery storage, and smart-energy resource management (efficiency, demand response [DR])dare good news for renewable energy advocates, but the electric power grid was not designed to support multidirectional transactions and dynamic operations exposed through IoT and other technologies. Moreover, DER energy prices are now competitive with traditional (mainly fossil fuel) generation, but neither the business infrastructure nor the electric grid platform was designed to accommodate the new transactional models.
10.1.1.2 Roadblocks on the path to energy independence Although the United States has experienced clear growth in renewables, a substantial gap remains for the energy consumer. Barriers, such as home ownership and the cost of initial investment still exist for those who would like to reduce energy bills through adoption of solar, wind, geothermal, and other renewable energy systems. Regulatory and mandatory costs can prove disincentives, for example, compulsory fees imposed to prevent consumers from defecting from utility grids and state-imposed regulations that prohibit the consumer direct sale and profit from energy production. Other entry points for consumers that want to go “green” include buying renewable energy certificates (RECs) to offset energy consumption. RECs are intended to provide consumers with an alternative to nonrenewable energy through the utility grid. The downside is that many utility REC programs offer consumers few options to choose the source of energy they are purchasing; for example, the consumer may not have the option to choose energy from a local solar farm versus a wind farm hundreds of miles away. Additionally, when a consumer purchases RECs, the utility may simply “offset” the credit against the billdthis does not guarantee delivery of the “clean” energy to the consumer. Lastly, REC energy is delivered through the same utility infrastructure as “dirty” energy, which combined with the distance of transmission may erode the inherent benefits of the REC. For consumers who have made the commitment to and investment in renewable energy resources such as solar, wind and geothermal energy production, battery storage, and DR technologies, there are many hurdles to recouping investments and reaping the benefits of clean energy alternatives. Although these resources bring demonstrable grid, environmental, and societal benefits, there exists no clear compensation mechanism for the values to accrue back to asset owners and users. In Nevada, for example, solar owners experienced a shock in 2015 when, after making significant investments in PV equipment, the state granted its only power
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company the right to raise fees on solar consumers, essentially reducing their net energy metering credits, or buy-back rates. Programs such as net metering are dependent on regulation, are inflexible, and do not support many DER technologies such as storage. These roadblocks are not unique to Nevada. In the traditional utility business model framework, utilities earn money by building and operating capital assets (e.g., generation, transmission, and/or distribution assets) on behalf of customers. Utility companies have argued that despite consumer energy production from solar panels, consumers must continue to cover the costs of the grid’s transmission and distribution infrastructure to ensure they (consumers) can receive power when their solar panels are not producing electricity. To that end, utilities aim to ensure they are not harmed by net energy metering and are compensated fairly for the times in which consumers pull energy from the grid, preventing the scenario where customers may become “free riders.” The result leads to some DER technologies being undervalued and may leave existing DER owners with a feeling of helplessness as to how they achieve a return on their investment. Additionally, there is currently an incentive for utilities to slow the spread of distributed renewables to avoid their negative business impacts. Many utilities, regulators, and startup companies are attempting to figure out what the new business model for utilities will be so that they can be fairly compensated for the service they provide without having to choose between financial security and distributed energy. Cost-prohibitive renewables may soon be a thing of the past, but presently consumers/prosumers are still faced with significant barriers preventing the affordable installation, usage, and commerce of self-procured energy. In today’s growingly decentralized world where businesses and consumers are hubs linked via myriad channels, centralized utilities and government regulations are proving to be the primary roadblocks to true peer-to-peer energy exchange. Even for those businesses and consumers well positioned economically to install renewables, connecting to an available marketplace for selling excess energy may prove an impossibility.
10.2
Rise of the community microgrid
Current market conditions, shortcomings of the conventional grid, and rising costs and misalignment of consumer IoT technologies and distributed energy systems to energy marketplaces are some of the underlying drivers of community microgrids. Within the centralized utility grid system, consumers are 100% dependent on the main grid and can be left without power due to downed power lines, hurricanes and tornados, and other unforeseeable events. The history of the Microgrid can be traced back to the early days of Thomas Edison, but modern implementations have been mainly limited to those locations where power outages are a crucial threatdfor example, military operations, hospitals, colleges, and data centers. Also, geographically remote locations have historically depended on the “island,” or grid-disconnected, reliability of the microgrid. Although the concept is not a new one, shrinking barriers to entry such as hardware
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and infrastructure costs as well as storage and renewable energy costs have made the Microgrid an attractive option for small communities to business campuses to large cities across America. The significant advantage of the Microgrid has been the ability to operate when disconnected from the main power grid. During power outages due to downed lines, extreme weather conditions, and other failures related to the main grid, a Microgrid provides access to stored energy and continual access to self-generated energy. Another key benefit of the Microgrid architecture is its compatibility and integration with DER. In the wake of Superstorm Sandy in 2012, millions of East Coast residents were left without power, and in New Jersey and New York, thousands of residents remained without power for days. Although much of the city settled in under darkness, New York University (NYU) was among a small number of locations powered through the storm by a Microgrid [12]. The resiliency of NYU’s Microgrid (among others) did not go unnoticed. As a result of weather-induced grid outages in 2011 and 2012, Connecticut established funding for public services, hospitals, schools, and universities among other projects. New York rolled out plans to encourage the development of affordable, clean energy projects. California and Massachusetts have also introduced efforts to expand the use of community microgrids. In April 2017, the DOE launched the Grid Modernization Initiative and along with it the Grid Modernization Laboratory Consortium, “a $220 million effort to help shape the future of the nation’s grid.” [13].
10.2.1 Community Microgrid architecture According to the US DOE Microgrid Exchange Group, “a Microgrid is a group of interconnected loads and distributed energy resources within clearly defined electrical boundaries that acts as a single controllable entity with respect to the grid. A Microgrid can connect and disconnect from the grid to enable it to operate in both grid-connected or island-mode.” [14]. The traditional utility grid differs from the community Microgrid in many ways, foremost, utility grids deliver energy from myriad central sources, including but not limited to fossil fuels (coal, natural gas, petroleum), nuclear, biomass, hydropower, wind, and solar. Consumers connected to traditional grids are typically solely reliant on the grid to supply their energy needs and can be left without power in the case of emergency or natural disaster. Community microgrids, on the other hand, can operate both independently of the grid and in conjunction with it. Should a community experience a power outage or interruption in utility service, the Microgrid can continue to power its needs. At its most basic, a Microgrid is very similar in architecture to the main utility grid. It connects power-generating sources with power-consuming devices through an energy management system and may include switches and voltage transformers, smart meters battery solutions, and copper wires, which handle energy transfer.
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Standard Microgrid installations are siloed, intended to serve a single organization, building, or entity. Community Microgrids present distinct opportunities, the ability to leverage local energy resources key among them. The community Microgrid enables the inclusion of a variety of “actors” and decision-makers, related, diversity in energy use profile and generation/hosting potential among other considerations. Because the community Microgrid connects local DER, the distance of energy transmission and thus transmission losses are greatly reduced in comparison to the traditional grid delivery, where energy is distributed for miles from a central storage. Reducing the overhead of energy transfer, enabling higher utilization of DER assets, aligning community energy goals and priorities, and providing resiliency are all benefits of community microgrids. Extending the benefits of the community microgrid, Exergy provides the capability of a local marketplace where neighbors can exchange energy and energy value and manage it within the local grid, which can have a long-term impact on energy cost reductions and the continued growth of distributed energy. This marketplace can also serve as a demonstration of the utility of the future, demonstrating how a business model can be formed from new revenue streams, such as a market facilitation fee for each transaction.
10.3
The Brooklyn Microgrid demonstration
In the aftermath of Superstorm Sandy in 2012, the team at LO3 Energy wanted to prove the business case for energy transactions within a community during both parallel and island modes and demonstrate positive environmental and economic impacts for the community as a whole. One of many neighborhoods affected was Park Slope and the nearby areas of Gowanus and Boerum Hilldwhere some residents experienced power outages for more than 11 days. Park Slope included a number of brownstone homes already equipped with solar PV on the roofs, and the residents were extremely interested in a community Microgrid that would improve their energy infrastructure and provide resiliency in the future. The area is also home to 17,000þ member food co-op, where members contribute to about 75% of the workdlocal resource management and the concept of distributed energy was already at work. The Brooklyn Microgrid was architected to utilize the existing utility distribution infrastructure and consists of a combination of traditional fuel sources as well as DERs, including vanadium flow batteriesdwhich provide cost-effective and nearly unlimited storage capacity as well as distribution capabilities (Fig. 10.1).
10.3.1
The transactive grid and energy blockchains
TE was defined by the US Department of Energy’s Gridwise Architecture Council as “a system of economic and control mechanisms that allows the dynamic balance of supply and demand across the entire electrical infrastructure using value as a key operational parameter.” [15].
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Potential neighbor consumers President ST. Solar renewable producers
President ST, Park slope, Brooklyn
Figure 10.1 The Brooklyn Microgrid sandbox in the Park Slope neighborhood of Brooklyn, New York.
Exergy is a hardware/software solution that enables not only new markets for the electric grid, including peer-to-peer marketplaces for consumers to buy and sell local, clean energy but the control of consumption, generation, and storage equipment based on price signals and preferences. The unique benefit of the Exergy architecture is that it creates a marketplace that offers both negawatts (the power saved through efficiencies) and megawatts (power produced). To create a decentralized TE market, the team at LO3 Energy needed a cryptographically secure ledger to ensure the highest level of transparency and auditability. Then Enter blockchain. The use of blockchain in the TAG enables peer-to-peer markets where both parties are privy to the same information, eliminating the need for the usual retail energy intermediary and enabling energy producers to sell directly to consumers. TAG-e, hybrid computers, and smart meters operate the blockchain and can control other smart devices through ZigBee, Z-Wave, and other communication protocols (Fig. 10.2).
Blue lines denote communications network; peer-to-peer control and transactional relationship Red lines denote distribution network relationship; energy transmission and distribution
Figure 10.2 Transactive grid network.
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In a future realized vision, the TAG will yield real-time, location-based energy pricing that can drive a multitude of transactions from the community-based sale of energy to user or neighbor device control to demand response and efficiency. TAG-e binds with other IoT devices to procure demand response within the source market. By calculating real-time energy prices, Exergy will relay the true value of efficiency as well as renewables. Users will be able to provide their own willingness to pay for local, clean energy. If this is greater than the cost of traditional electricity, users producing power would receive a premium price above what they would normally from their electric utility. The premium for hyperlocal, clean energy will drive outside investment in DERs within communities. LO3 Energy’s focus is on making use of blockchain to provide a platform for TE, rather than simply applying cryptocurrency techniques to the electric sector. The platform allows for transactiondtwo parties exchanging energy and energy attributes with one anotherdas well as the conversion of the transaction into action, for example, changing devices’ state (on, off, modulation) in response to the transactions. The team is using an energy blockchain to track electrons added to and removed from the utility grid and to store and process transaction contracts cryptographically. Exergy provides a solution that is the best of both worlds. Consumers are connected to the community Microgrid and energy marketplace while remaining connected to the main grid at all times. Exergy operates as an independent Microgrid when neededd when disconnected from the main grid during outages and other interruptions, for exampledcontinuing to generate and store energy as well as facilitate blockchain energy transactions between peers.
10.3.1.1 The energy blockchain Although blockchain technology has been quickly adopted across many sectors, it has not yet gained traction in the energy market. The Brooklyn Microgrid project is a demonstration of how blockchain will become a building block of the TE world. In fact, the LO3 Energy team is convinced that blockchain energy has the potential to be far more reaching than bitcoin [16]. Originally developed as the building block for digital currencies, such as bitcoin, blockchain is a distributed, incorruptible digital ledger that simultaneously shares, updates, and distributes information without the need for a central storage facility for data. The distributed ledger ensures that energy transactions are secure, efficient, transparent (visibility into the blockchain), frictionless (self-executing contracts), and flexible (user preferences update smart contracts (Box 10.3)) The initial pilot of Exergy utilizes blockchain nodesdin the form of smart metersdto collect generated energy and energy consumption. The project makes use of smart contracts, which automatically execute once preconditions are met, and measures energy produced or consumed. It also communicates with other meters and smart devices through the smart meter. These smart contracts can be set for a variety of transaction types, including selling energy supply, turning off a device when electricity exceeds a certain price or charging and discharging a battery to support the grid. Eventually, smart contracts can take on much of the grid operation
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Box 10.3 Smart contracts In this chapter, the reader may assume the following definition of smart contracts as referenced in Blockchain Revolution: “Smart contracts are computer programs that secure, enforce, and execute settlement of recorded agreements between people and organizations. As such, they assist in negotiating and defining these agreements.” The concept of “smart contracts” has been around since 1994 when first coined by Nick Szabo. His early definition, as noted in Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World: “A smart contract is a computerized transaction that executes the terms of a contract. The general objectives of smart contract design are to satisfy common contractual conditions (such as payment terms, liens, confidentiality and even enforcement), minimize exceptions both malicious and accidental and minimize the need for trusted intermediaries. Related economic goals include lowering fraud loss, arbitration and enforcement costs and other transaction costs.” [17].
that is currently handled by the grid operator today, automatically resolving grid issues as soon as they are measured. Additionally, blockchain will be a key in the long-term growth of the TAG, enabling clusters of devices to optimize among themselves as a group (Fig. 10.3).
10.3.2 The first blockchain energy transaction The LO3 Energy team began development of the TAG in 2013, and in April 2016, Exergy conducted its first transactions. During the first implementation of Exergy in the Brooklyn neighborhood of Park Slope, two neighborsdliving across the street from each otherdengaged in the exchange of the “renewable energy attributes” or the “green” in the system rather than the electrons themselves. Former Energy Star National Director, Bob Sauchelli, sat in front of his computer, whereas several of the LO3 Energy team gathered around him, and conducted what would be the world’s first blockchain energy purchase via Exergy. In the brownstone directly across the street, Sauchelli’s neighbor, Park Slope resident Eric Frumin, earned the entire premium of the sale of his solar power. Exergy enabled Mr. Sauchelli to buy local, clean energydwhere the “green” in the energy was not sourced from fossil fuel (“dirty”) generation or an unknown, distant renewable. The transaction, which happened in the blink of an eye, was the first of its kind in the United States. Although the cost to the consumer will be ultimately determined at market price, for this initial transaction, prosumer Eric Frumin’s price was set to be equal to his prior green energy purchases so that his costs did not rise. In the standard utility exchange, Frumin had never before received money for green attributes of his generated energy,
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Element A External resources
Element B Smart grid contract Between A and B
Contract input Info as settlement criteria Pricing Location Time Grid condition Energy, GHG impacts Environmental externalities Social impact indices Reputation, etc.
Records of reference state
Contract output
Existing state validation Transaction logic model Uses settlement criteria Calculates based on contract rules Determines results, who, where, what, how ...
Info for fulfillment Equipment control Signals/actions Services/product to be enabled or delivered Token value exchange Records of new state
Public ledger The Energy Internet
Figure 10.3 Smart grid contracts: components and mechanism.
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Figure 10.4 Exergy user mobile application views.
so albeit a small dollar amount, the transaction with Sauchelli represented additional money in his pocket (Fig. 10.4). To conduct the transaction of currency, the team utilized PayPal for its initial transactions. As it transitions to exchanging energy supply between users, currency transactions will occur via the utility, an option made available to all competitive retailers in New York. This transaction represented the first of what could be an entirely new way for prosumers to be compensated for their energy production. Under current New York state regulations, prosumers are almost always compensated through net meteringd the energy transaction must be counted as consumption credit for electricity transmitted back to the main utility grid. Under the NY Public Service Commission Reforming the Energy Vision, net metering will transition into “a Value of Distributed Energy Resource (VDER) tariff that accurately values and compensates distributed energy resources” beginning March 9, 2017 [18]. Distributed energy projects will undergo the transition from net metering to VDER tariff in two phases. New opportunities, such as those represented by Brooklyn Microgrid will provide more choices for prosumers with options including continued offsetting of the energy for consumption, selling the energy production within a peer-to-peer energy market, or storing generated energy in on- or off-site battery storage. These also represent valuable new services and business models for utilities, whose existing business models are under pressure from the integration of DERs.
10.3.3 Peer-to-peer energy marketplace The long-term benefits of the Brooklyn Microgrid lie primarily in the energy marketplace of Exergy, enabling interested residents to take control of their energy production,
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use, and efficiency. Exergy enables prosumers and consumers within the local market to engage and grow together to achieve economic and environmental goals. The Brooklyn Microgrid’s community-based model provides the potential of new revenue streams, incentivizing consumers to invest in DER and become prosumers. It creates a circular economydrenewable, reliable, and resilient with the potential to utilize resources efficientlydwithin the local market, similar to the online marketplace Airbnb fostered for travelers. In the Brooklyn Microgrid implementation, along with solar panels that had previously been installed on Eric Frumin’s brownstone roof, the LO3 Energy team installed its TAG-e smart meter, which powers computational capability and operates as a node within the localized Exergy network. With all equipment configured and connected to the prosumer/consumer utility Smart Meter, Frumin’s solar energy was ready for sale on Exergy at a fair market price. Participants in the Brooklyn Microgrid will ultimately have the tools to influence and guide decisions about their energy assets as well as the health and resiliency and infrastructure of their microgrid. It is a paradigm shift in the historical utilitycontrolled model.
10.3.3.1 Long-term plans for the Brooklyn Microgrid By 2018, the LO3 Energy team plans to expand the Brooklyn Microgrid to 1000 participants, including nearby homes and apartment buildings, a gas station and fire station, schools and factories. As part of that plan, the team will install additional battery storage units and is looking at expanding solar PV capacities as well as exploring community funding and ownership options. The long-term design addresses and balances two key factorsdcommunity resiliency and sustained economic viability. The top resiliency priority is to meet critical electric and thermal loads to serve the residents living in the New York City Housing Authority’s buildings and to power the surrounding school facilities, which can serve as emergency shelters in the community for the over 4300 residents living in the community. The project is not positioned as a replacement for the local utility. The architecture enables the utility providers to continue to serve as the operator. The Brooklyn Microgrid will operate synergistically and in parallel with the main utility grid. The project is intended as a test of potential business models and revenue streams. The emerging “prosumer” market will allow consumers to seek additional choices for energy production and consumption, enabling a plug-and-play, peer-to-peer market where consumers can play a role in generation, storage, and transaction of energy. Prosumers may optionally produce and redistribute energy resources such as solar power, storage, and others and interact directly with utility grids and potentially other grids and markets. Looking toward the future, innovators such as LO3 Energy envision a landscape of distributed energy-producing Microgrids connected to utility grids throughout a vast network. Getting there requires significant investments and prototypes of community microgrids.
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10.3.4 A new energy paradigm: the prosumer marketplace Today, less than half of the energy produced in the United States is used productivelyd this is the true energy crisis. Exergy represents the opportunity to determine the most economically efficient manner to use a unit of energy. It values local energy in parallel with network costs associated with the transmission of energy between prosumers and consumersda grid that emphasizes Exergy (valuing productivity above energy).
10.3.4.1 The value of system Exergy Exergy represents the creation of a system where the economics reflect the physics. For example, if a utility grid is primarily concerned with staying balanced, then the ability to shut a device off should be valued equally to the ability to generate more energy. Similarly, the losses involved in transmitting electricity should influence where a consumer acquires electricity, as a local transaction incurs much less loss than one occurring over large distances. Each variable is weighed, included energy sources, cost, and loss of grid usage (each meter of copper traveled in transmission) down to part of the route (substations, transformers, devices). By assessing the underlying cost of delivering an electron generated a great distance from its source to the point of consumption, it can be effectively compared with the cost of a locally generated electron. Market leaders and innovators are seizing opportunities to deliver on long-overdue energy promises that provide not only clean, renewable energy but also an open market in the production and exchange of energy. Exergy is well positioned to serve as the technology backbone of the future utility grid platformdone that connects consumers with resources and coordinates activity. When a value is created for reduction in energy use, it results in an immediate and systemic return for efficiency and flexibility with clear and predictable economic outcomes driven by solid market mechanisms, not artificial incentives. One example of properly valuing the physical concept of Exergy is the understanding that in the future megawatts and negawatts have identical values in terms of solving grid constraint issues. It is the cost at which they can be acquired and combined with the efficiency in transporting the product, which will determine which should be used.
10.3.4.2 Regulations and utilities One of the big challenges ahead is to address regulatory concerns and determine the legal structure that will enable the Brooklyn Microgrid project to sell energy through a utility bill. At the time of publication, LO3 Energy is in discussion with progressive regulators and forward-looking utilities. Although the technologies LO3 Energy is delivering in the marketplace are considered disruptive, they are positioned as synergistic to utility grids, transmission system operators, and distribution system operators. Utilities must modernize and adopt new business models. Traditionally, investorowned utilities have been incentivized through supply-side asset investments such as pipes and wire. LO3 Energy will continue to work with regulators, policymakers,
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and utilities to displace this business model and replace it with policy that incents the delivery of energy efficiency. In the future, utilities will operate in efficiency and resiliency, reducing physical and economic waste. They will operate within a competitive market that compensates based on deployment of distributed energy assets.
10.4
Next steps for Exergy and Brooklyn Microgrid
With the completion of the initial Brooklyn Microgrid proof of concept, the LO3 Energy team is focused on next steps. The pilot served as strong technological proof of concept of the community Microgrid architecture, the capability of the TAG to enable a community Microgrid marketplace and the sandbox for the first energy blockchain transactions. Brooklyn Microgrid is in the process of receiving its full approval for the transaction of energy across public utility wires. Over 50 residential and commercial building owners have installed LO3 Energy’s Exergy on their sites, and there is a waiting list of over 300 users interested in participating. LO3 Energy hopes to scale Brooklyn Microgrid to over 1000 participants by 2018 and intends to have Brooklyn Microgrid serve as a stand-alone effort that will continue. LO3 Energy has contracted with a number of other pilots nationally and globally. These projects are not yet public but are anticipated to be announced later in 2017. Some of these projects bear a resemblance to Brooklyn Micogrid, whereas others are focused on specific items, such as location-based pricing. The Exergy closes gaps and removes barriers that have historically prevented consumers from participating in the benefits of self-generation of distributed energy. As a technology platform that operates on top of and on behalf of community microgrids, Exergy enables the ability not only to move energy within a local environment but also to facilitate an energy marketplace securely. For those energy consumers not positioned geographically or economically to invest in distributed energy equipment, LO3 Energy’s technology and business models provide an entry point to the clean energy marketplace. Exergy is well positioned to drive the growth of the “energy Internet” marketplacedconnecting potentially millions of community Microgrid participants through decentralized energy channels and utility providers. The next phase of the project is the business model proof of concept. LO3 Energy is working with regulators and policymakers to determine the legal structure for delivering on its energy goals.
References [1] S. Lacey, The Grid Edge: A New Way to Define the Changing Power Sector, Greentech Media, October 08, 2013. https://www.greentechmedia.com/articles/read/the-grid-edge-anew-way-to-define-the-changing-power-sector#two. [2] A. Kahn, The Economics of Regulation: Principles and Institutions (p. 3), Massachusetts Institute of Technology, 1988, first published in two volumes in 1970e1971 under the title
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[3] [4] [5] [6]
[7] [8] [9] [10]
[11]
[12]
[13]
[14] [15] [16]
[17]
[18]
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The Economics of Regulation: Principles and Institutions (volume I: Economic Principles, 170; volume 2: Institutional Issues, 1971), John Wiley & Sons Inc., 1988, New York. A. Kahn, The Economics of Regulation: Principles and Institutions, 1988, p. 11. PBS Frontline, Regulation, Public vs. Private Power: From FDR to Today, 2014. http:// www.pbs.org/wgbh/pages/frontline/shows/blackout/regulation/timeline.html#fn1. U.S. Department of Energy, Renewable Energy Data Book, 2015. http://www.nrel.gov/ docs/fy17osti/66591.pdf. National Renewable Energy Laboratory, High Renewable Electricity Growth Continued in 2015, 2016. https://www.nrel.gov/news/press/2016/high-renewable-electricity-growth-contin ued-in-2015.html. A. NY-Sun, Program of NYSERDA, 2001. https://www.nyserda.ny.gov/All-Programs/ Programs/NY-Sun. Solar Power Rocks, United States Solar Power Rankings, 2017. https://solarpowerrocks. com/2017-state-solar-power-rankings/. New York State, Reforming the Energy Vision, 2014. https://rev.ny.gov/. I. Baring-Gould, M. Gleason, E. Lantz, R. Preus, B. Sigrin, Assessing the Future of Distributed Wind: Opportunities for Behind-the-Meter Projects, National Renewable Energy Laboratory, 2016. https://energy.gov/sites/prod/files/2016/11/f34/assessing-futuredistributed-wind.pdf. A. Shapiro, Wind Energy Takes Flight in the Heart of Texas Oil Country, National Public Radio (NPR), March 08, 2017. All Things Considered, http://www.npr.org/2017/03/08/ 518988840/wind-energy-takes-flight-in-the-heart-of-texas-oil-country. J. Deaton, Here’s Why the Lights Stayed on at NYU while the Rest of Lower Manhattan Went Dark during Hurricane Sandy, Business Insider, June 11, 2016. http://www. businessinsider.com/new-york-microgrids-2016-6. Energy.gov, U.S. Department of Energy, Office of Electricity Delivery, Energy Reliability, GMI Peer Review Provides Invaluable Forum for Feedback on Grid Modernization Efforts, 2001. https://energy.gov/oe/articles/gmi-peer-review-provides-invaluable-forum-feedbackgrid-modernization-efforts. Microgrids at Berkeley Labs, Microgrid Definitions, 2001. https://building-microgrid.lbl. gov/microgrid-definitions. National Institute of Standards and Technology, U.S. Department of Commerce, Transactive Energy: An Overview, 2008. https://www.nist.gov/. J. Schneider, A. Blostein, B. Lee, S. Kent, I. Groer, E. Beardsley, The Goldman Sachs Group, Inc, Profiles in Innovation Research, May 24, 2016. https://www.scribd.com/doc/ 313839001/Profiles-in-Innovation-May-24-2016-1. D. Tapscott, Don, a. Tapscott, Blockchain Revolution: How the Technology behind Bitcoin Is Changing Money, Business, and the World, Penguin Publishing Group, 2016, pp. 101e102. Kindle Edition). Energy.gov, U.S. Department of Energy, Tax Credits, Rebates & Savings, Net Metering, 2014. https://energy.gov/energygov/savings/net-metering-23.
10
Lawrence Orsini 1 , Scott Kessler 1 , Julianna Wei 1 , Heather Field 2 1 LO3 Energy, Brooklyn, NY, United States; 2Independent Consultant, Sarasota, FL, United States
Chapter Outline 10.1
Transactive energy
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10.1.1 Energy marketplace 225 10.1.1.1 Growing adoption of renewable energy 226 10.1.1.2 Roadblocks on the path to energy independence 227
10.2
Rise of the community microgrid
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10.2.1 Community Microgrid architecture 229
10.3
The Brooklyn Microgrid demonstration
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10.3.1 The transactive grid and energy blockchains 230 10.3.1.1 The energy blockchain 232 10.3.2 The first blockchain energy transaction 233 10.3.3 Peer-to-peer energy marketplace 235 10.3.3.1 Long-term plans for the Brooklyn Microgrid 236 10.3.4 A new energy paradigm: the prosumer marketplace 237 10.3.4.1 The value of system Exergy 237 10.3.4.2 Regulations and utilities 237
10.4 Next steps for Exergy and Brooklyn Microgrid References 238
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Imagine for a moment an energy consumer who is able to generate and store renewable energy throughout the day, utilize power automatically as needed, and sell surpluses to his/her neighbors through a community microgriddall the while maintaining a connection to the main utility grid. The described “prosumer,” both a producer and consumer of energy, has set preferential pricing thresholds on his/her energy and energy attributes. An installed smart meter will manage his/her configured household energy. Next door, a neighbor logs into the local energy marketplace. Although he/she has not invested in solar photovoltaic (PV) or other renewables, his/her community’s Microgrid and energy marketplace enable him/her to purchase energy his/her neighbors have generated and stored. Through a user-friendly application, he/she can configure buying options that execute automatic transactions within preferred thresholds and The Energy Internet. https://doi.org/10.1016/B978-0-08-102207-8.00010-2 Copyright © 2019 Elsevier Ltd. All rights reserved.
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power his/her air conditioning and other connected devices during the most costeffective hours. For many decades this near real-time, demand-responsive, peer-to-peer energy model was nothing more than conceptual. In the brownstone-lined neighborhood of Park Slope in Brooklyn, New York, a small community Microgrid pilot has been forging the path ahead for the Energy Internet and transactive energy (TE) marketplaces. The Brooklyn pilot, which connected a small group of neighbors through New York-based LO3 Energy’s TransActive Grid (TAG), was the realization of decades of evolution and transformation within the US energy and technology markets and is the brainchild of the team at LO3 Energy.
10.1
Transactive energy
Founded in 2012 and spurred by the events of Superstorm Sandy that same year, startup LO3 Energy and its team of experienced energy professionals, software developers, engineers, analysts, and makersdmany of whom have deep roots in energy marketsdconceptualized the Brooklyn Microgrid as a resilient backup to grid interruptions. Through their combined experience and knowledge of the energy landscape and markets, founder and CEO of LO3 Energy, Lawrence Orsini, expert in commercial energy efficiency programs, energy efficiency policy and regulatory environment, and cofounder and CFO, Bill Collins, a finance professional experienced in investment banking, structured finance, and environmental markets, envisioned a new energy paradigm. The result of the LO3 Energy collaboration is the Exergy system, a technology platform that is layered on top of the existing utility grid and enables rapid adoption and integration of distributed energy resources (DER), which include storage, solar, and other renewables. Through Exergy, consumers and prosumers can transact the value of their DERs. Exergy also enables the connection of consumer/prosumers to grid operators that need to alleviate a specific grid issue. Just as the Internet enabled users to exchange information digitally, LO3 Energy’s TAG is ushering in the peer-to-peer exchange of energy and its attributes across the complex electric power grid architecture. Exergy’s marketplace technology will not only support distributed energydincluding renewablesdbut enables a platform on which neighborhoods can exchange energy and energy attributes. Additionally, the TAG will connect to large utility grids as well as Microgrids and will integrate with emerging grid modernization technologies and distributed generation, otherwise known as the “grid edge.” [1]. To better understand the goals and challenges of LO3 Energy’s projects, including the Brooklyn Microgrid project, one must have a deeper understanding of the changing landscape of energy production and distribution in the United States. This landscape encompasses include current and past trends in renewables, the emergence of the energy prosumer, the rise of community microgrids, and rapid advances in technology and energy devices as well as regulations and cost barriers that present roadblocks to continued growth and adoption in the United States.
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10.1.1 Energy marketplace The convergence of a multitude of environmental events, technology developments, and clean energy initiatives has led to a paradigm shift in the US energy market (Box 10.1). Over the last several decades, disruptive technologies transformed the way consumers engage and interactdfrom the exchange of information and news to entertainment to currency. Following decades of advances, centralized energy markets have finally felt the pressure to adapt to the emerging distributed, peer-to-peer, and direct-to-consumer models.
Box 10.1 A brief history of utility regulation in the United States The US electric utility industry is one of the last remaining monopolies and is one of the last regulated public utilities. Generally, utilities are responsible for generation and distributing power. According to economist Alfred E. Kahn, there are four primary components of regulation of that “distinguish” public utilities: control of entry, price fixing, prescription of quality and conditions of service, and the imposition of an obligation to serve [2]. It is of note that the utility industry is considered a “natural monopoly,” where the consensus to empower monopoly ownership through regulation or government ownership is driven by the desire to control costs and prevent “economy of scale.” As described by Kahn, a monopoly’s “costs will be lower if they consist of a single supplier.” [3]. The Federal Power Commission (FPC) was established in 1920 to license and regulate the power industry. FPC has undergone many changes over the decades in response to the evolving energy landscape from regulatory changes to technological advances. Deregulation movements of the 1990s threatened to break up the monopoly and a competitive landscape emerged. As a result of the deregulation movement of the 1990s, the electric power industry is changing from a structure of regulated, local, vertically integrated monopolies, to one in which competitive companies generate electricity while the utilities maintain transmission and distribution networks. The industry transformed to include electricity-generating competitors to the utility monopoly and regulated utilities continued to maintain networks handling energy transmission and distribution. What arose from the competition were new entrants in the power marketplace: power marketers and power brokersdencompassing electricity buyers and sellers who do not own or operate the transmission or distribution of energy. Power marketers are “persons or companies that sell wholesale power that they generate themselves, purchase from others, or both.” These power marketers are regulated by Federal Energy Regulatory Commission and are considered utilities. The other new entrant in the power marketplace, power brokers, is not regulated and serves to facilitate negotiations between the customer and the marketer [4].
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Technologies such as the Internet of Things (IoT) have allowed innovators to connect consumers directly with electronics and devices, making the smart home a reality and creating new channels of opportunity, whereas Bitcoin, through its blockchain foundation, demonstrated that there were yet-to-be discovered channels for exchanging value. These foundational developments lowered entry barriers and costs for DER and heralded a wave of change in the energy industry.
10.1.1.1 Growing adoption of renewable energy According to a 2015 report from the US Department of Energy [5], demand for clean, renewable energy sources has continued on a steady incline since the early 2000s, whereas inversely, the price of previously cost-prohibitive clean energy sources such as solar and wind continued to fall. Annual electricity generation from solar and wind has increased by a factor of 12 since 2005. Renewable electricity (which includes solar, wind, geothermal, hydropower, and biopower) grew to 16.7% of total installed capacity and 13.8% of total electricity generation in 2015 and accounted for 64% of US electricity capacity additions [6]. Emerging interest in clean, renewable energy sources, as well as energy backup when the main grid fails, has taken place within communities and governments at the local, state, and national levels. In New York for instance, several extreme weather events led to ongoing state-level initiatives including the New York State Energy Plan and Reforming the Energy Vision, which aim to fortify small communities equipped with less robust infrastructure to ensure they can stay self-powered during weather conditions and other unforeseeable events. From 2011 to 2016, New York saw an 800% increase in solar adoption [7]. In fact, many states across the United States have adopted similar initiatives to encourage adoption of renewable energy. According to advocacy group Solar Power Rocks, which rates states across 11 categories of solar, Massachusetts, New Jersey, and Rhode Island are currently leading solar efforts. Although Hawaii receives accolades as the first state to set a renewable energy goal of 100%, the state’s net metering structure along with a lack of rebates and sales tax exemptions means it ranks lower overall. Thirty-four states in all received top grades for tax exemptions and credits, rebates and performance payments (Box 10.2) [8]. Significant efforts are underway in US wind adoption as well. The National Renewable Energy Laboratory, a national laboratory of the US Department of Energy Office of
Box 10.2 Reforming the energy vision Part of the New York State Energy Plan, Reforming the Energy Vision (REV) is an energy strategy aimed at modernizing, strengthening, and rebuilding the state’s energy infrastructure and systems. Governor Andrew M. Cuomo’s REV initiatives has set goals to increase renewable energy sources, reduce greenhouse gas emissions, and reduce building energy consumption [9].
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Energy (DOE), in its November 2016 report, “Assessing the Future of Distributed Wind: Opportunities for Behind-the-Meter Projects,” estimates consumer adoption of wind power to increase by approximately 300% by 2030, and the cumulative capacity is expected to increase by eightfold (three doublings of cumulative behind-the-meter capacity) by 2050 [10]. Texas is currently ranked as the top wind energyeproducing state in the United States, and in March 2017, the small town of Georgetown, Texas claimed its spot among a small number of cities across the country running 100% on renewables, according to research published by National Public Radio [11]. Predictions for growth in consumer ownership of DER solutionsdincluding power generation from traditional sources such as solar, battery storage, and smart-energy resource management (efficiency, demand response [DR])dare good news for renewable energy advocates, but the electric power grid was not designed to support multidirectional transactions and dynamic operations exposed through IoT and other technologies. Moreover, DER energy prices are now competitive with traditional (mainly fossil fuel) generation, but neither the business infrastructure nor the electric grid platform was designed to accommodate the new transactional models.
10.1.1.2 Roadblocks on the path to energy independence Although the United States has experienced clear growth in renewables, a substantial gap remains for the energy consumer. Barriers, such as home ownership and the cost of initial investment still exist for those who would like to reduce energy bills through adoption of solar, wind, geothermal, and other renewable energy systems. Regulatory and mandatory costs can prove disincentives, for example, compulsory fees imposed to prevent consumers from defecting from utility grids and state-imposed regulations that prohibit the consumer direct sale and profit from energy production. Other entry points for consumers that want to go “green” include buying renewable energy certificates (RECs) to offset energy consumption. RECs are intended to provide consumers with an alternative to nonrenewable energy through the utility grid. The downside is that many utility REC programs offer consumers few options to choose the source of energy they are purchasing; for example, the consumer may not have the option to choose energy from a local solar farm versus a wind farm hundreds of miles away. Additionally, when a consumer purchases RECs, the utility may simply “offset” the credit against the billdthis does not guarantee delivery of the “clean” energy to the consumer. Lastly, REC energy is delivered through the same utility infrastructure as “dirty” energy, which combined with the distance of transmission may erode the inherent benefits of the REC. For consumers who have made the commitment to and investment in renewable energy resources such as solar, wind and geothermal energy production, battery storage, and DR technologies, there are many hurdles to recouping investments and reaping the benefits of clean energy alternatives. Although these resources bring demonstrable grid, environmental, and societal benefits, there exists no clear compensation mechanism for the values to accrue back to asset owners and users. In Nevada, for example, solar owners experienced a shock in 2015 when, after making significant investments in PV equipment, the state granted its only power
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company the right to raise fees on solar consumers, essentially reducing their net energy metering credits, or buy-back rates. Programs such as net metering are dependent on regulation, are inflexible, and do not support many DER technologies such as storage. These roadblocks are not unique to Nevada. In the traditional utility business model framework, utilities earn money by building and operating capital assets (e.g., generation, transmission, and/or distribution assets) on behalf of customers. Utility companies have argued that despite consumer energy production from solar panels, consumers must continue to cover the costs of the grid’s transmission and distribution infrastructure to ensure they (consumers) can receive power when their solar panels are not producing electricity. To that end, utilities aim to ensure they are not harmed by net energy metering and are compensated fairly for the times in which consumers pull energy from the grid, preventing the scenario where customers may become “free riders.” The result leads to some DER technologies being undervalued and may leave existing DER owners with a feeling of helplessness as to how they achieve a return on their investment. Additionally, there is currently an incentive for utilities to slow the spread of distributed renewables to avoid their negative business impacts. Many utilities, regulators, and startup companies are attempting to figure out what the new business model for utilities will be so that they can be fairly compensated for the service they provide without having to choose between financial security and distributed energy. Cost-prohibitive renewables may soon be a thing of the past, but presently consumers/prosumers are still faced with significant barriers preventing the affordable installation, usage, and commerce of self-procured energy. In today’s growingly decentralized world where businesses and consumers are hubs linked via myriad channels, centralized utilities and government regulations are proving to be the primary roadblocks to true peer-to-peer energy exchange. Even for those businesses and consumers well positioned economically to install renewables, connecting to an available marketplace for selling excess energy may prove an impossibility.
10.2
Rise of the community microgrid
Current market conditions, shortcomings of the conventional grid, and rising costs and misalignment of consumer IoT technologies and distributed energy systems to energy marketplaces are some of the underlying drivers of community microgrids. Within the centralized utility grid system, consumers are 100% dependent on the main grid and can be left without power due to downed power lines, hurricanes and tornados, and other unforeseeable events. The history of the Microgrid can be traced back to the early days of Thomas Edison, but modern implementations have been mainly limited to those locations where power outages are a crucial threatdfor example, military operations, hospitals, colleges, and data centers. Also, geographically remote locations have historically depended on the “island,” or grid-disconnected, reliability of the microgrid. Although the concept is not a new one, shrinking barriers to entry such as hardware
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and infrastructure costs as well as storage and renewable energy costs have made the Microgrid an attractive option for small communities to business campuses to large cities across America. The significant advantage of the Microgrid has been the ability to operate when disconnected from the main power grid. During power outages due to downed lines, extreme weather conditions, and other failures related to the main grid, a Microgrid provides access to stored energy and continual access to self-generated energy. Another key benefit of the Microgrid architecture is its compatibility and integration with DER. In the wake of Superstorm Sandy in 2012, millions of East Coast residents were left without power, and in New Jersey and New York, thousands of residents remained without power for days. Although much of the city settled in under darkness, New York University (NYU) was among a small number of locations powered through the storm by a Microgrid [12]. The resiliency of NYU’s Microgrid (among others) did not go unnoticed. As a result of weather-induced grid outages in 2011 and 2012, Connecticut established funding for public services, hospitals, schools, and universities among other projects. New York rolled out plans to encourage the development of affordable, clean energy projects. California and Massachusetts have also introduced efforts to expand the use of community microgrids. In April 2017, the DOE launched the Grid Modernization Initiative and along with it the Grid Modernization Laboratory Consortium, “a $220 million effort to help shape the future of the nation’s grid.” [13].
10.2.1 Community Microgrid architecture According to the US DOE Microgrid Exchange Group, “a Microgrid is a group of interconnected loads and distributed energy resources within clearly defined electrical boundaries that acts as a single controllable entity with respect to the grid. A Microgrid can connect and disconnect from the grid to enable it to operate in both grid-connected or island-mode.” [14]. The traditional utility grid differs from the community Microgrid in many ways, foremost, utility grids deliver energy from myriad central sources, including but not limited to fossil fuels (coal, natural gas, petroleum), nuclear, biomass, hydropower, wind, and solar. Consumers connected to traditional grids are typically solely reliant on the grid to supply their energy needs and can be left without power in the case of emergency or natural disaster. Community microgrids, on the other hand, can operate both independently of the grid and in conjunction with it. Should a community experience a power outage or interruption in utility service, the Microgrid can continue to power its needs. At its most basic, a Microgrid is very similar in architecture to the main utility grid. It connects power-generating sources with power-consuming devices through an energy management system and may include switches and voltage transformers, smart meters battery solutions, and copper wires, which handle energy transfer.
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Standard Microgrid installations are siloed, intended to serve a single organization, building, or entity. Community Microgrids present distinct opportunities, the ability to leverage local energy resources key among them. The community Microgrid enables the inclusion of a variety of “actors” and decision-makers, related, diversity in energy use profile and generation/hosting potential among other considerations. Because the community Microgrid connects local DER, the distance of energy transmission and thus transmission losses are greatly reduced in comparison to the traditional grid delivery, where energy is distributed for miles from a central storage. Reducing the overhead of energy transfer, enabling higher utilization of DER assets, aligning community energy goals and priorities, and providing resiliency are all benefits of community microgrids. Extending the benefits of the community microgrid, Exergy provides the capability of a local marketplace where neighbors can exchange energy and energy value and manage it within the local grid, which can have a long-term impact on energy cost reductions and the continued growth of distributed energy. This marketplace can also serve as a demonstration of the utility of the future, demonstrating how a business model can be formed from new revenue streams, such as a market facilitation fee for each transaction.
10.3
The Brooklyn Microgrid demonstration
In the aftermath of Superstorm Sandy in 2012, the team at LO3 Energy wanted to prove the business case for energy transactions within a community during both parallel and island modes and demonstrate positive environmental and economic impacts for the community as a whole. One of many neighborhoods affected was Park Slope and the nearby areas of Gowanus and Boerum Hilldwhere some residents experienced power outages for more than 11 days. Park Slope included a number of brownstone homes already equipped with solar PV on the roofs, and the residents were extremely interested in a community Microgrid that would improve their energy infrastructure and provide resiliency in the future. The area is also home to 17,000þ member food co-op, where members contribute to about 75% of the workdlocal resource management and the concept of distributed energy was already at work. The Brooklyn Microgrid was architected to utilize the existing utility distribution infrastructure and consists of a combination of traditional fuel sources as well as DERs, including vanadium flow batteriesdwhich provide cost-effective and nearly unlimited storage capacity as well as distribution capabilities (Fig. 10.1).
10.3.1
The transactive grid and energy blockchains
TE was defined by the US Department of Energy’s Gridwise Architecture Council as “a system of economic and control mechanisms that allows the dynamic balance of supply and demand across the entire electrical infrastructure using value as a key operational parameter.” [15].
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Potential neighbor consumers President ST. Solar renewable producers
President ST, Park slope, Brooklyn
Figure 10.1 The Brooklyn Microgrid sandbox in the Park Slope neighborhood of Brooklyn, New York.
Exergy is a hardware/software solution that enables not only new markets for the electric grid, including peer-to-peer marketplaces for consumers to buy and sell local, clean energy but the control of consumption, generation, and storage equipment based on price signals and preferences. The unique benefit of the Exergy architecture is that it creates a marketplace that offers both negawatts (the power saved through efficiencies) and megawatts (power produced). To create a decentralized TE market, the team at LO3 Energy needed a cryptographically secure ledger to ensure the highest level of transparency and auditability. Then Enter blockchain. The use of blockchain in the TAG enables peer-to-peer markets where both parties are privy to the same information, eliminating the need for the usual retail energy intermediary and enabling energy producers to sell directly to consumers. TAG-e, hybrid computers, and smart meters operate the blockchain and can control other smart devices through ZigBee, Z-Wave, and other communication protocols (Fig. 10.2).
Blue lines denote communications network; peer-to-peer control and transactional relationship Red lines denote distribution network relationship; energy transmission and distribution
Figure 10.2 Transactive grid network.
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In a future realized vision, the TAG will yield real-time, location-based energy pricing that can drive a multitude of transactions from the community-based sale of energy to user or neighbor device control to demand response and efficiency. TAG-e binds with other IoT devices to procure demand response within the source market. By calculating real-time energy prices, Exergy will relay the true value of efficiency as well as renewables. Users will be able to provide their own willingness to pay for local, clean energy. If this is greater than the cost of traditional electricity, users producing power would receive a premium price above what they would normally from their electric utility. The premium for hyperlocal, clean energy will drive outside investment in DERs within communities. LO3 Energy’s focus is on making use of blockchain to provide a platform for TE, rather than simply applying cryptocurrency techniques to the electric sector. The platform allows for transactiondtwo parties exchanging energy and energy attributes with one anotherdas well as the conversion of the transaction into action, for example, changing devices’ state (on, off, modulation) in response to the transactions. The team is using an energy blockchain to track electrons added to and removed from the utility grid and to store and process transaction contracts cryptographically. Exergy provides a solution that is the best of both worlds. Consumers are connected to the community Microgrid and energy marketplace while remaining connected to the main grid at all times. Exergy operates as an independent Microgrid when neededd when disconnected from the main grid during outages and other interruptions, for exampledcontinuing to generate and store energy as well as facilitate blockchain energy transactions between peers.
10.3.1.1 The energy blockchain Although blockchain technology has been quickly adopted across many sectors, it has not yet gained traction in the energy market. The Brooklyn Microgrid project is a demonstration of how blockchain will become a building block of the TE world. In fact, the LO3 Energy team is convinced that blockchain energy has the potential to be far more reaching than bitcoin [16]. Originally developed as the building block for digital currencies, such as bitcoin, blockchain is a distributed, incorruptible digital ledger that simultaneously shares, updates, and distributes information without the need for a central storage facility for data. The distributed ledger ensures that energy transactions are secure, efficient, transparent (visibility into the blockchain), frictionless (self-executing contracts), and flexible (user preferences update smart contracts (Box 10.3)) The initial pilot of Exergy utilizes blockchain nodesdin the form of smart metersdto collect generated energy and energy consumption. The project makes use of smart contracts, which automatically execute once preconditions are met, and measures energy produced or consumed. It also communicates with other meters and smart devices through the smart meter. These smart contracts can be set for a variety of transaction types, including selling energy supply, turning off a device when electricity exceeds a certain price or charging and discharging a battery to support the grid. Eventually, smart contracts can take on much of the grid operation
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Box 10.3 Smart contracts In this chapter, the reader may assume the following definition of smart contracts as referenced in Blockchain Revolution: “Smart contracts are computer programs that secure, enforce, and execute settlement of recorded agreements between people and organizations. As such, they assist in negotiating and defining these agreements.” The concept of “smart contracts” has been around since 1994 when first coined by Nick Szabo. His early definition, as noted in Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World: “A smart contract is a computerized transaction that executes the terms of a contract. The general objectives of smart contract design are to satisfy common contractual conditions (such as payment terms, liens, confidentiality and even enforcement), minimize exceptions both malicious and accidental and minimize the need for trusted intermediaries. Related economic goals include lowering fraud loss, arbitration and enforcement costs and other transaction costs.” [17].
that is currently handled by the grid operator today, automatically resolving grid issues as soon as they are measured. Additionally, blockchain will be a key in the long-term growth of the TAG, enabling clusters of devices to optimize among themselves as a group (Fig. 10.3).
10.3.2 The first blockchain energy transaction The LO3 Energy team began development of the TAG in 2013, and in April 2016, Exergy conducted its first transactions. During the first implementation of Exergy in the Brooklyn neighborhood of Park Slope, two neighborsdliving across the street from each otherdengaged in the exchange of the “renewable energy attributes” or the “green” in the system rather than the electrons themselves. Former Energy Star National Director, Bob Sauchelli, sat in front of his computer, whereas several of the LO3 Energy team gathered around him, and conducted what would be the world’s first blockchain energy purchase via Exergy. In the brownstone directly across the street, Sauchelli’s neighbor, Park Slope resident Eric Frumin, earned the entire premium of the sale of his solar power. Exergy enabled Mr. Sauchelli to buy local, clean energydwhere the “green” in the energy was not sourced from fossil fuel (“dirty”) generation or an unknown, distant renewable. The transaction, which happened in the blink of an eye, was the first of its kind in the United States. Although the cost to the consumer will be ultimately determined at market price, for this initial transaction, prosumer Eric Frumin’s price was set to be equal to his prior green energy purchases so that his costs did not rise. In the standard utility exchange, Frumin had never before received money for green attributes of his generated energy,
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Element A External resources
Element B Smart grid contract Between A and B
Contract input Info as settlement criteria Pricing Location Time Grid condition Energy, GHG impacts Environmental externalities Social impact indices Reputation, etc.
Records of reference state
Contract output
Existing state validation Transaction logic model Uses settlement criteria Calculates based on contract rules Determines results, who, where, what, how ...
Info for fulfillment Equipment control Signals/actions Services/product to be enabled or delivered Token value exchange Records of new state
Public ledger The Energy Internet
Figure 10.3 Smart grid contracts: components and mechanism.
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Figure 10.4 Exergy user mobile application views.
so albeit a small dollar amount, the transaction with Sauchelli represented additional money in his pocket (Fig. 10.4). To conduct the transaction of currency, the team utilized PayPal for its initial transactions. As it transitions to exchanging energy supply between users, currency transactions will occur via the utility, an option made available to all competitive retailers in New York. This transaction represented the first of what could be an entirely new way for prosumers to be compensated for their energy production. Under current New York state regulations, prosumers are almost always compensated through net meteringd the energy transaction must be counted as consumption credit for electricity transmitted back to the main utility grid. Under the NY Public Service Commission Reforming the Energy Vision, net metering will transition into “a Value of Distributed Energy Resource (VDER) tariff that accurately values and compensates distributed energy resources” beginning March 9, 2017 [18]. Distributed energy projects will undergo the transition from net metering to VDER tariff in two phases. New opportunities, such as those represented by Brooklyn Microgrid will provide more choices for prosumers with options including continued offsetting of the energy for consumption, selling the energy production within a peer-to-peer energy market, or storing generated energy in on- or off-site battery storage. These also represent valuable new services and business models for utilities, whose existing business models are under pressure from the integration of DERs.
10.3.3 Peer-to-peer energy marketplace The long-term benefits of the Brooklyn Microgrid lie primarily in the energy marketplace of Exergy, enabling interested residents to take control of their energy production,
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use, and efficiency. Exergy enables prosumers and consumers within the local market to engage and grow together to achieve economic and environmental goals. The Brooklyn Microgrid’s community-based model provides the potential of new revenue streams, incentivizing consumers to invest in DER and become prosumers. It creates a circular economydrenewable, reliable, and resilient with the potential to utilize resources efficientlydwithin the local market, similar to the online marketplace Airbnb fostered for travelers. In the Brooklyn Microgrid implementation, along with solar panels that had previously been installed on Eric Frumin’s brownstone roof, the LO3 Energy team installed its TAG-e smart meter, which powers computational capability and operates as a node within the localized Exergy network. With all equipment configured and connected to the prosumer/consumer utility Smart Meter, Frumin’s solar energy was ready for sale on Exergy at a fair market price. Participants in the Brooklyn Microgrid will ultimately have the tools to influence and guide decisions about their energy assets as well as the health and resiliency and infrastructure of their microgrid. It is a paradigm shift in the historical utilitycontrolled model.
10.3.3.1 Long-term plans for the Brooklyn Microgrid By 2018, the LO3 Energy team plans to expand the Brooklyn Microgrid to 1000 participants, including nearby homes and apartment buildings, a gas station and fire station, schools and factories. As part of that plan, the team will install additional battery storage units and is looking at expanding solar PV capacities as well as exploring community funding and ownership options. The long-term design addresses and balances two key factorsdcommunity resiliency and sustained economic viability. The top resiliency priority is to meet critical electric and thermal loads to serve the residents living in the New York City Housing Authority’s buildings and to power the surrounding school facilities, which can serve as emergency shelters in the community for the over 4300 residents living in the community. The project is not positioned as a replacement for the local utility. The architecture enables the utility providers to continue to serve as the operator. The Brooklyn Microgrid will operate synergistically and in parallel with the main utility grid. The project is intended as a test of potential business models and revenue streams. The emerging “prosumer” market will allow consumers to seek additional choices for energy production and consumption, enabling a plug-and-play, peer-to-peer market where consumers can play a role in generation, storage, and transaction of energy. Prosumers may optionally produce and redistribute energy resources such as solar power, storage, and others and interact directly with utility grids and potentially other grids and markets. Looking toward the future, innovators such as LO3 Energy envision a landscape of distributed energy-producing Microgrids connected to utility grids throughout a vast network. Getting there requires significant investments and prototypes of community microgrids.
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10.3.4 A new energy paradigm: the prosumer marketplace Today, less than half of the energy produced in the United States is used productivelyd this is the true energy crisis. Exergy represents the opportunity to determine the most economically efficient manner to use a unit of energy. It values local energy in parallel with network costs associated with the transmission of energy between prosumers and consumersda grid that emphasizes Exergy (valuing productivity above energy).
10.3.4.1 The value of system Exergy Exergy represents the creation of a system where the economics reflect the physics. For example, if a utility grid is primarily concerned with staying balanced, then the ability to shut a device off should be valued equally to the ability to generate more energy. Similarly, the losses involved in transmitting electricity should influence where a consumer acquires electricity, as a local transaction incurs much less loss than one occurring over large distances. Each variable is weighed, included energy sources, cost, and loss of grid usage (each meter of copper traveled in transmission) down to part of the route (substations, transformers, devices). By assessing the underlying cost of delivering an electron generated a great distance from its source to the point of consumption, it can be effectively compared with the cost of a locally generated electron. Market leaders and innovators are seizing opportunities to deliver on long-overdue energy promises that provide not only clean, renewable energy but also an open market in the production and exchange of energy. Exergy is well positioned to serve as the technology backbone of the future utility grid platformdone that connects consumers with resources and coordinates activity. When a value is created for reduction in energy use, it results in an immediate and systemic return for efficiency and flexibility with clear and predictable economic outcomes driven by solid market mechanisms, not artificial incentives. One example of properly valuing the physical concept of Exergy is the understanding that in the future megawatts and negawatts have identical values in terms of solving grid constraint issues. It is the cost at which they can be acquired and combined with the efficiency in transporting the product, which will determine which should be used.
10.3.4.2 Regulations and utilities One of the big challenges ahead is to address regulatory concerns and determine the legal structure that will enable the Brooklyn Microgrid project to sell energy through a utility bill. At the time of publication, LO3 Energy is in discussion with progressive regulators and forward-looking utilities. Although the technologies LO3 Energy is delivering in the marketplace are considered disruptive, they are positioned as synergistic to utility grids, transmission system operators, and distribution system operators. Utilities must modernize and adopt new business models. Traditionally, investorowned utilities have been incentivized through supply-side asset investments such as pipes and wire. LO3 Energy will continue to work with regulators, policymakers,
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and utilities to displace this business model and replace it with policy that incents the delivery of energy efficiency. In the future, utilities will operate in efficiency and resiliency, reducing physical and economic waste. They will operate within a competitive market that compensates based on deployment of distributed energy assets.
10.4
Next steps for Exergy and Brooklyn Microgrid
With the completion of the initial Brooklyn Microgrid proof of concept, the LO3 Energy team is focused on next steps. The pilot served as strong technological proof of concept of the community Microgrid architecture, the capability of the TAG to enable a community Microgrid marketplace and the sandbox for the first energy blockchain transactions. Brooklyn Microgrid is in the process of receiving its full approval for the transaction of energy across public utility wires. Over 50 residential and commercial building owners have installed LO3 Energy’s Exergy on their sites, and there is a waiting list of over 300 users interested in participating. LO3 Energy hopes to scale Brooklyn Microgrid to over 1000 participants by 2018 and intends to have Brooklyn Microgrid serve as a stand-alone effort that will continue. LO3 Energy has contracted with a number of other pilots nationally and globally. These projects are not yet public but are anticipated to be announced later in 2017. Some of these projects bear a resemblance to Brooklyn Micogrid, whereas others are focused on specific items, such as location-based pricing. The Exergy closes gaps and removes barriers that have historically prevented consumers from participating in the benefits of self-generation of distributed energy. As a technology platform that operates on top of and on behalf of community microgrids, Exergy enables the ability not only to move energy within a local environment but also to facilitate an energy marketplace securely. For those energy consumers not positioned geographically or economically to invest in distributed energy equipment, LO3 Energy’s technology and business models provide an entry point to the clean energy marketplace. Exergy is well positioned to drive the growth of the “energy Internet” marketplacedconnecting potentially millions of community Microgrid participants through decentralized energy channels and utility providers. The next phase of the project is the business model proof of concept. LO3 Energy is working with regulators and policymakers to determine the legal structure for delivering on its energy goals.
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