In Part 1 we looked at decentralization of electricity generation, largely due to the availability of affordable equipment for domestic-scale production from renewable sources. Part 2 looks at the distribution side of the industry, where digitization will enable smarter management of resources and decentralized distribution will give customers more choice, better value, and opportunities to use domestically-generated electricity in other ways than sell it to the grid that supplies them.

Major players in the electricity industry have historically both generated it in large centralized plants and then distributed it through extensive grid systems. Ageing equipment that was expensive to put in place at the time is now increasingly expensive to maintain, meaning most of today’s customers pay higher costs for their power to maintain this legacy infrastructure. Many people would also like an option to use only electricity generated from renewable sources, and prosumers (domestic consumers who are also electricity producers) would like to have more options of how to use surplus energy they create than sell it back to their grid supplier. (Source: The Future of Electricity, New Technologies Developing the Grid Edge, World Economic Forum March 2017.)

Energy Sustainability and Decentralization

Residential battery storage costs are in steep decline and their efficiency is rising exponentially, says a McKinsey report. Batteries can be charged from the grid when the price is low and used instead of the grid when the price is high, and thus contribute to leveling off peaks and troughs in demand.

Prosumers will increasingly store power they generate from solar panels and wind turbines to use at other times than when it was generated (an example of partial grid defection). Maybe in a few years they will use it overnight to recharge their electric vehicles. Or they might prefer to make it available to neighbours via a ‘local price’ community grid, or even pool their output with that of other prosumers to become a commercial supplier of crowdsourced, sustainable energy.

Governments are seeking ways to ease grid-related legislation to encourage investment in new, more agile, grid edge organizations that will provide the better value and flexibility that customers are demanding. These new firms will use more efficient digitized technology with smart meters supplying instant feedback on power use across their customer network. Smarter use of what already exists can reduce or at least defer spending to increase the supply.

A US example of using grid edge technologies is the Brooklyn-Queens Demand Management project (BQDM). New York City’s utility company recognized in 2014 that power demand in parts of Brooklyn and Queens were on course to quickly exceed capacity. They worked with the state authorities to develop an innovative plan utilizing “non-traditional demand reduction” solutions such as demand response, solar power and better storage facilities. This $200m solution means the utility company is able to hold back on building a $1.2bn substation for seven years.

Opportunities for combining distributed energy resources (DERs) such as prosumer-generated solar power with existing grid structures are being examined the world over. The Australian Energy Market Commission looked at how to create a more decentralized electricity market using grid edge technologies and published a 112-page report in August 2017.

In Europe the energy marketplace is beginning to introduce change for consumers to start buying locally recycled or crowdsourced sustainable energy.

  • German federal law requires municipal authorities to invite bids to run local grids from new companies (including communities) when fixed-term 20-year contracts expire. In 2013 the inhabitants of Germany’s second largest city, Hamburg, voted to buy back its energy grid from multinational energy companies.
  • Ecoyo is a business in Belgium that connects homeowners with 60 local producers of electricity from sustainable sources. You can see and hear Ecoyo’s co-founders speaking at our CSW Europe 2016 conference on video.
  • In Sweden the Stockholm Data Parks project channels heat emitted by data centres to local homes. The long term goal is to meet 10% of the entire heating need of Stockholm by 2035. A similar project recycle’s Facebook’s waste heat in Denmark.

Energy Sustainability and Decentralization

As in other disrupted business sectors, blockchain may hold the answer. Blockchain, a decentralised distributed ledger system, could store irrevocable details of the use and supply of power from multitudes of prosumers. It could be the catalyst to ultimately unify them as a decentralized, peer-to-peer energy entity and maybe also service other non-prosumer customers as a commercial provider. At an industrial level, gasoline companies are exploring options to supply electricity and Shell and BP have joined with banks and trading houses in an energy trading blockchain initiative.

In western countries the take up of grid edge technologies to a point of mass adoption is expected to take 15-20 years, based on evidence on the following chart showing the typical S-curve take up of new technologies in USA.

Energy Sustainability and Decentralization

However, in other industry sectors including banking and telecoms, countries in Africa have been able to make rapid advances using disruptive technology based on crowdsourcing models because there hasn’t been an ageing, dated infrastructure that stakeholders were encouraged to cling on to or have to subsidize.

Africa has 600 million people who live without direct access to power. There is a pressing need to provide better living standards, education and work opportunities fast enough to satisfy demands where 41% of the population is under 15 years old. Let’s hope a continent that receives such abundant sunshine can harness renewable, decentralized, flexible solutions more swiftly and avoid massive investments in old technology with huge distribution systems.