tech | growth | venture | Digital Grid
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Like many, I listen to podcasts on my commute to and from work.  Yesterday, I came across this podcast from Greentech Media featuring Shayle Kann, SVP of Research and Strategy at Energy Impact Partners.  Shayle had written an article about the future of energy and tied it to the life events of his colleague’s soon-to-be daughter which is due at the end of the year.

The podcast and article are worth your time – and not just for those interested in the future of energy.  Given that we just had a newborn, I thought it would be fun to duplicate the exercise using my son Ian and my thoughts on the “bets” Shayle puts forward.

Bet #1: Ian will control machines with his voice more than with his keyboard.  My answer: False*

My answer comes with a caveat, what’s the timeline?  In the podcast, Shayle discusses the growth in AI-enabled voice assistants over the last 3 years.  While the number of devices being sold is impressive, voice still has a real user-engagement problem.  These devices are primarily used for timers, audio, weather, and news.  I also think voice has a UX issue that most aren’t talking about, it’s hard to remember what all a device can do (your phone has apps you see every day and do not use).  Until voice-enabled devices do almost everything, I think the path to engagement will remain tough.

Bet #2: Ian will never personally drive a car. My answer: False

While there are several converging technologies and business model innovations in the automobile space, I believe purely out of curiosity Ian will drive a car at some point in his life.  AV’s, ride-sharing, and scooters are all disrupting the way we think about transportation, but pure curiosity gets the best of all of us.

Bet #3: By the time Ian buys his first home, especially if he’s in an urban environment, his surroundings will be transformed. My answer: True

A few of the major trends already impacting cities: WeWork, AirBnB, and EV’s.  Up next: drones (robotics), repurposed parking lots, and vertical farming.

Bet #4: By the time Ian shops for his own groceries, >20% of his produce will be grown indoors, up from virtually none today.  My answer: True

Given the current population growth, the impact farming has on climate change, and vice versa this is a given.  We’ll need more food and the way we grow it today isn’t sustainable for the three major reasons listed.  We need more food, it impacts our climate to grow it, and our climate is changing the way we will have to grow it.

Bet #5: Let’s turn to Ian’s house. I bet that in Ian’s first home of his own, more than half of his electricity load will dynamically respond to grid or price signals. My answer: True

I loved Shayle’s answer here because it was concise and spot on.  Control HVAC plus 1 or 2 additional devices and this goal is achieved.  It must happen in the background, consumers don’t know nor care what the impact could be.

Bet #6: By the time Ian reaches 30 (in the year 2048), electricity’s market share of final energy consumption will more than double. My answer: True

Another fairly simple answer, EV’s should change the demand significantly especially if they hit long-haul trucking in the near future.  The industrial applications of storage and efficiency should also play a large role in increasing electricity’s market-share.

Bet #7: More than 50% of Ian’s electricity, as represented by the national breakdown, will come from renewables by the time he’s a sophomore in high school.  My answer: False

It will be close, but I say we fall just short of this goal primarily due to the availability of natural gas.

Bet #8: Ian will live over 200 years, and for most of his life, electricity will be his only food.  My answer: False

So many ethical questions here, though companies are working on products that allow them to download your loved ones’ text (email, text messaging, social media) then build bots that mimic the physical manifestation of them.  Kann makes a compelling case by listing the major inventions of the last 85 years, but the regulatory and ethical hurdles might defeat this one.

There you have it, my take Ian’s future as it pertains to energy and innovation.  Thank you Shayle for writing this piece, it was a neat way to think about the future and possibly gives Ian something to look back on while having a laugh at his old man’s expense.

Last week Apple became the first company to hit a $1T market-cap.  Lost in the hype of hitting that milestone and their Q2 earnings call was the announcement that they are also launching a $300M cleantech fund in China to “give fund participants greater purchasing power to pivot toward clean energy.”  

 

This looks eerily similar to a strategy Amazon has used for AWS, except applied to energy. Apple can be the first and best customer for new products and technologies as they’re incredibly large consumers of energy much in the way Amazon was for both data and deliveries.  It’s now a well-worn playbook and it would enable Apple to gain stability in energy consumption while being less exposed to the price volatility of the market… all while subsidizing development via their own purchasing power.

 

For consumers and startups, this development could be game-changing. In the same way healthcare needs Amazon as a major player because Amazon excels in efficiency and logistics, cleantech needs Apple to help it beat the economics of the alternative, and connect its evangelists to the mass market.  If Apple had superpowers, they would be the ability to create a luxury perception of their products, and the ability to create an ecosystem effect that makes their services sticky.

 

“It Just Works”
Apple’s DNA, dating all the way back to 1977 when Steve Jobs demanded the Apple II be as easy-to-use as any household appliance, is creating a product consumers can easily interact with on a daily basis.  Much like today’s early cleantech adopters, the tech evangelists of the 1970’s understood the potential impact of the technology to our every day lives, but could not actually figure out how to convince others of this fact until the Apple II was released.  Apple repeated this feat again when it released the iPhone in 2007.  These kinds of innovations add up over time and have created a bond between Apple and it’s consumers. With Apple you can feel safe trying the unknown, and in energy, as with all regulated industries, trust matters…A LOT.

 

Cheaper, but still expensive
The cost of chips and computer parts began their decline in the 1980’s and the same can be said for cleantech components today.  Solar panels, storage and the sensors are all experiencing some of the steepest price declines since their invention.  Yet, they are still more expensive than their alternatives which includes the status quo.  As it stands, there must be something stronger than economics to serve as the catalyst for massive adoption.  Who better to solve this problem than Apple? Case in point, Apple owns only 18% of the smartphone market and yet earns 87% of all profits and has done so by leveraging usability and lifestyle (i.e. community) to convince customers their most commoditized product is worthy of a price premium.

 

Tesla: The EV Elephant in the Room
Could a company that will repatriate over $200B in cash be interested in acquiring one that has a market cap of $60B and over $10B in debt?  Tesla is one of the first companies (the other being Nest) that has made an environmentally friendly product “cool.”  At the very least, they’ve provided Apple with a playbook to enter the market from the consumer side if they so choose, but an acquisition begins to make a lot of sense if current trends hold. 

 

Despite it’s success, Apple has been under increasing pressure to “do something innovative” as most of its hits post-iPhone have been comparatively minor.  AppleTV, Apple Watch, and AirPods are all best-in-class devices, but none of them triggered a major innovation cycle in the way the Apple II and iPhone did.  Could energy be the next step for the first $1T company to become the first $2T company?  Time will tell.

 

 

Last week, the Council on Foreign Relations released a report on the ways in which blockchain could impact the future of our power grid.

Until recently, access to data on blockchain experiments in the energy sector has been fairly limited.  However, things are starting to change.  Last year, startups raised $300M through both traditional venture capital and ICO’s.  Two of the most heralded fundings came from Drift (consumer-to-generation) and LO3 Energy (peer-to-peer), both of whom are looking to connect consumers to the energy provider of their choice with distributed ledgers.

 

As I explained in a post earlier this year,  electricity trading transactions are still tracked in Excel or databases that rarely are connected but owned by large corporations.  This system adds millions in additional transaction costs and makes full transparency between market actors almost impossible.

 

A de-centralized ledger solves almost all of these errors and would empower new entrants (i.e. consumers with excess power capacity due to solar panels)  to enter the market.

Other than the power trading market, we see three major use cases for blockchain technology to impact the grid.

 

Grid Security and Generation Balancing- According to McKinsey, the connected-home market is growing at a rate of 31% year-over-year with ~30M homes having some form of IoT device installed.  The long-term result will be unparalleled access to data for grid operators and utilities.  Blockchain has the opportunity to help solve the problems of cybersecurity and data management that will come with this new paradigm. Without access to software talent, these service providers will need help from startups to build the capabilities that allow them to take full advantage of technologies like blockchain.  This transition is already underway in Europe where regulators and utilities are generally more forward thinking than their US counterparts.

 

TenneT, one of the Netherlands largest utilities, is working with Vandebron, a green energy supplier, to encourage owners of electric vehicles to participate in an EV-to-Grid (EV2G) pilot initiative.  Integration of power generation from renewable energy resources such as solar or wind power in combination with storage requires a more granular control to manage supply and demand. The project in the Netherlands is the latest in a long and growing series of technology initiatives to discover new ways of integrating new technologies such as EV and storage on to power grids.

 

Under this new program, TenneT will be able to store and dispatch power from consumer EV batteries in order to balance grid demand with supply. These EV2G transactions will be recorded and shared on a peer-to-peer (P2P) network using a permissioned Hyperledger blockchain. To encourage customer participation, TenneT and Vandebron will guarantee EV owners’ batteries aren’t victims of hacking in the process which is unlikely given the technology being deployed.

 

 

A permissioned distributed system based on the Hyperledger Fabric will allow grid operators real-time insights into distributed battery energy storage capacity across the network, as well as the ability to act on the information instantaneously and, perhaps in the future, automatically.  Eventually, collecting and recording distributed energy transaction data for use in the variety of utility-customer energy applications such as billing.

 

Infrastructure and Microgrid Financing- The US’ power grid is aging and well behind the rest of the developed world and our current political climate has prevented us from making large investments in infrastructure.  ICO’s could give both individuals and investors the opportunity to participate in the power grid like never before.

 

The use cases are wide ranging from peer-to-peer EV charging transactions to larger scale generation or transmission projects.  Blockchain could provide the ledger while ICO’s could easily be tied to the amount of power transmitted to the end-user (i.e. return based on output and efficiency).  It is important to note that this one is the most far-fetched of the three as it would require both consumers to become more educated and/or utilities to participate.  Both of which are far from guarantees.

 

Yet, this is the model that US-based LO3 Energy has experimented with in its Brooklyn Microgrid project without requiring too much engagement from local utilities. Customers can choose to power their homes via a range of local renewable energy sources while their neighbors can sell excess solar power back to them.  LO3 has opted to use a blockchain to keep the transaction record between its customer.  As is the case with all distributed ledger technology, the microgrid’s accounting is decentralised and shared by everyone on the network ensuring that tampering with these records is near impossible since everyone has their own, regularly updated copy of the ledger.

 

LO3 is now rapidly expanding with a series of other microgrid projects around the world where grid stability issues are a growing problem.  While it may be far fetched to believe the US could have grid stability issues, we should look no further than the recent disaster in Puerto Rico and subsequent landfalls of major hurricanes on the mainland to understand the loss of power for days / weeks is a very real possibility under the right circumstances.

A New REC – These market-based instruments represent the rights to renewable electricity generation.  They contain information such as generation source, the number of megawatt hours generated and delivered to the grid.  The immutable and transactional nature of REC’s makes them the perfect candidate to be placed on a distributed ledger.  Furthermore, the trading of RECs is currently highly specialized and opaque, a publicly available blockchain would open access to consumers and businesses alike.

 

Earlier this year, WePower, a blockchain-based green energy trading platform announced a successful $40M ICO, making it one of the most demanded projects of the year.

It helps renewable energy producers issuing their own energy “tokens” based on generation connecting consumers directly with the green energy generation and creating an opportunity to purchase energy upfront at below-market rates. This tokenization ensures liquidity and extends access to capital to finance new projects, but also gives the buyers a coin tied to a tangible asset, a fact that isn’t always true in the ICO world. The hope is that this access to a new capital infrastructure will be a bridge from renewable energy producers to new consumers thus making the grid a little greener.

Much like LO3, WePower’s technology creates an opportunity for a transparent accounting through a distributed open ledger, which records when and in what volumes green energy financed on the platform was produced and supplied into the grid. At the moment, such accounting is based on instruments as paper certificates in a similar fashion to RECs.

 

Of the three potential use cases highlighted here,  the ones that manage the increasing complexity (trading market, generation balancing, and cybersecurity) of the electric grid are the most likely to occur near term.  Utilities are under increasing pressure to better manage their costs and engage their consumers. In a world where devices are connecting to our grid at an exponential pace, it’s both as possible and difficult as ever.