Power (of the) Grid – Info Gadgets

How software will take over the energy industry

As digital companies continue creating new value in dormant industries, there is an underlying trend that seems to confirm the major driver of this transformation: software. The ubiquitous apps -mobile, voice- are constantly creating new ways to commoditize access to services and goods on-demand, lowering transaction and distribution costs (theory of the long tail), impacting the economic equation of supply and demand.

New concepts and technologies based on blockchain (e.g. lightning network(s), Po.et, Basic Attention Token) are now taking those transaction and distribution channels to a smart network where decentralization (including its openness, scalability and transparency) will threat traditional business models in favor of shared business protocols.

The common denominator observed in this tectonic shift is the intellectual property behind it: the software and the algorithms that power the massive infrastructure that is the network today.

One of the industries that is still not completely changed by the introduction of software in its business model is the energy industry. In the last years, there have been massive investments in renewable energy, in new and efficient distribution channels to support this type of energy and its storage. The latter two represent an interesting opportunity to drive fundamental changes in the industry, leveraging data and software to create solutions to replace the massive and aged structure that currently define the supply of energy across the globe.

To give an idea of the potential of this market we can refer to the latest U.S. Energy Storage Monitor report, published by GTM Research and the Energy Storage Association. Made public in 2017, this report states that the capacity of the U.S. energy storage grid will increase 2x in 2018, going from ~1008 megawatt-hours to +2000 megawatt-hours. In the economic sense, we can attribute this tremendous growth to the falling production costs of cells, the redirection of capitals from the declining oil industry (and other non-renewables), and the fiscal stimulus to implement alternative solutions to the current demand for energy. All these make evident the larger goal (or necessity) driving up these numbers: the replacement of an outdated infrastructure and business model.

The current grid -limited by its old, heavy infrastructure, unreliable patterns of supply and high monetary and social costs of production and delivery- does not meet the emerging needs of the new century. As of now, the continental U.S. grid is highly centralized, comprised of six major interconnections that are prone to failure (the same grid pattern applies to other areas of the globe), and its high operational costs (derived from the need to constantly rebuilt or revamp its capacity) are unsustainable in the long term.

The gradual replacement of this grid, moving from the current micro/nanostructure to a mega/gigastructure of renewables, would require to solve problems related to the management, distribution and storage of energy. The business model and infrastructure in place today cannot be reused and/or reengineered. Software will need to take over.

Future (of the) Grid

Taking cue from other industries, the next grid generation will see major developments in the following areas, all of them radically changed by sotfware: marketplaces, tools & applications, renewable energy futures, hardware & appliances.

As mentioned before, decentralization of the network will cause fragmentation of the industry. As transactions move from traditional business models to protocol based models, we will see a transition in the supply side from single players to multiple layers of suppliers at different scale (industrial/residential, global/national/state/city/local), each layer with its own market. Technologies like blockchain and ethereum will make possible for cities, community and commercial buildings and individuals to store their own energy and be able to establish P2P transactions across layers of the market. Fragmentation is key for the future of the energy sector.

Now, to give an idea of what would be possible once data and software are fully leveraged in the industry, take a look at the California ISO website and its dashboards. From a quick glance, one can get the data and visualize the past and current demand, supply, prices and emissions of energy across this state, all of them in real time. Imagine the same data funneled into to machine learning models: the grid will become intelligent adjusting itself to optimize all its economics.

With data + models, the market will be able to create financial futures over stored renewable energies, just like crude oil, gasoline, natural gas, and ethanol trade in the New York Mercantile Exchange (NYMEX). The same trading scheme can be scaled down to lower layers of the marketplace, enabling organizations and individuals to establish smart contracts and transactions to meet (and tailor) their energy needs.

Finally, the current few companies in the energy storage business will continue to expand their offerings and lowering their costs, while technological advances will break down (or diminish) barriers of entry, making it possible for upcoming start-ups to attend new segments or needs of the market, specially the residential and transportation. After this infrastructure expansion, multiple appliances will start the convergence to comply with the model and technology behind the new grid: smart consumption will be the rule, not the exception, making possible transactions in a nano scale (e.g. only paying for what your dishwasher is consuming); internal load balancing will optimize consumption from the household level and beyond; and buildings will become more than intelligent, self-aware of their impacts, both monetary and social.

That will be the power of the grid; the power of the software. It will be updated, patched, hacked; blurring the line between the physical and soft infrastructure.