Blockchain and the potential for local P2P power: Q&A with LO3 Energy

Blockchain has become one of those buzzwords that commands attention and carries a powerful social glow, yet in the likes of similar buzzwords that have attained such a prized status, it has lost much of its meaning. Blockchain has become a catchall term for just about any digital ledger system regardless of crucial variations in its design. With so many blockchain projects ranging from social impact initiatives to opportunistic marketing ploys, it can be difficult to discern which projects hold real potential. For this reason, here's a deep dive on blockchain applications in our niche: social impact.

In addition to what it is most known for — financial services and cryptocurrencies — different blockchains are already being used to provide a wide range of innovative services around the world. One of these services involves facilitating peer-to-peer (P2P) energy markets. By combining blockchain technology, Internet of Things devices, and automation, the startup LO3 Energy and its partners facilitate highly-efficient energy markets where the price of electricity gets adjusted every second and in turn, automated devices turn on or off depending on how much supply and demand exists at any given time. Aligning production and consumption at such small intervals allows both sides of P2P energy — production and consumption — to become increasingly profitable. LO3 Energy is currently operating a pilot project called The Brooklyn Microgrid in New York City, New York. LO3 will sell of a significant portion of the Brooklyn Microgrid to residents, allowing the community to have an ownership in its own energy management capacity.

We spoke with Scott Kessler, director of business development at LO3, who explained how blockchains can benefit localities everywhere and drive sustainable power usage practices simply by making energy markets faster, efficient, and precise.

Aaron Fernando, Shareable: Can you talk a little about why you chose to start a microgrid in Brooklyn, specifically? Did the community come to you or did you go to them?

Scott Kessler, director of business development, LO3: The first test site was a product of searching for where in the U.S. there was the right regulatory dynamic for this sort of test. We picked New York because of the REV Initiative, which is New York's way of trying to incentivize utilities to work in new business models.

REV is "Reforming the Energy Vision," and it's a really big overhaul reforming the energy sector, encompassing sort of everything. But now that we have distributed energy, from solar and wind, and now that we have smart devices that could reduce energy use and could respond to price signals, likely the future doesn't require as much capital expenditure. So there needs to be a new model for the utilities. New York was really ahead of its time in promoting that, in the U.S., at least — and globally, it was one of the places where regulators said "we want to start pursuing this."

So we knew New York, and we decided on this neighborhood because we wanted to find a few things. One was a test bed where folks had some environmental consciousness — they were interested in buying clean energy, where there was a sense of community, where there was a diversity of people and buildings, so that you could work with people of different races and people with different economic backgrounds. Also, we want to design something that can work in a number of different locations. So we would need to have a number of small residential, small business, large commercial and industrial, and large multifamily. Lastly, it's really a energy-conscious area, in the sense that they really appreciate the value of electricity. This area was particularly hard-hit by Hurricane Sandy and so they know what it's like to sort of be out of power. They have a real interest in developing more local resources that might assist resiliency by the time the next hurricane gets here.

I wanted to spend some time talking about the marketplace and the hardware and software that you use. I listened to a podcast with Belinda Kinkead, director of LO3 Energy, Australia, and she explained how your blockchain is designed to model the physics of an energy grid. Can you explain a little bit about how that works?

The goal is to really have a market that reflects physics. What I mean by that is that when you put electricity on to the grid, up until a certain point, you own the electrical wires. The wires within your home or in your business are usually your own responsibility and then once you get onto the grid, then you start using different pieces of the grid. So you would start using copper wires, and then maybe you need to go through a transformer and maybe you need to go through a substation and then you would get to the end consumer of that energy, and it would go into their building.

What you would need to do is design a market that takes into account "what price are you selling it for?" and "what price is the consumer buying it for?" And then, how do you account for the pieces of the grid that you use? How to we insure that that transformer gets a payment? And that that substation gets a payment?

What we're really looking to do is design a marketplace that reflects the physics in the economics. ...  So moving towards pricing that reflects the grid not only includes the fact that the pricing accurately reflects which pieces of the grid that you use, but it accurately reflects when that energy is used as well.

How fast does the price information get updated? Is it per hour or in a matter of seconds?

That really is a question of market design, and that's actually fairly customizable. We have our meters take readings about 60 times a second. They take the readings pretty fast and then, our blockchain — it varies depending on communication and a few other things — but somewhere around one second per block. I usually say the max we can do right now is one second per block but we actually need to get a little faster than that because some of the things we plan to transact in the future are called ancillary services.

Can you talk a little bit about the demand response capability — like the ability for the network to turn things off when power is in high demand? Does that include if you have an electric car and you plug it in and use that as storage, does that kind of count?

Yep, it certainly does. Basically the entire idea is that your devices and your building as a whole would know how to answer "what's the value of you consuming electricity?" At any point in the day that may change by device and the idea would be that they can all participate in the marketplace and really just see, you know, "is it worth it for me to be using electricity right now?" For a lot of your devices on that hot summer day, they’re going to say, "no, not worth it for me."

Now, maybe your air conditioner stays on because you're willing to pay that extra amount because it's hot out. And maybe your refrigerator turns on once every five minutes to make sure everything stays cold, and a few other things you really don't want to turn off will also stay on. But the idea there is that we can basically expose all these devices to a market and allow the market pricing to determine when they are on or off according to your preferences.

If you were to find out that you're unhappy that you can't use something right now and it's worth it for you to pay it, that's totally fine. Again, it's moving toward this world where pricing affects physics. What we want to do is get to a model where you can basically almost get a revenue stream from turning things off because the value of that to the grid is so high that they would actually pay you to do it.

So it seems like this would make electrical production and consumption much more efficient by reducing rates of overproduction, right?

Yeah, basically the idea here is that you're trying to align production and consumption as much as possible so that if we're producing way too much energy — let's say it's a really sunny day but it's not that hot and we have a lot of solar production on the grid, and we need something to soak up that energy, well maybe then suddenly energy becomes really cheap and devices that normally wouldn't be on, they turn on. Or your battery charges at that moment so it's consuming energy at the cheapest cost possible. Your electric vehicle — that battery is charging at the lowest cost possible. But on a really hot day, the reverse happens.

The way we design the grid right now is we just simply ask, "What is the absolute most amount of electricity that we will ever consume at one point, for any one moment?" And that is the amount of electrical generation that we build, so there is a lot of generation that, most of the time, is going unused. It's really expensive because you only use it a few hours a year but you need to build an entire large natural gas plant just to meet those few hours. If we can, instead, pay some people to turn off their devices, the grid as a whole will be cheaper, those people will get paid, and we won't overload the grid. So it's all about flexibility of the grid, making the grid a little bit more resilient in the sense that you're less reliant on any of those one big pieces. You can imagine if we lose one of those big pieces then all of a sudden the price would shift and devices would react accordingly.

You mentioned a diversity of different users. It was mentioned that one of the things that either is possible or will be possible is crowdfunding some sort of production capacity like a solar panel so that the community itself can own an asset. Can you talk a little bit about how that would work?

Yes, you can imagine that there is a big rooftop here in Brooklyn, and it's really well oriented to get a lot of sunlight but maybe the owner of the building doesn't want to own a solar panel. So what you can do is you can go out to the community and say, "Hey, do you guys want to collectively own this?" Everyone can pay a different amount and you can get a proportional amount of energy that's put off by the panel based on how much that you own. It's really just a way of crowdfunding an asset.

What gets pretty interesting is that if you think about the fact that now, you have money that's getting invested in the local community that's being sold to folks in the local community and you have a really nice circular economy effect going on. That money isn't leaving the community for energy, but rather the economic and the environmental impact of those dollars does stay local. So we think that is a really interesting model and the type of thing that people are really keen to get involved in.

One of the big reasons why people in Brooklyn are interested is because they really do want to get involved with this community aspect of it. They want to get involved in this local economy development. People here participate in things like a food co-op, where everyone works a few hours. It's very much a neighborhood-oriented area.

Are there any social impact or social effects that you're noticing around the users that are already using this in Brooklyn?

I would say that they seem like they are definitely more engaged with energy than they've ever been before. They're interested in solar, they're interested in their impact of their energy use. There's probably a little bit of self-selecting going on there as well — the folks who are going to participate are going to be the ones who are going to be more aware.

The hope would be that we could use this as a way to drive awareness of environmental issues and local issues. I think we are beginning to develop a community around our group here in Brooklyn, and that's in addition to the fact that they are already a community in the sense that they live in the same area.

This Q&A has been edited for length and clarity. 

All photos courtesy of LO3

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