New Capital for Storage-Based Microgrids

In my last post, I talked about Transactive Energy, and the Farm-to-Plug movement. This model relies upon storage, which is not just batteries. Storage is any means to relocate power in time to create reliability and additional market opportunities. Storage is kinetic batteries as well as chemical batteries; some new kinetic storage has losses of less than 5% per month. Storage is hydrogen paired with fuel cells, enabling renewable-based re-generation.

We should maintain a distinction between pre-consumption and storage. Pre-consumption starts with strategies such as cooling a building before the price goes up, or making ice to support the day’s cooling.. Pre-consumption has many of the same the same day to day characteristics of storage, but it limited to only some power needs cannot provide the resilience that storage adds.

Microgrids that include storage command a premium price today. Storage prices are dropping, but remain high. Storage-based solutions are best for sites and customers that need some sort of premium service. A potential customer who will pay a premium for renewable-based reliability and resilience is the ideal early adopter for this suite of technologies.

A customer who is willing to pay a premium to avoid short outages is a customer who will not accept longer outages. Storage is the most expensive component of a storage-based microgrid. A technical developer who presents the customer with a design providing the amount of reliability that they need will face a customer in sticker shock. The daunting up-front costs lead to months of indecision.

Fortunately, there are new business models developing, ones that will provide the customer with access to capital at prices that compete with the access to capital the traditional utilities have. Large funds are now ready to buy storage-based microgrids upon completion, selling service to the customer/host over the life of the asset. The technical developer may well be able to get a long term maintenance contract from the owners of the microgrid fund. The barriers to proceeding, the barriers to getting to yes, can now be addressed.

This market is just developing. For example, it is just beginning to attract secondary capital markets willing to fund any construction project with a commitment in hand from the microgrid asset REITs. These are then driving conversations about widespread transactive energy trading platforms.

Now is the time for microgrids containing storage. Go through your portfolios of stalled projects and consider which ones could be freed up by these new market forces. Look to refreshing older projects with a dose of storage.

And drop me a line of the want to discuss this.

Transactive Energy and Farm to Plug

I just got back from the Third International Conference and Workshop on Transactive Energy in Portland. There is wide consensus on the inevitability of transactive energy even as there are struggles as to how to get there.

Transactive energy was initially conceived of as a way to set spot market prices for electric energy (power) during times of peak demand or temporary supply shortfall. Transactive energy is based on the path-breaking research of Clearwater and Huberman at the Xerox Palo Alto Research Center (PARC) published in 1993. At PARC, they created moment-by-moment thermal markets to manage data center cooling; an agent on each server bid for the cooling it needed. This approach eliminated hot spots and reduced energy costs even as it eliminated the need to develop ever more complex control and sensing strategies.

Distributed energy makes the problems of effective grid operation worse. Distributed energy refers to the developing model in which every node on the grid is potentially a power source as well as a power user, driven largely by renewable energy such as solar photovoltaics (PV) and wind. Distributed energy changes the centrally managed, essentially hub-and-spoke distribution model in which energy flows down into what is potentially a two-way peer-to-peer network over the same infrastructure. Sites which contain Distributed Energy Resources (DER) can choose whether or not to come to market at any moment. Transactive energy is the developing means to manage this growing complexity.

Distributed energy is local, so distributed energy markets (and prices) must be local. Traditional local prices in power, referred to as locational marginal pricing (LMP) or nodal pricing is based on physical limits of the transmission system—a single bottleneck can affect all “downstream” points. LMP can be set centrally, calculated based on line physics and historical use. DER potentially places the power sources downstream of the congestion, and alongside the power customers. Nodes containing DER can decide whether the energy available is used to support the grid or internal purposes. Only actual markets and set clearing prices for DER.

There is no effective ownership of DER without local storage. Without local storage, grid nodes are always price-takers. Grid operators have a strong and legitimate interest in throttling how much DER is dumped onto the grid at any moment. Without local storage, grid operators must be able to turn off DER, i.e., set when a node can come to market. Even if a node invests capital in DER asset, if a third party determines what prices the node must take for the product of that asset, and controls when that asset can come to market, then the owners of that node cannot be said to own the asset.

Local markets will not really work without local storage. Local storage is necessary to create actual economic ownership of DER.

The best use for DER is and will always be local consumption. A building need not be Net Zero Energy (NZE) to consume power locally first. Use energy locally first. The next best use for DER is to store energy locally, perhaps for later consumption on site. Any excess, or any deficits in local power can then be made up through market operations. This is the essence of the new power movement, sometimes called Farm-to-Plug.

The Krewe of Blockchain

The other morning, I woke up still dreaming, dreaming of a complex society that seemed to be based on Krewes, with doubloons as the only rate of exchange. Members of each Krewe kicked in dollars at some earlier off-screen moment, but we all had a sense of shared value and commitment to our doubloons. Doubloons were allocated out to members and their families (families, couples rather had shared accounts) through the Krewe hierarchy. Allocations were determined by some complex hierarchical social structure.

All economic allocations were made at some sort of masked ball. Exchanges were made on little linen cards, in exquisite copper-plate hand-lettered transactions. Sometimes they would be crossed out and a larger number written in, but the crossing out might be by either party of the transaction. A new, always (necessarily?) larger number was written in above the original.

Negotiations were always dramatic and honor based. Accusations of too low an allotment were loud and public. Within the Krewe there were always numerous disputes in allotment that were worked out by stalking back and forth between these little tables at the masked ball and demanding satisfaction.

The King of the Krewe was in charge of the initial allocation from the funds kicked in by all in the Krewe. The king of the Krewe kept a far larger allocation, as he should for he had to pay for the ballroom, and other expenses. No one was bothered by that. The relative allocations, and the allocations that I got were matters of great concern, and I had to demand a larger allocation at one point.

The entire economy of the city was based on doubloons, but no two Krewes shared the same doubloons. Strictly speaking, the doubloons were non-convertible, one could get whatever goods for doubloons that a shopkeeper or business named at checkout, leading too much haggling at check-out. There was some consistency of value, a shop keeper who charged twice as much for one good as another would do so for the doubloons of all Krewes, but the numbers demanded from each Crewe, the valuations of each doubloon were different.

Some of it was again almost tribal, those in one part of town would value the doubloons of a particular Crewe more highly, and of another Crewe less. Across the street the relative values might be reversed. There was no internal consistency, even within a shop; one might be able to set up a chain of conversions that resulted in a great loss, or great increase by trading the doubloons of Krewe A for Krewe B, those for Krewe C, and those for Krewe D, and so on back to Krewe A.

There was some regionality as well. A shopkeeper would normally value the doubloons of the local Krewe more highly, and of a well-known Krewe more highly, and heavily discount those from a Krewe that did not spend much locally.

Given the season, and my family ties to New Orleans, the culture of Mardi Gras was on my mind. As a too abbreviated explanation, each Mardi Gras parade is put on by a Krewe, and traditionally ends at a masked ball. The coins tossed from floats are always called doubloons.

I have been obsessing on managing resources in closed environments through micromarkets, held together by anonymous markets built on blockchain. A given node might participate in many such micromarkets at the same time. For example, a fuel cell might participate in both power and thermal markets, and a cooling market might opt to buy from chillers energized by either. Funds within these markets may or may not be useable outside its micromarket.

Built to Mash

The Internet of Things is being built to mash. Maybe it is because the initial devices are so simple, providing a service with a single command. Lock the door. Alarm the house. Answer the door. The low cost integration that the cable companies demand rewards not looking under the hood.

Last week I visited a home microgrid ready to mash. With care and good math, it can compensate for the incidental on-demand loads of the house. If those loads are ready for an energy mash, it can do better. In the AllSeen Alliance, appliances and domotics apps are already built to mash functionally. AllJoyn leaf nodes for cuisine and for lighting and fireplace scenarios can mash for the perfectly planned evening. AllJoyn routing nodes can enable the apps to coordinate their behaviors.

Modern appliances act as apps in themselves. My washer can program query my phone which snapped a picture of a barcode in clothes to program itself. But appliances also use resources in the home, notable energy and hot water, and make noise that might interfere with the romantic evening scenario running on the lighting manager.

With a resource framework, resources limited by policy or by firm supply limits can be shared, allocated, smoothed over time between the apps. A mashable microgrid can cooperate with these appliances and apps to optimize resource use over time.

Optimize is of course a nebulous word. Does one nebulize for lowest peak use, longest battery life, or for energy security? Does one optimize for energy import before the storm, or for energy export for revenue, or for economic cooperation with the neighbors? The answer is whatever the homeowner wants.

OASIS Energy Interoperation is becoming the interface for economic mashups. In the NIST Transactive Energy Challenge, it is demonstrating the ease of reconfiguration and the resilience of rapid response in secure multi-facility mission-critical environments. In the mashable home, it is readying integration-free resource smoothing, making each home a more valuable participant in a larger but still local community. Mashups across neighborhoods, and between homes await only regulatory relief.

As one moves into larger containing microgrids, or into more critical facilities, a mashable market requires greater security. With economic interfaces, each energy services interface is a security firewall, and fractal microgrids intrinsically support defense in depth.

As one moves from inside the home to outside the home, inside the commercial building to the business district, there is also a change in economic constraints. In a micromarket that operates a home, all participants are playing with the dealer’s chips.  As we move into bases and neighborhoods, different owners and different bank accounts come into play.

Blockchain names a set of technologies that can make official inalterable records without central authority. Blockchain can be used to manage identity, contracts, and transactions. Bitcoin is a well-known type of blockchain, but far from the only one. IBM and eleven major banks are currently working together on open source for a bankable blockchain, i.e., one in which decentralized transactions can eventually move up into the banking system.

In the Internet of Things, some relationships and some purchases may be too small to warrant central registration. Even a central authority for identity of small things threatens privacy and security. Central approval is too expensive to support nanotransactions. Blockchain can track device description, functions, locations, and price, if the device is ready to be hired or bought. Blockchain can record smart contracts without an intermediary for granting authority or permission.

Payments and bartering simplify integration of diverse systems. Micro-payments and even nano-payments could enable negotiations to buy into the HOV lane, air rights for delivery drones, or even real time negotiation for five minutes of wifi time from the vending machine.

Blockchain opens up an exciting decentralized model for economic mashups.  A home micromarket can operate with simple bilateral trades or double auction. Micromarkets that span cities or regions may need central trading floors and complex matching of transactions that might bundle storage, power, transmission and other purchases into a single trade. A neighborhood is somewhere in-between.

Economic mashups can simplify trading between resource types. A routine CHP decision trades value between generating heat and power, and the current demands for each across a market. Cooling demands may rely on adsorption or compression chillers, that is making dynamic choices between using a thermal market or a power market to supply a third market. District energy may place the two thermal markets (heat and cold) external to each facility. CHP, especially CHP with cooling, usually relies on careful and expensive static analysis. Economic mashups just might make the home CHP economical.

Neighborhood micromarkets are driven in part by a desire for resilience, i.e., for operation during infrastructure failure. Neighborhood micromarkets can be justified solely for enabling distributed energy resources to be used locally, without transmission loss or new transmission infrastructure. Each of these motives, along with the capability of defense in depth, comes into play in the Camp Pendleton microgrids.

Owners of home microgrids want to trade amongst themselves after the storm. With telecommunications potentially down as well, they want to trade using enforceable contracts without central approval or authority. Such markets must be mashable, because even if all homes in a neighborhood start with the same technology, over time each homeowner will make his own decisions on upgrades.

The IoT is made for mashing. Economic mashups enable allocation, balancing, and smoothing of resource use within a micromarket. Multiple micromarkets will be able to self-manage across resources in the same facility.