AI and Blockchain change the paradigm of energy grid: no more structural blackouts and missing information for consumers
(Original LinkedIn’s article)
Time has come to evolve primary grid in developed Countries: nowadays monolithic, the current electrical infrastructure needs to become flexible and resilient, capable to balance in real time demand and offer of any utility, starting from Demand Side (consumers’) and then integrating the Response Side (utilities’). Thus the model is Demand-Response.
In this equation, the leftwing operator, i.e. the demand (DSM), must always be equal to rightwing one (RSM), the offer tough.
This means the need of the market (either industrial and domestic) ought be compensated by the offer of electricity generators.
The key succesful and differentiating factor is the timeline to execute this balance: in real time. Pratically speaking, each few seconds, both sides compensate each other with a zero-error.
Until now, who was committed to solve this equation has been the Grid Manager at Country level, such as Terna in Italy or Red Eléctrica in Spain, for istance. All those are Public.
Simplifying their behaviour: the day before, they asked all the big Operators (GENCOs as electricity generators) and traders how much they will be able to produce, in function of historical series, of weather and other possible factors influencing the Demand.
This way they can gather enough information to aggregate the service baseline: the hourly consumption outline.
The following day, once the picture of the consuption has aready define, the Grid Manager needs to monitor any deviation from baseline might be created. In case of need, it asks to Dispatching Service Market (normally consisting in three sessions: one of the Balancimg market, another to solve Congestions, the third of Reserve), where all the accredited Operators can come in, to compensate deviation in exchange of a pricing fluctuating from 10€/MWh to more than 1000€/MWh in case of high criticity.
Who operates in such a market? Those wholesales able to produce a quantity of energy to satisfy the Demand, turning on and off plants, generating electricity from different sources (i.e coal, nuclear, cogeneration, as well as renewables).
Bootstrapping a plant is costly: setup, technicians, raw materials (either imported or naturally on-site), among the most relevants. Thus a Public Expenditure compensates those offering such a service to guarantee the service continuity.
It is a long time that it works this way, as no need to call into question a winning team: until now it has guaranteed no surprise, unless in case of unpredictable events.
Now the technology to disrupt the market has come and it is able to revolutionize the paradigm of energy generation, distribution and above all consumption: this is the neural grid.
Artificial Intelligence system not only able to calculate baseline, but also to control in almost real-time (each 4-5 seconds) the fluctuation on both sides of the market equation.
Rather than only efficient, the current status quo is determined by a offer-centric system. Utility operators can exceed production needs because it will be compensated afterwards.
This way is unsustainable and, in future, the balancing will lever on cunsumer needs, centering the business aroind them: this means that the attention will shift to the Demand Side, the opposite side of the market equation.
This disruptive change will be possible because an algorithm to compensate in real time Demand and Offer already exists: the electric generation will be either central, if it will prefer clean sources (as renewables), accordingly with IEA adhering Countries commitment to proactively deploy measures for Energy Transition by 2050: decarbonizing the economy by replacing fossil fuels (i.e. coal) with cleaner solutions.
On the other side, recently, thanks to the sensibility to Climate Change of Industry and privates, the investment in local and distributed small-size generation, shifting the focus on zero kilometer sources (i.e. sun, wind, water), coupled with other renewables, such as bio-fuels.
This way is unsustainable and, in future, the balancing will lever on consumer needs, centering the business around them: this means that the attention will shift to the Demand Side
This ecosystem is much more capillary on territory and bringing small size contribution, but, at the same time, capable to modulate market daily peaks, even important if aggregated upfront.
For this reason, the offer will not be exclusive of a central and monolithic system; quite the opposite, it is growing the awareness of the importance of distributed contributions, with the effect of European Union Regulator obbligation to open the market up to outsiders.
The marginal cost for each MWh generated has lowered constantly down during the last years (i.e. up to a 60% for eolic systems in less the 10 years), boosted by the flood of equipment from Far East coupled with of higher and higher local demand, due to a double digit growth economies. This trend turned the investment more affordable, democratic and distributed. In the last decade, the transformation trend has come it down to the point that it made possible the micro generation for self consumption.
This way, the prosumer is the micro player in the sector: she is either a consumer for her own needs, and a producer to ingest her excess back to the energy grid.
The paradox is that each family would own a small land where to install a solar photovoltaic or micro eolic system, the production system will become decentralized.
With the current state of the art of infrastructure, it will be impossible to control the market, unless turning it into a neural grid, because the decentralization of the system and the lack guarantee of each contribution will make the offer unpredictable, so unable to balance the energy equation. Historical series or open data will not suffice.
That is why there is the need to transform the brain into a neural network (Artificial Intelligence as a Service), with Internet-of-Thing technology to connect each consumer, not only a central body of governance, but a decentralized ecosystem to gather the data to compensate the Demand.
The more commitment by micro generators, the more the energy approximate a flexible ecosystem. The extreme side of the coin could be that the National production might prevent neighbors to supply their contribution for the daily deviation from baseline. This is possible when each Country will leverage on proximity neat sources enriching its territory, whatever they might be. They will be enough, if governed wisely and capillarity.
Each family will be equipped with smart meter: an intelligent device, connected with the AI engines, ingesting in real-time Big Data and at the same time teaching the algorithm to govern the market balance.
At this point, what does brake to deploy such a perfect scenario? The technology, the unclear interest of incumbents or the culture? Going deeper in each one:
- the technology, rather than a blocker is a pusher, as it is democratically available even to startup (for instance, Tecnalogic, who already patented to defend its methodology to analyze electrical flexibility in the neural grid), capable to deploy a reliable and efficient system to program national baseline, always balanced, respecting the aggregation model of energy consumption (Demand Side Management), at the base of the distributed balancing.
For this reason, in a liberalized market, also the small players trigger the competitiveness against the incumbents, in order to stimulate them to leave the comfort zone and their steady business model, to adapt to new goal to stop Climate Change.
- The interests of fossil fuels extractors and big player in generation market will contrast the innovation based changes, as the inertia the gears, rather than envisioning alternative, at the moment less appealing just because less profitable, but in long term vision more sustainable for both the environment and their economics.
- Finally, the cultural change, although imposed by Regulators, brakes the vision of a better world especially into decision makers and politicians. It often comes bottom up, because of the passion awaking to survive to the upcoming slow environment transformation. The Climate Change is not a legend, it is a combination of events that can not be stop, unless a common awareness will prevail on few people interests.
Therefore, the key success factor is to stimulate the consciousness of the mass of consumers: it is a fact that if a critical mass of rooftop owner or landlord will autonomously micro generate (from renewable sources) for their need and make available their production excess, so the national demand will lower, the distribution grid will be less stressed and losses will reduce, the daily peaks will be easier to compensate and, due to the exploited sources, GHG and CO2 generation will be reduced exponentially.
The ecosystem will be virtuous if the electricity, which needs to be compensate at the time, will be possible to store as well. As a prosumer, if you can not input your excess to the grid, you need to compensate yourself or store it at home. That is why a network of connected domestic battery or a vehicle-to-grid systems couple perfectly with the need of flexibility of the market. It is possible to release the energy either when there is no sun or wind, or when the grid is at the point to lose balance.
The basement of this system is the method to turn electrical energy into a programmable asset, compliant with the baseline from Balancing Service Provider (Operator Aggregator); whenever unexpected event will occur, it will be able to compensate, i.e. to shift the compensation request to the Demand or to the Response. Exploiting a battery network in a programmable model takes it to maximizing the benefits, speeding up the return on investment, minimizing the loss costs and modulation the volatitility of the energy price.
Therefore, if a prosumer will invest on a generation and/or a storage system, the energy grid will become balanced at the point that it will lower the dependence from a centralized and monolithic production. On the other side, the benefit of a distributed economy will be split among the contributors, the consumers themselves. It turns into a competitive advantage to couple generation equipment with a storage (domestic or vehicle) system: the side positive effect is that the market will lead to zero-marginal cost.
The basement of this system is the method to turn electrical energy into a programmable asset, compliant with the baseline from Balancing Service Provider (Operator Aggregator); whenever unexpected event will occur, it will be able to compensate, i.e. to shift the compensation request to the Demand or to the Response.
In the long term, the cost of the energy will be turned to zero. But, at the moment, it is possible either to compensate the electricity need with that stored, or to monetize it as an active asset to be made available to the market with a positive price differential.
The technology intelligence allows to calculate when it is the best (more profitable) moment to release the accumulated asset in the market, depending on the need of neural grid to compensate peak, then to pay more for a scarse resource.
Anyway, it will be a consumer driven market price, rather than an offer ruled economy: the consumers themselves will be keener to spend when they really need electricity. Meanwhile they will become free from not-market ruled policy.
If now there is the intelligence for the governance of balancing and there is decentralized production environment, what else to come full circle and turn the market into a consumer-centric economy?
The answer is the security and the transparency of each transaction.
By increasing the marketplace of prosumers and consumers, the complexity is going to increase: it is mandatory for the governance to guarantee the security of the physical transaction, as well as the transparency of each peer to peer deal. All the actors must be aware of whom the electricity generated from will be delivered to. It ought to be create a democratic governance, unalterable, distributed, and finally based on mass acceptance.
This is exactly what a permissive blockchain platform brings.
The technology comes towards: blockchain is a technology aiming to transfer value, based on a decentralized architecture, with a consensus-based governance shared and accepted by all the subscribers. This way the transparency is guaranteed by design. On top of that, it exploits cryptography to secure communication among peers. Bingo!
In front to this scenario, merging technology with strategy, vision and shared commitment, it is necessary to join forces to save the World from a progressive degeneration.
If, on top of that, it is possible to distribute the benefit of this economy, altogether we can change the paradigm of the generation, distribution and consumption of the energy and make our Planet still living.
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