Wow, people really like microgrids. Recently this article surfaced, the latest in a years long series of shallow regurgitations about the same microgrid project in Brooklyn whose technology was developed in 2015 (here’s one, here’s another one, here’s yet another one, here’s… well you get the idea).

I get it! Microgrids are cool. ConsenSys worked on that Brooklyn microgrid project too — in fact, we wrote all the code for it, which the above articles neglect to mention. It was a great project to test Ethereum technology and IoT. It was not, from our perspective, a microgrid project.

While I recognize that microgrids and sustainability are fun to talk about, nebulous topics like these have always bothered me. Why are microgrids important? What’s wrong with the existing grid? The answer (for most people, and certainly for normal residents of Brooklyn) is nothing — the existing grid is awesome. Millions, perhaps billions of man-hours and countless tons of resources have gone into building and maintaining our wonderful grid infrastructure that powers our homes every day while we write articles about how microgrids are going to change the world. I see the allure — our energy supply chain is inefficient. It’s a dinosaur. But we don’t have a problem with the grid, we have a problem with incentives.

What’s in a microgrid?

Perhaps it would help to define a microgrid:

Microgrids are modern, small-scale versions of the centralized electricity system. They achieve specific local goals, such as reliability, carbon emission reduction, diversification of energy sources, and cost reduction, established by the community being served.

So what goes into building one of these nice neighborhood microgrids? Wires. Lots of wires. So many wires.

How many wires? For a microgrid to function properly, every house must be attached to at least one potential power source. The problem is that no centralized power source exists, so we need to wire each house to multiple other houses so that it can sufficiently drain its neighbors’ power to balance its own load. Depending on the microgrid’s power consumption distribution as well as the interconnect toplogy, chaos may ensue when a set of participants decide who pays for what.

We already have a grid — a great grid!

On the face of it, the microgrid isn’t a terrible idea — our current grid was many “microgrids” (including the one Edison built in New York) before it expanded nationally. However, I feel as though people do not fully grasp that anything accomplished by a microgrid can be accomplished with the existing grid using better incentives. The problem is not with the wiring, which has been built and maintained by smart engineers for over 100 years, but rather with the goofy pricing models that our retailers use to bill us.

Better incentives

For a better understanding of the energy supply chain, you should read Karl’s excellent article series: Electricity Markets 101 and Electricity Markets 102. The relevant take away is that most of the supply chain is dynamically priced — that is, the price of electricity is subject to the laws of supply and demand.

In deregulated markets, the Independent System Operator (ISO) sends dynamic prices to the retailers, who then read their customers’ smart meters and bill them based on usage. The problem is that the ISO price is not passed directly to the consumer — instead, it is buffered by the retailer’s risk pool and fixed such that the customers have no incentive to provide energy back to the grid at any one time versus another time. There are several reasons for this — retailers use old technology, rely on complicated actuarial models, and have little incentive to provide competitive pricing when other retailers are similarly inefficient. This means that despite being in a deregulated market, consumers have no arbitrage opportunities, which in turn means that there is no reason to purchase storage (i.e. batteries).

What do we want? Distributed Energy Resources (DERs)!

But what if the ISO prices (a.k.a. wholesale prices) were actually forwarded to the end consumer? Now that those consumers see dynamic prices, they start seeing ways to make money off market swings. For example, it might be economically rational to buy energy in the early morning (when it is cheap) and sell it in the early evening (when it is expensive). This is called energy arbitrage, and to do it you need energy storage capabilities. Enough of these arbitrage opportunities, over time, would lead a rational economic actor to purchase a battery (an expensive up-front investment). And as the pricing swings become more dynamic and the time scale becomes more continuous, you can take advantage of faster, wilder fluctuations and start adding serious resiliency to the grid. As more rational economic actors enter the system, you suddenly have drastically increased resiliency and much more efficient energy prices.

When do we want them? When Grid+ launches!

The only things standing between us and this rosy future are the static prices offered by aging retail electricity businesses. This is where Grid+ comes in. We will offer our customers near-wholesale pricing (subject to the swings in ISO pricing) from day one, which will in turn incentivize our customers to buy batteries and solar panels, making the grid more resilient and efficient. We can accomplish this easily because we leverage the public Ethereum network for payments and require up-front deposits to curb risk — this translates into something we call user agency. See this article for more details.

Adding a generation source

There is one more piece to this puzzle, which is the penetration curve of renewable generation sources (e.g. solar cells). This is core to the promise of microgrids, which must deliver power to each and every one of their customers, theoretically from within that same set of participants. But solar installation is already on the rise — we don’t need microgrids for that either.

Once we see further penetration of residential PV, we expect “virtual” microgrids to form anyway, as it is cheaper to move power back and forth between neighbors than it is to move it in from far-away, centralized power plants (because transmission losses are proportional to distance). The point is that we can use the grid for this. We don’t need to lay new wires or get 15 news organizations to cover us to simply provide software that networks customers together and incentivizes them to add power to the grid. And, by the way, Grid+ has code and a working demo app — we think these things are more important than posing in front of solar panels for reporters.

Rural environments

This is not to say microgrids are never useful. There are many parts of the world (i.e. the developing world) where microgrids are a welcome innovation. These are places that do not have the awesome grid that America is privileged to utilize. Similar to how they leapfrogged landlines and went straight to cell phones, many of these rural villages will likely skip the centralized grid model that has served us well for over a century in favor of a distributed generation model, thanks to new technology. This is a great decision, but only because they don’t have an existing grid to utilize today.

When life gives you delicious lemonade for free as your birthright…

The point I’m trying to make is that there is a grid in Brooklyn. There is a grid in San Francisco and Boston and Dallas. We Americans are lucky to have a functioning grid and we can use it as infrastructure to build a much smarter energy future.

Eventually we will see less and less demand for centralized power plants as distributed solar power becomes the cheapest energy generation resource. We can shut those power plants down and continue to use the lines that once fed power from them, but continue to connect our homes — the new generators. We can start building this future today — we just need to stop talking about microgrids like they’re going to save us. We can save ourselves if we just put what we already have to better use.

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