Recently, we published a number of medium articles which discussed our experience in applying the Ethereum blockchain to the electric grid, how electricity markets work, and how we plan on making these markets more efficient by starting our own retail electricity provider (a.k.a. utility). We also introduced the idea of having a smart IoT device called an “agent” manage users’ cryptocurrency and pay for their electricity. To better understand what an agent is, and what it does for the user, we need to first explain some of the intricacies of the electricity market.

Previously, we specified that Independent System Operators (ISOs) manage wholesale markets wherein producers sell electricity and utilities buy it with the stated purpose of resale to their customers. This is a great description for simplicity’s sake, but it is also a grossly inadequate illumination of how the wholesale electricity markets work. The actual system has a much higher degree of complexity which is largely driven by the fact that load on the electrical grid must match almost exactly the generation at every given point in time. If generation significantly deviates from load, either a high-voltage or low-voltage situation results, both of which can severely damage equipment attached to the network.

Failing electrical equipment

ISOs have created systems that help manage the grid in a stable manner throughout the day. ISOs prefer to use market mechanisms to coordinate consumers and producers in such a way as to keep the grid balanced. To ensure this goal, ISOs have created several markets through which they incentivize the coordination of disparate interests. We are going to focus on three of them; namely the day-ahead-markets, the real-time markets, and demand response.

Day-Ahead and Real-Time Markets

One of the mechanisms that helps to maintain the stability of the grid is the ability to forecast both demand and production. The ISOs operate what is known as a day-ahead-market which allows both generators and utilities to buy and sell forwards contracts on electricity for one day in the future. These markets typically operate in 1 hour windows, such that from 1pm to 2pm today, market participants bid on the forwards for 1pm to 2pm tomorrow. The forwards market is locked in by 2 pm, and the corresponding parties are than contractually obligated to produce or consume the specified amount of energy the following day from 1pm to 2pm. This gives the generators time to plan their production to match what the market believes will be the demand one day in advance. The ability to plan ahead helps producers manage their operations and supply chains in a manner that is more efficient and minimizes drastic changes in demand on other generators in the network. This also incentivizes the consumers to try and accurately predict their consumption one day ahead because they can mitigate price volatility in real-time markets. Additionally, prices in the day-ahead markets are often less expensive than in the real-time markets.

The real-time market is exactly as it sounds. It is the market for buying and selling energy in real-time or near real-time. Depending on the specific market there can actually be one or multiple markets that fall within the real-time designation; such as 1 hour, 15 minutes, or 5 minutes. The difference between the real-time prices and the day-ahead prices for the Maine interconnection on June 11th, 2017 are shown below.

We have now identified one problem for your agent to solve. Specifically, how much energy will you need tomorrow and should you buy it in the day-ahead markets, real-time markets, or some combination thereof? Normally, this decision is made by your utility, and they are not strongly incentivized to optimize cost for the consumer, rather they attempt to minimize overall volatility, and socialize the average cost of energy throughout the day over their customer base. So regardless of how much electricity you use, when you use it, or how much it actually costs to buy, most utilities will charge you a flat rate for your energy which is based on the average wholesale price plus some non-negligible markup (~30–50%).



Although energy storage has many benefits and is the perfect distributed resource to be controlled by independent smart agents in real-time, the fact remains that there does not exist a high degree of energy storage penetration in the market place. This will likely change in the near future as market incentives update to accommodate the burden renewables place on the grid. In the proposed scenario wherein residential customers have access to real-time pricing in the wholesale market the incentive for installing energy storage materializes. Customers who have energy storage will empower their agent to arbitrage energy prices and generate revenue. This can be done simply by buying electricity when it is cheap (e.g 6–8am the price is around -$0.10/kWh), storing it in their battery, and selling it back or self-consuming when energy is expensive (e.g. 4–6pm the price is around +$0.15/kWh) to realize a net of $0.25/kWh. For a Tesla Powerwall II, this would generate around $2.5 per day or $900 dollars per year, allowing the Powerwall to pay for itself within four years. This represents the second problem your agent can help you tackle.

Demand Response

Although the ISOs can control the generation side of the electrical grid through both the day-ahead and real-time energy markets, there are other ways in which the ISOs can efficiently ensure grid balance. One of these balancing techniques is called demand response. Rather than paying people to produce more energy, ISOs can pay consumers who have flexible loads to shut-down those loads for a short period of time, say for 15 minutes. This creates a new set of opportunities for a customer’s agent to react to the economics of the demand response market.

Select Grid+ customers will be issued a free NEST thermostat on enrollment. The NEST thermostat is an example of what is known as a dispatchable load. The NEST can be used by the customer’s agent to make intelligent decisions based on market signals on how to control the temperature of the customer’s house. This can be done by simply turning off a number of our customers’ NEST thermostats. The grid’s market signals for demand response can be broadcast to the customer’s agents which can then offer a competitive bid to turn itself off. If enough bids are made to satisfy the ISO’s resource increment requirement (usually 100 kWh), then the aggregate bid would be broadcast into the demand response market by the utility. The revenue that is generated from the service could then be sent to the customer’s agent account.

In addition to offering services to demand response signals, a customer’s agent could also use the NEST to intelligently control the home’s temperature based on the real-time market prices. For example, the price of electricity is usually the highest at 7pm, the thermostat could cool the house 2 degrees below the set temperature of the house by say 6:30pm and then allow the house to rise 2 degrees above the set temperature by 7:30; thereby avoiding expected consumption of energy at peak prices. Moreover, there are also situations wherein the real-time price of electricity can spike in excess of 3–5 times the average electricity cost due to shortfalls in generation and/or congestion in distribution. If the agent knew that the home was already within the user configured comfortable temperature range, it could choose to forego purchasing energy for 15 minutes in anticipation that the rate will normalize in the near future.

If more of the user’s devices are connected to the agent, it can make even more intelligent consumption decisions. For example, if you own a Tesla, you would normally come home from work and start charging your car. If your agent knows that you aren’t going out tonight it could defer charging the car until the early hours of the morning when electricity is essentially free. Both NEST and Tesla have APIs that can be used to interface these devices for which Grid+ will integrate.

Not your agent

More Intelligent Economically Driven Decisions

As we all know, if you are going to be happy with your agent you must truthfully communicate your desires to your agent. If you don’t want to be in Aquaman II but prefer an indie arthouse flick, then you gotta let Ari know. In the case of your Grid+ agent the more you tell it, the more it can optimize your energy consumption. For example, if your smart phone periodically broadcasts your location to your agent, it would be able to figure out when you are leaving the house and when you are coming back. If you stay late at work, or decide to go downtown on a date, your agent would know to delay cooling the house until you are on your way home. Say you have a conference in Portland, your agent could look at your calendar and realize that you won’t be home for the next three days. It could then decide not to purchase as much energy in the day-ahead markets because it will know that you won’t need to run your AC system.

A Note About Privacy

But wait! Isn’t this a huge privacy concern? Does Grid+ know where I am at all hours of the day? This is a fair question after reading the previous section. Remember how we make an effort to not hold any customer funds? We feel the same way about customer data. Fortunately, cryptography saves the day here too.

Before any devices may serve as data feeds for a user, her agent must first generate a “data key”. The agent retains this private key and distributes the public key to the hub, which subsequently forwards the public key to all connected devices. Before sending its data to the hub, the agent first encrypts it with the public key. Only the agent, which holds the corresponding private key, may decrypt this data. Thus, all personal data on Grid+ is first encrypted by the user and is only ever seen by the user’s agent. Whew, that’s a relief.

Red Pill or Blue Pill

Grid+ uses Ethereum as both a technological tool and as an ideological frame of reference. We believe in user agency and in re-building an ageing and inefficient distribution system from the ground up with no middlemen. Just as in the financial system, the energy sector has so much value locked up in inefficient processes, just waiting to be unleashed by the Grid+ network. We are excited to help the world transition to a lower energy state that makes everyone better off. We hope this article gave you a more concrete idea of how we plan to get there.

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