Before we reveal how Grid+ will work, we first need to understand our existing electrical grid. The United States electrical grid can be divided into four main categories, shown below: generation, transmission, distribution, and retail.
1. Generation
This group consists of large-scale energy producers. Historically these producers have been carbon (or nuclear) based power plants, but in recent years single entity owned wind and solar farms have come online. In order for these entities to to be considered a “generator”, they must be capable of producing 1 MW of power.
2. Transmission
These entities own and operate the high-voltage (~300 kV) power lines capable of moving electricity over long distances: usually from power plants (generators) to consumer networks (distributors). For example, in Texas there is a series of power lines that span over 500 miles and transport wind power from west Texas all the way to Houston.
3. Distribution
Once the wholesale power has been transmitted from the generator, distributors take control. The distributor’s job is to operate transmission lines (lower voltage) that connect to individual consumer households or businesses. In the event of a power outage, you call your distributor and they take care of the problem (e.g. re-wiring a fallen tower).
4. Retail
The final piece of the energy supply chain is the retailer, who is responsible for administering and billing end-users (e.g. you). Depending on your region, retailers may be called by different names (e.g. Retail Electricity Provider, or REP, in Texas). In deregulated markets, you might refer to the retailer as your “utility”. Examples include Green Mountain Energy and Reliant Energy.
Regulated and Deregulated Markets
US electricity markets can be divided into two distinct groups: regulated and deregulated. The following map shows which states are regulated and deregulated in the US.
In regulated electricity markets, the entire grid can operate as a vertically integrated monopoly. In addition to billing you for your electricity usage, your utility may own and operate the power plant as well as the transmission and distribution lines.
In deregulated markets, the government mandates market segmentation such that no one entity may own multiple pieces of the supply chain described above. Each company must sell their services in a competitive marketplace, which is typically run by a non-profit Independent System Operator (ISO). In addition to running these competitive markets, ISOs are also tasked with balancing the grid via market signaling. This latter job is performed via a Supervisory Control And Data Acquisition (SCADA) system.
The SCADA system is used by the ISO to create market signals for real-time services such as ramping control, frequency regulation, or voltage support. The market signals are provided to Qualified Scheduling Entities (QSEs), which then bid into the market and provide the services needed to keep the grid running at the right voltage and frequency. Most retailers are also QSEs and they may offer financial incentives to their customers to coordinate behavior. For example, if the grid needs to lower load by 1 MW, a retailer may offer an incentive to 4000 customers each consuming 1 KW if they turn off their power for 15 minutes. This is known as an ancillary service and will be the discussed in greater detail in a future article.
Role of Retailers
In a deregulated market, electricity retailers buy electricity at wholesale price (in 1 MWh increments) and then package and sell that electricity directly to consumers. Retailers are not responsible for powering customers directly, but are responsible for metering and billing usage.
In addition to paying for generation, transmission, and distribution, end users also pay fees to their retailer. These costs are largely comprised of marketing, administration, and managing risk/compliance for bad debts and customer funds. This can (and often does) add up to quite a large percentage, as shown by the average price of electricity in various states in the following graph:
The difference between the residential and industrial price shown above comes mostly from the costs passed to the end user from their retailer. That’s a lot of money for reading your meter and sending you a bill!
The Grid+ Efficiency
The retailer is where Grid+ comes in. Although there are unavoidable expenses related to distribution and metering, we believe we can dramatically lower the differences shown above and get much closer to industrial level pricing because we can leverage fundamentally superior technology: Ethereum.
Grid+ is not interested in managing user funds or in settling bad debts. We simply ask our users to prepay each month in dollars, which we tokenize on Ethereum as a dollar-backed stable coin. As a retailer, we have access to our customers’ usage data, which gets updated every 15 minutes. Thus, every 15 minutes we query a customer’s agent (which can be any device capable of making ECDSA signatures) for payment. The agent signs a message sending us a small amount of money over a state channel and we take a small fee from that transaction as a form of revenue. Alternately, customers can also fund their accounts and pay with ether (and perhaps other widely-used ERC20 tokens) — in this scenario, the USD spot rate is used to settle payments every 15 minutes.
Through this architecture, we have near zero administrative costs and zero risk of bad debts — we can undercut any existing retailer by an extraordinary amount. Furthermore, we can save a large amount on marketing. Our pitch is simple: “Would you like your electricity bill to be 50% lower?”. We believe Ethereum gives us a tremendous advantage in the retail space because it introduces a fundamental efficiency in the B2C model: user agency (i.e. financial independence).
Tomorrow’s electricity grid
Over time we expect incentives to materialize that push users to install distributed energy resources (DERs). Higher solar and battery penetration will lead to more efficient markets and a more robust grid infrastructure, which we discussed at length in our previous article.
The traditional large multi-megawatt scale base load plants will become less and less prevalent as generation moves closer to the source of consumption. There will be less profit from large base load production and, subsequently, less profit from long-range high-voltage transmission. There will be grids largely isolated from each other because long-range transmission will cost more than distributed generation and storage networks. In a word, the grid will become more decentralized.
This is the future grid that we at Grid+ want to see built, so we are tackling the challenge. While we may start as a retailer selling cheap power and tiny boxes that make ECDSA signatures, we can see a future where every home in the world is responsible for their own power and Grid+ can provide the Ethereum payment rails to enable it.
It will be a long road, but it’s one we think is worth traveling. And we have so much more to share with you. Stay tuned.
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