Dear Sebnem,
this is a great series. Very thoughtful. Very helpful. Very good. Allow me to add another perspective:
We came to the general conclusion that tokens by and large are not fit for purpose when it comes to settling and clearing raw flows of electricity . What is needed to settle electricity markets instead is, first and foremost, a mechanism to establish and enshrine consensus about the amount of electrical energy in circulation for any given period of time, across the whole market if possible. Now, this is a very hard thing to do using e. g. ERC-20 tokens. This is because these tokens have been designed with “Money” as the underlying mental model.
The problem is that money and electricity have fundamentally diverging properties and thus behave in fundamentally different ways: You can store money under your pillow. But you can not natively store electricity. And ensuring that production and consumption level out withing a given period of time, is the whole point of electricity markets in the first place. It confronts us with a different kind of “double spending type of problem” in its own right. When settling raw power flows with tokens, how do you make sure that the same tokens are not used multiple times to settle power input and power output ?
What the token models, that you are exploring in your series, seem to be used for instead is billing. Plain and simple. And while this works perfectly well, I don’t see how the settlement of the raw electricity flows (synchronicity of power input and output) is being addressed in any meaningful way. Instead what seems to be happening is that this core issue is implicitly externalized to System Operators and thus handled off-chain. At least if I read the Grid+ paper correctly:

To me it looks like externalizing the settlement of raw electricity flows is just accepted as a given. Now that is very very unfortunate. Because THIS is the actual core problem when it comes to energy decentralization. Let me explain:
The current market models are simply not prepared to settle electricity inflows from Millions of potential individual market participants. In Germany 1.5 Million PV installations are currently being sedated by statutory feed-in tariffs (EEG), which effectively have been designed to keep them outside of where the action is, i. e. “The Market”. Now, as these tariffs are slowly being phased out, “The Market” model needs to change at it’s core. This is because under the current regime, owners of distributed energy resources (DER), that operate outside of feed-in tariffs, are forced to ‘waste away’ the electricity, that they feed into the grid, for two or three eurocents per kilowatthour. Its essentially a form of expropriation. Operating DERs is not economic under such circumstance and operations will halt eventually if the underlying market model doesn’t change. This will cause real, painful and tangible deteriorations of the reliability of the underlying supply system itself (at a potentially massive scale). This is true at least here in Germany where DERs became system relevant and no backup plants are in place at the scale required. So ‘winter is coming’ and a fundamental reversal of the core market models and mechanisms is imperative.
What initiatives such as Grid+ are proposing in this context are effectively pooling mechanisms, that offer individuals access to “ The Market” and utilize decentralized crypto tech and the bespoke token models that come with it to drive innovative yet internal only, billing schemes. This is all good and well and better than nothing. However, it is not improving how “The Market” fundamentally works for DERs. It misses the point in that distributed ledger technologies have much more to bring to the table: We believe this technology can become instrumental in reorganizing and reinventing energy systems from the ground up. Thus effecting the fundamental and inevitable transformations at the system’s core, that are necessary to accommodate a rapidly decentralizing production model.
What the protagonists behind current blockchain based offerings for the energy sector need to focus on more, is conceptualizing blockchain technology as the (emergent) transactional backbone of the energy systems of the future — linking consumers, producers, service providers, system operators and everyone in between into networks of co-productive peers.
And what they should focus on less is billing and even more so payment processing. These are essentially solved issues. I have yet to meet a person who is complaining about flaws in how payments against their annual electricity bills are handled. Just because blockchain tokenisation can be effectively applied to handle billing and payment issues, doesn’t mean it is the appropriate tool for addressing the problems at hand. It doesnt mean that the problems at hand a being addressed at all.
People need to harden the fuck up and stop toying around with their tokens just because they can. As they focus on the retail layer only, some of these initiatives will inevitably end up as just another — or slightly improved — utility within the same old bloody system. A system that remains incompatible with DERs at its core. This would be a huge opportunity wasted. We need to stop solving the wrong problems, reframe the questions we ask and start to confront the core issues in more appropriate ways.
The problem here is that people take for granted the underlying mechanisms and dynamics of how energy systems work and have always worked. It prevents us from taking a step back and invest the time and resources to reflect on and reframe the problems at hand from a perspective outside of the box. This is a problem thats seems to be particularly prevalent in software and crypto communities who are new to energy markets to begin with. Energy pundits, on the other hand, seem to have a tremendously hard time groking the tech side and thus also lack the imagination of how things could be organized differently.
I recommend the following resources in order to dig a little deeper:
First, always start with the underlying market model. Ask what distributed energy production really means for the people affected and what kind of markets it requires to thrive. Only then can you start to think about how to bring these about. For example, here is a pamphlet that describes an alternative energy market design to natively accommodate decentralized production (in German only)
=> http://stromdao.de/_media/hysm-buch_v3.pdf .
What it proposes, is essentially a capacity market for all renewable and intermittent energy sources, combined with a traditional energy only marktet for everything else. (Hence the name “Hybrid Electricity Marktet Model”). So, in this kind of market end-customers end up purchasing / investing in renewable capacity rather than buying by the kilowatthour (similar to obtaining futures in commodity markets). So e. g. tokenizing kilowatthours is essentially pointless from the get go. 🤔 Interesting things start to happen when you go low level. And we haven’t even touched any of the crypto stuff yet.
https://drive.google.com/file/d/0B0DEak0BnhBfMnZBT25aR2NOQm8/view?usp=sharing
Second. Accept that tokenisation is not fit for purpose and utilize the capabilities that decentralized ledgers like Ethereum offer in more creative ways in order to get the job done. For example, I have been involved in an effort to conceptualize an Ethereum based consensus system for energy markets with the purpose of helping to address some of the issues mentioned above. Check out this diagram of how we proposed the settlement of raw electricity flows across different market participants could be handled:

It’s a coinless architecture! Using a cascading array of smart contracts — operated interdependently by various market actors — to do the low level business of helping to establish consensus about the amount of electricity in circulation for any given period of time. It can be done. No tokens required whatsoever. For smart contracts make a better token!
https://drive.google.com/file/d/0B0DEak0BnhBfVUxaNkxHcmRBZ1U/view?usp=sharing
I absolutely believe that blockchain tech — and Ethereum in particular — can be utilized in a way that will ultimately accomplish an end-to-end abstraction of the entire electricity system, shared across the various market participants. I personally would find it tremendously refreshing if some of the people with the necessary recourses and know-how would put more effort in the low level plumbing required to get there, rather than organizing yet another token sale. But maybe that is just me…
Ok. This comment grew much longer than expected. Time to stop. If you want to follow up on any of this stuff, I could make myself available for a 1:1. Just ping me via twitter.
Keep up the good work,
ST
P. S. We have put together a software library that can be used to interact with our Energychain network and that may help you experience some of this stuff first hand. It is available here:
https://github.com/energychain/StromDAO-BusinessObject
I recommend to start running and examining the integration test first. This will give you some ideas of how the library may be utilized to accommodate individual energy related use cases.
