Centralized vs. Decentralized Energy: The Case For DERs
The Atlantic hurricane season occurs from June 1st through November 30th. For residents living in hurricane-prone regions, maintaining access to electricity during and after an event can be a matter of life or death. Distributed Energy Resources (DERs, defined in a previous post) offer these residents the vital edge they need. For those of us fortunate to not be affected by hurricanes, we might experience other forms of severe weather such as tornadoes or ice storms. Widening the lens beyond the weather aspect, the case for DERs can be broken down into the following four categories:
- Economic Value
- Consumer Choice
- Storm Hardening and Public Safety
- Resiliency
Economic Value
New York State Public Service Commission established a mechanism to transition to a new way to compensate distributed energy resources (DER), like solar power. This mechanism, called the Value of Distributed Energy Resources (VDER), replaces net energy metering (net metering or NEM). -New York State Energy Research and Development Authority (NYSERDA)
NYSERDA explains that VDER factors include the price of the energy, the avoided carbon emissions, the cost savings to customers and utilities, and other savings from avoiding expensive capital investments. Outside this public VDER definition, additional value stacking criteria exist for reliability, resiliency, scalability, availability, etc. which are being investigated by industry for future definition and value capture implementation.
Current market structures, policy, and mechanisms make it cumbersome or near impossible to unlock this value today. However, innovative new program designs (e.g. VDER program) are working to redesign markets structures and policies to implement the required value assignment mechanisms.
In recent years, innovative blockchain energy firm startups, with Peer-to-Peer (P2P) and Transactive Energy (TE) focus, are pioneering the first blockchain based markets to assign, track, and settle these economic value transactions in real-time. The ability to track and settle economic value transactions in real-time is a game-changing innovation that will have profound effects on the energy industry. Ultimately, new P2P & TE markets will increase the value a DER asset owner receives for their asset.
Consumer Choice
P2P & TE markets enable DERs and give consumers the choice to become a prosumer (defined here) and/or to buy electricity based on their unique provenance preferences. Today and moving forward, the provenance of an electron matters to consumers. For example, some consumers may choose to buy locally generated, distributed renewable electricity from their neighbor versus the centralized options from a utility where either the provenance of the electron is ambiguous or renewable energy premiums are disconnected from the consumer’s value assignment.
Customers today want to be empowered to make energy decisions, become energy independent, and an increasing percentage desire and value locally generated renewable energy options.
Choice gives the perception of value, and consumers don’t like being locked into a few or single market options. Customer-centric business models and technologies that give customers choice, lead to increased customer conversion, loyalty, and retention.
Finally, consumers today are intimately involved with their technology (e.g smartphone & apps). In the future, consumers will want similar interactions with their energy technology solutions, upon which current centralized solutions from incumbent utilities and technologies fail to deliver.
Storm Hardening and Public Safety
DERs provide local US communities with options in times of disaster. In recent years, local US communities have been faced with deadly natural disasters such as hurricanes (Katrina, Sandy, Harvey, Maria (Puerto Rico)) and wildfires (California). In these tragic and deadly times of need, local US communities need to be able to provide basic services like power for hospitals, refrigeration for medicine and food, powering pumping systems for water filtration and purification, air conditioning and heating for elderly and sick, etc. A case study of the Puerto Rico situation after hurricane Maria is explored further below as well as Superstorm Sandy.
Resiliency
Resiliency is generally defined as ‘toughness,’ or the capacity to withstand or recover quickly from difficulties.
In the energy industry, resiliency can be explained as the capacity for electrical power systems to recover quickly from difficulties such as natural disasters and can be categorized as 1) pre-event and 2) post-event resiliency.
Pre-event Resiliency: “avoid” and “mitigate”
Preventative activities and robust infrastructure design/implementation in place to reduce or limit the impact to services from a catastrophic event.
Post-event Resiliency: “response” and “recover”
The ability to respond during, and immediately after, a catastrophic event to avoid or reduce service impact. The ability to return the service to its advertised capacity in its final state. “Final state” is key because Disaster Recovery Plans for critical infrastructure sometimes are not to rebuild facilities or equipment, they may be to transfer responsibilities elsewhere but continue to provide service.
DERs are inherently more ‘resilient’ than a centralized system that includes vast networks of vulnerable poles and wires because the poles and wires are spread across hundreds of miles of varying terrain and are at risk for compromise (e.g. storm blowing them over, car hitting them).
Resiliency has an inverse relationship to the distance between the electrical supply and demand (e.g. a person’s home). For example, a rooftop solar PV plant (a DER) is generally more resilient, than a utility-scale power plant located hundreds of miles from a person’s home, and connected via easily compromised poles and wires.
In other words, the closer the supply is to the demand, the more resilient the design. A design with no poles and wires is more resilient. If you can plug your home directly to the power plant, it’s more resilient. In this case, “power plant” can be an onsite battery (that’s charged), rooftop solar PV, fuel cell or combined heat and power (CHP) (that uses natural gas from an underground line), portable diesel/gas generator, etc. Noting that the fuel source is a close second when it comes to the weakest link, the previous list is in general decreasing order of resiliency.
Finally, decentralized systems, such as blockchains (distributed ledgers) and aggregated DERs, are inherently resilient to single point cyber security and hacking vector attacks. Ernst & Young provides the following description which is analogous to distributed computer networking environments:
One aspect of blockchain is a distributed database that hosts shared records. The database stores records in blocks rather than collating them in a single file. Blockchains get more secure with more parties in the network, one participant networks are not especially secure. -EY
Decentralized systems are comprised of many nodes and purposely lack a centralized authority that can be strategically attacked. Centralized attacks result in a high degree of damage (reference 2017 Equifax data breach in which millions of individuals had their social security numbers stolen). When the collective nodes of a decentralized system sense a given node is acting up and may be compromised, the balance of the nodes isolate the suspect node to prevent infection of the entire system. A DER + blockchain ecosystem is an example of a decentralized system which can resist large scale events like the Equifax data breach or similar vector attacks.
The Energy Industry Today
Presently we have a ‘centralized’ grid where power plants (the electrical supply):
- Receive a fuel source (the sun, wind, nuclear, gas, coal, biomass, etc.);
- Use the fuel source to generate electricity;
- Connect to the T&D grid system (the poles and wires); and
- Ultimately deliver the electricity to the end user’s load panel (the electric demand)
- Include behind the scenes work by the local entity responsible for maintaining the electricity balance within its region (Balancing Authority managing supply and demand).
What is the “weakest link” in a centralized system?
Centralized power plants are robustly designed and NOT the weakest link. Centralized power plants are typically designed to operate for minimum 30 years while withstanding the most severe weather.
Note: 30 year minimum is a boilerplate standard used by the power engineering industry and major engineering design firms. Cybersecurity is not included in the 30 year minimum design standard as vector attacks need to be reviewed on a continuous basis.
Rather, the weakest link is primarily the poles and wires for the reasons mentioned in the section above. As previously noted, the second weakest link is a reliable, stable and economical fuel supply. Not being able to deliver the power plant with the fuel it requires to generate electricity.
The Puerto Rico Case Study
After taking a direct blow from hurricane Maria in 2017, Puerto Rico went dark leaving 1.5 millions residents without electric power (FEMA, GTM).
The majority of regions remained without power months after. An NPR transcript stated that four months after Hurricane Maria [made landfall], about 450,000 of 1.5 million electricity customers in Puerto Rico still have no service. Blackouts regularly occur for hours at a time, even in San Juan. Vox Media reported that Puerto Rico’s blackout is now the second largest on record worldwide.
Why?
As expected, the power plants were unaffected and ready to supply power, however the T&D grid system was simply devastated. The robust power plants were unable to physically connect (via wire) to the user’s load (people’s homes) and deliver electricity because the poles and wires were on the ground. Literally, the “link” was broke!
Immediately after the storm, Puerto Rico also suffered from a lack of fuel supply. Most of Puerto Rico’s power plants use oil (delivered to the island via ship), and there was an initial shortage of fuel. That issue was quickly resolved after shipping routes were restored. However, the poles and wires remained on the ground months after.
Not having reliable access to power, and having to wait several months for restoration is simply not acceptable. In response to the devastated centralized grid in Puerto Rico, we’ve seen private firms like TESLA and Sonnen deploy DER technologies at a record pace. In the wake of this tragedy, the silver lining is that the world has seen the resiliency and flexibility of DERs displayed in real-time.
The Superstorm Sandy Case Study
Hurricane Sandy “Superstorm Sandy” was the most destructive hurricane of the 2012 season. A review of the events timeline emphasizes and re-enforces the need for resiliency and storm hardening of our electrical infrastructure. Superstorm Sandy resulted in 7.9 million businesses and households without power, and over a 0.5 million remained without power over a week later. There were 72 recorded fatalities occurring in the mid-Atlantic and northeastern U.S. This is the greatest number of U.S. direct fatalities related to a tropical cyclone.
October 29, 2012
- Approaches land as a Category 2 storm.
- Hurricane force winds extend 175 miles out from Sandy’s eye
- Three reactors experience trips, or shutdowns, during the storm, according to a Nuclear Regulatory Commission statement.
October 30, 2012
- 7.9 million businesses and households are without electric power in 15 states and the District of Columbia.
November 7, 2012
- More than 600,000 people are still without power.
Current DER Trend
Research groups and consulting firms are projecting significant growth and penetration of DERs over the next decade. According to Navigant Research, global DER capacity is expected to grow from 132.4 GW in 2017 to 528.4 GW in 2026.
Energy Blockchain Network (EBN) is building an ecosystem that will lead the Energy Technology Convergence. The mission is to drive DER asset supply chain efficiencies and scale installations for a low-carbon future — today! In our next post, we’ll explain the ‘Upstream vs. Downstream: DER Supply Chain’ and introduce EBN’s role to begin to show how we get to The (Energy) Promise Land.
Team EBN received phenomenal input and peer review comments from our network on the content of this article. This valued piece wouldn’t have been possible without their involvement — we are extremely grateful for everyone’s help, thank you!! Special thanks to EBN advisor Naoum Anagnos for his targeted contributions related to resiliency.
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