Upstream vs. Downstream: DER Supply Chain, Explained
‘Downstream’ peer-to-peer (P2P) and transactive energy (TE) blockchain use cases rely heavily on a healthy pipeline ecosystem ‘upstream.’ While there’s been a lot of buzz about the potential of P2P or TE trading that the energy blockchain revolution will facilitate, few understand how we get from our current centralized grid to this decentralized energy trading panacea. This is where Energy Blockchain Network (EBN) comes in. EBN is focused on the ‘upstream’ DER Project (Asset) Supply Chain Management.
Introducing the DER Project (Asset) Supply Chain Management
The finance industry was the first to adopt blockchain (i.e. Bitcoin), and for good reasons, supply chain management is following finance in the adoption of blockchain. Some of the top blockchain use cases and success stories revolve around supply chain management. Everything, including Distributed Energy Resource (DER, defined in a previous post) assets and energy (kWh), has a supply chain.
Similar to how the Internet infrastructure got funded early, current and future business leaders will drive capital towards DER infrastructure (assets). Referencing the figure below, notice the steep infrastructure ramp leading up to the year 2000. We’ll revisit this concept later.
Standardization and interoperability are imperative. Establishing protocols and standards for the industry to follow will only be achieved through collaborative business case development and execution. At its essence, the blockchain revolution is about digitalization, decentralization, and democratization, and those that build communities will unlock the most value for participants.
A press release from global supply chain logistics firm, UPS, stated:
UPS sees the need to create industry standards and protocols to enable blockchain platforms to operate together with established technologies…Blockchain, a digital database using blocks that are linked and secured by cryptography, can be used to keep record of any information or assets. This includes physical assets, like transportation containers, or virtual assets, like digital currencies. -UPS
We can apply supply chain management strategies to DER Infrastructure Assets. Blockchain enables new actors (prosumers, consumers, lead originators, etc.) to interact and participate in the DER project (asset) supply chain in innovative new ways. Reference here and here for additional details.
There are two parts to the DER Project (Asset) Supply Chain:
Downstream DER Project (Asset) Supply Chain Management:
- P2P & TE Markets (Post DER Project (Asset) Commissioning)
A commissioned DER project (asset) is fully installed and operational. For example, a rooftop solar PV system that is generating electricity that can be consumed (used) on-site and/or sold to an off-site entity (consumer or prosumer).
Peer-to-Peer (P2P) describes interactions and/or transactions that occur between two parties in the absence of intermediary or centralized oversight. In energy, P2P is locational marginal pricing that leverages the provenance of an electron.
Transactive Energy (TE) is defined by the National Institute of Science and Technology (NIST) as a system of economic and control mechanisms that allows the dynamic balance of supply and demand across the entire electrical infrastructure using value as a key operational parameter.
To date, existing blockchain energy firms have been primarily focused on the downstream P2P & TE markets (See Solarplaza’s blockchain company guide and GTM’s blockchain in energy summary).
Upstream DER Project (Asset) Supply Chain Management:
- DER Project (Asset) Lead Origination → Commissioned DER Project (Asset)
Lead Origination is the process of finding a new DER lead, typically performed by a Lead Originator. Lead Originators generate new DER leads for the energy industry, and their role is synonymous to sales agents or representatives in other industries like real estate. Reference here for additional details.
Opportunity
P2P & TE markets are not addressing and/or ignoring the upstream DER asset supply chain. P2P & TE markets are certainly an innovative improvement over existing wholesale markets and centralized institutions, but how long before this space becomes crowded and these firms inefficiently compete against each other for a consumer/prosumer’s business as energy retailers do today in deregulated markets?
Widening the lens and looking at the upstream supply chain management is the smart play and where value awaits to be unlocked. It’s important to note that the P2P & TE components come after the DER asset is commissioned and that a symbiotic relationship opportunity exists between the upstream and downstream ecosystems. Simply put, P2P & TE markets rely heavily on a healthy pipeline ecosystem upstream that is installing the DER infrastructure assets they wish to utilize on their platforms.
This concept is analogous to the Internet. Before we could stream Netflix and use other Internet applications (Amazon, Facebook, Google, etc.), we first needed to deploy the infrastructure (servers, wires, etc.) across the globe. P2P & TE are blockchain applications that require DER infrastructure to be installed.
While others focus on the downstream P2P & TE markets, EBN will focus on the upstream supply chain management to facilitate the P2P & TE markets. This is precisely what EBN’s first two energy applications (existing market platforms) are doing today. EBN cultivates a healthy pipeline ecosystem and serves as the link between the upstream supply chain management and downstream P2P & TE markets.
EBN seeks to encourage application layer development to enable P2P & TE market plugins from existing market solutions. We see blockchain-to-blockchain or cross-chain network communication as vital for scaling blockchain solutions in the energy industry.
The Upstream DER Project (Asset) Supply Chain Today
Today, the DER project (asset) supply chain process lacks the organization and tracking structure to adequately recognize and reward value creation at each state of the DER lifecycle.
In a previous post, we argued:
The biggest challenge the renewable energy industry faces today with scaling DERs is a lack of quality lead origination. The primary issue is that Lead Originators are not recognized and not compensated for their early-stage work and upfront efforts to generate qualified leads. Compensation typically comes in the form of low commission structures tied to total system cost, have long sales cycles (6–12 months+), and are NOT guaranteed. This results in network disengagement from Lead Originators and a much lower rate of quality lead origination than the market can support and society requires to rapidly transition the world to a low carbon future. We need to accelerate lead origination velocity.
In the same post, we demonstrated the value of lead origination and explained that:
Today, Lead Originators work for commissions that are paid out only after a project is completed. This means the project must make it all the way through the DER supply chain and actually be installed in order for them to get paid. This can take up to 12 months or more. If the project doesn’t get installed, for any number of reasons, the Lead Originator doesn’t get paid. Meanwhile, consultants, engineers, and installers are paid for their services upfront and save on their soft costs by gaining access to well-qualified leads. This is not right.
A major deficiency of today’s DER supply chain is the undervalued compensation received by the Lead Originators (value creators). Lead Originators are under-recognized and underpaid for the early value they deliver. Lead Originators are the pioneers who spend their resources at-risk. Lead Originators provide a tremendously valuable front-end effort, but the current system does not adequately compensate them for the value they deliver to the industry.
The current system doesn’t adequately recognize and reward early state work because of the lack of the structures to track and compensate value created in real-time as the lead moves through each state of the DER supply chain — especially at the lead origination state.
Enter Energy Blockchain Network (EBN).
The Future Upstream DER Project (Asset) Supply Chain
The EBN ecosystem will leverage blockchain and distributed ledger technologies to establish the early structure (via smart contracts) needed to ensure value creators are adequately recognized and rewarded (compensated) for the value they deliver. When programmed correctly, blockchains and distributed ledger technologies are extremely effective at exposing who in a value (supply) chain actually delivers value.
Formalizing the process and adding real-time, autonomously triggered events (via smart contracts) will increase value for early-state work. This will drive increased participation and leverage network effects of the ecosystem leading to a large increase in DERs coming online. The Lead Registry will serve as a shared, trusted, and immutable registry to facilitate compensation for the value provided by participants who originate, engineer, and install new DER projects (assets).
Data captured during the Lead Registry process above will be used to build the DER Asset Registry so each DER infrastructure asset has a unique digital identity. Technical data will be structured in a blockchain-managed and organized DER Asset Registry, and provide an interoperable layer to coordinate information, customers, and industry activities related to lifecycle asset management and participation in the energy industry.
The DER Asset Registry is a community registry of DER assets which will store and organize data on the blockchain to provide easy retrieval for various future, downstream energy+blockchain applications. The EBN platform encourages third-party application layer development and partnerships to enable existing and emerging market solutions.
With EBN, business activities are automated and managed using blockchain, distributed ledger, and smart contract technologies. The technologies are being used to enable unique, programmable methods to incentivize behavior that leverages game theory and mechanism design.
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 introduce EBN’s ecosystem architecture and process overview to illustrate how we’re working towards The (Energy) Promise Land.
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