Why Grid Operators Shouldn’t Fear Decentralization: Lessons from New York City’s Food Supply Chain
It’s no secret that electricity grids around the world are decentralizing as customers invest in fast-growing numbers of distributed energy resources (DERs). By 2028—less than a decade away—global installed DER capacity could surpass 500 GW. That’s up from 158 GW as of 2019, according to Navigant.
Progressive grid operators are already pivoting to embrace a customer- and DER-centric future. For example, Energy Web members Elia in Belgium and APG in Austria—both transmission system operators in their respective countries—are tapping into DERs to help with frequency regulation on their grids.
But among some grid operators, there can still be hesitancy, if not outright resistance, to more-fully embracing customer investment in DERs. There are myriad reasons why this can be the case. One reason in particular has been top-of-mind for me lately: a tension that inherently arises out of grid operators’ “regulatory compact.”
The tension is a simple one. Grid operators typically have a regulatory mandate to maintain system reliability, yet fear “giving away” some degree of control over the system to customers and their DERs, who aren’t held to the same obligatory standard. In the proverbial minds of conservative, risk-averse grid operators, they don’t want key reliability metrics to suffer (especially SAIDI, SAIFI, and CAIDI) at the hands of a decentralized grid that’s less under their control.
But are such fears warranted? Could a more-decentralized system make power grids more secure and resilient, not less? A peek into the food supply chain of New York City may offer surprising lessons for electricity markets.
Lessons from New York City’s Food Supply Chain
At first glance, it may seem counterintuitive to compare power grids with urban food supply chains. Yet both markets face important architectural decisions. Namely, what is the best way to deliver critical needs to end users, whether electricity or food? Is an approach of centralized generation and distribution or decentralized markets superior?
It’s unacceptable for power grids to fail and the lights to go out. It’s equally unacceptable for people to starve for lack of proper food distribution. And here is where a 100-year legacy of electricity market design and New York’s food supply chain diverge sharply. The former is in the midst of uncomfortably transitioning away from a centralized approach. Meanwhile, the latter has gone the route of decentralization for more than a century.
New York City’s food supply chain is one of the world’s great examples of a robust, resilient, efficient, and well-functioning decentralized approach to delivering critical goods and/or services. Every year, this decentralized market distributes and sells 19 billion pounds of food for the city’s 8.6 million residents, millions more daily commuters, and 60 million tourists. Like keeping the lights on, feeding these tens of millions is a must. Failure is simply not an option.
So how does New York City do it? A decentralized market-based system with some 42,000 outlets forms the backbone, ranging from a half-dozen major distribution hubs to tens of thousands of retail establishments and restaurants. They also include wholesalers, distributors, and many market participants. Somehow, day after day, store shelves remain stocked and restaurants continue serving patrons. All without a centralized managing entity responsible for making sure all the food gets to where it needs to go.
Perhaps most incredibly, New York City has been doing it this way for more than 100 years. At the same time that U.S. power grids were moving toward centralized generation and transmission, New York’s food supply chain took decisive, self-aware steps in precisely the opposite direction, toward decentralization. “The great extent of such a city demands a decentralized market system,” wrote Clyde Lyndon King for the National Municipal League in November 1914.
Adapting New York’s Approach to Electricity Markets
It doesn’t require a huge leap of the imagination to see the parallels to electricity markets. Kilowatt-hours are the “food” on which the market is based. They can be produced locally and/or be imported from afar. There must be available capacity to meet times of surging demand. There must be a delicate balance of supply and demand to avoid catastrophic shortages and wasteful surpluses alike. And there must be myriad channels (vs. a few major points of failure) that make the system resilient against disruption.
New York City’s food supply chain has risen to meet these challenges remarkably well. Now, electricity markets from Asia to Europe to the Americas are beginning to make the transition. As they do, a growing number of grid operators are looking to blockchain and other decentralized technologies to help them navigate these uncharted waters.
Recognizing that a customer- and DER-centric grid is the future of a resilient, low-carbon electricity system, that’s why EWF recently announced our new technology roadmap, anchored by the Energy Web Decentralized Operating System (EW-DOS). If tomorrow’s electricity markets are to start looking more like New York City’s decentralized, market-based food supply chain, grid operators and customers both are going to need new technology solutions that bridge from the old way to the new. EW-DOS makes that possible, and in the months ahead I expect we’ll see more announcements of pilot, proof-of-concept, and full commercial deployments.
Along the way, I hope that reluctant energy-industry regulators and grid operators can learn from examples like New York’s food supply and have the confidence to take further bold steps toward decentralized electricity markets.
