Ta-DAO: The Energy Transition and Blockchain

A version of this article by Raghu Madabushi, Director at National Grid Partners, originally appeared on Footprint Coalition.

At National Grid Partners, we invest in Decarbonization, Decentralization, and Digitization of the broader energy infrastructure. We back founder-centric, tech-differentiated startups that have the potential to be category creators.

Anchored in National Grid Partners' commitment to achieving net-zero is Decentralization – the far-reaching vision of the future electricity grid.  This vision is comprised of a self-aware network of technologies and distributed controls that work together to efficiently match bi-directional energy supply with demand.

The U.S. Department of Energy’s National Renewable Energy Lab (NREL) is pushing initiatives (and research funding) to turn this vision into reality. It’s admittedly a challenging pivot from today’s existing network, where centralized control manages the one-way flow of electricity along power lines from generators to consumers. 

Instead, the emerging decentralized grid is comprised of a fractalized group of microgrids. Decentralized control solves a few challenges, none more urgent than managing billions of new energy devices (such as residential and commercial solar, wind and other distributed sources; Electric Vehicles; and local grid-scale battery storage). These devices generate, store, and distribute energy from a wide variety of resources that are impossible to centrally manage. The need for resiliency and protection against natural disasters and cyber-attacks add to the complexity of the problem.

Fortunately, energy market interfaces for distributed energy resources (DERs) can help address asset under-utilization and interoperability issues for vendors and/or manufacturers.

Current headlines about blockchain have tended to focus on its essential role in cryptocurrencies, but the technology has applications across a wide range of industries and use cases.

Blockchain offers a compelling framework for new market systems built around this emerging distributed asset class. Such markets can both enhance customer choice and spark an ecosystem of new products, while benefiting grid operators, utilities, regulators, ratepayers, and technology providers. 

Take, for example, the NREL+BlockCypher project involving two homes. One home was configured to purchase excess energy from the other, as determined by a smart meter located in each home. The predetermined contract structured the automatic energy transactions between the homes, with backbone infrastructure on the blockchain. In the end, both homeowners saved money, reduced load on the grid, and reduced the need for fossil-fuel based electricity.

The emergence of DAO is another development within this evolving story. 

A decentralized autonomous organization or ‘DAO’ is quite simply an evolved organization (including companies, firms, investment funds, co-ops, communities, and non-profits) that uses an automated and decentralized mechanism for two basic functions: establishing who owns what; and determining/regulating how decisions are made. Typically, DAOs use a series of smart contracts to define these functions. For example, a smart contract could involve automatic payments to insurance policy holders (contract holders) after a calamitous event like a flood, without the need to file or verify claims or make payments through intermediaries.

In the macro context, DAOs can be seen as the natural evolution of digitization: the Internet for information sharing, crypto for financial transactions, and DAOs for organizations structuring and functioning autonomously. Each example is part of the ongoing quest for faster, cheaper, and more accessible digital alternatives to their analog counterparts. 

Within the energy transition ecosystem, we are seeing DAOs emerge as a mechanism for multiple use-cases. Those include organizing communities without needing a central entity (especially for decision-making among mission driven networks); democratizing the distribution of funds and resources by removing hierarchies; and managing shared resources, to name a few.

Today, utility companies centrally manage the generation, transmission, and distribution of energy. However, as decentralized assets continue to proliferate, utilities will need to handle the correspondingly exponential growth in data while seamlessly integrating assets they may not own or operate. Blockchain technology has the potential to help utilities lower operational expenditures, increase efficiency (asset utilization), and improve transparency while reducing capital requirements and costly upgrades. Up to now, these industry processes have largely been manual, analog, and inefficient – think clipboards and filing cabinets full of paper records.

There are three primary spaces where blockchain could help utilities navigate the energy transition cycle that’s underway: 

• Smart Contracting: The platform to verify and automate Power Purchase Agreements (PPAs), which enable a utility to stabilize pricing itself and its customers.
• Data Procurement for AI: The mechanism to share proprietary data among utilities to drive AI/analytics that operationalize the data-driven grid.
• DER Management: The platform to manage assets and automate transactions in the distributed energy resource ecosystem.

Each of these opportunities can build on the previous ones, allowing utilities to drive the change towards transactive energy, while at the same time avoiding service disruptions. We estimate that transactive energy, or peer-to-peer energy sharing and trading, is approximately 5–10 years out in terms of full scalability and adoption. 

The disruptive potential is high for an existing utility’s core business. Here’s an estimate of how those changes will unfold between now and then:

• 12–24 months: Blockchain-enabled applications may act as operational enhancements to existing lines of business by way of Renewable Energy Credits (RECs), power purchase agreements and cybersecurity. Key areas of early traction (at scale) include: anonymized data exchanges, infrastructure to enable 24×7 renewable procurement (e.g. Cleartrace and FlexiDAO), and environmental commodity exchanges (such as Xpansiv).
• 2+ years: Advances that can change the way we manage assets (i.e., smart grids, decentralized micro-grids, enabling IoT and AI).
• 5+ years: Pending scalability, blockchain has the potential to disrupt core business models in energy distribution and management (e.g., peer-to-peer sharing and trading).
• 10+ years: New regulatory and scalable business models have developed to allow wider adoption of transactive energy, enabling peer-to-peer transactions.

In summary, Blockchain provides the most value as an enabler of other technologies, most notably in solving complex multiparty trading and contracting without centralized control. 

There are still barriers to be addressed, including interoperability of systems, regulatory hurdles, legacy utility business models and scaling blockchain business models. Utilities, technology vendors, startups, research institutes and regulators are currently working in consortiums to address these issues.

Use-case 1: Blockchain Enabled Smart Contract PPAs

As renewable adoption increases, power purchase agreements will enable a utility to stabilize pricing not only for itself but also for its customers. The market inefficiency of PPAs today comes from the inability to seamlessly match renewable power supply and demand, as well as high transaction costs that can erode any savings. In many markets, companies wanting to procure clean energy must instead do so via a retailer with a green tariff, eating into savings associated with a long-term, direct renewable energy contract.

A blockchain platform could help verify and automate PPA contracts to capture a larger portion of the market. The blockchain-based solution can also help bring energy retail companies, and smaller green energy companies, into the PPA. In effect, a blockchain can eliminate the current middleman structure.

Use-case 2: Blockchain Enabled Data Procurement for AI

The adoption of artificial intelligence (AI) in the power sector has been slow, in part, because utilities must manage risk associated with data-sharing and privacy. Very few utilities store operations data in the cloud or allow third-party AI/analytics providers to access their systems. Blockchain offers a “trust-less” way of sharing data securely and has the potential to operationalize AI-driven insights in the power sector. Blockchain could be used to allow technology providers the access to specific datasets for AI development, based on agreements in smart contracts.

This system enables a mechanism for sharing data among utilities, including building open-source software platforms or complex AI models, without giving up individual ownership of proprietary data-sets.

Use-case 3: Blockchain Enabled DER Management

Utilities are responsible for integrating an increasing number of distributed energy resources, electric vehicles and connected devices on the grid. Utilization of renewable energy (RE) from diverse sources will require communication technology, interconnected power systems, advanced controls and smart metering that can be trusted. 

Blockchain could have two uses in this story: First, a blockchain registry would be a useful database to help track participating assets (and their activity) in transactive markets. Decentralized identifiers (DIDs) can track these assets. Second, smart contracts would communicate pricing signals and automate transactions. AI can optimize the transactions, and with machine-to-machine (M2M) protocols, smart contracts can support autonomous energy trades among systems like EVs, charging stations and smart homes.

The technology exists for utilities to build, learn from, and manage the transition to transactive energy. The blockchain and DAO use-cases relevant to the emerging transactive energy landscape can help accelerate certain pathways for adoption, while opening up new business models and expanding existing ones. 

While full adoption and integration may be a decade or more away, the industry already is on the road to development and implementation – hastening the global transition to energy that’s cleaner and more affordable.

Raghu Madabushi is a Director at National Grid Partners, investing in early-stage companies in the broad enterprise software vertical. He has 20+ years of experience with technology, capital markets, and IP/innovation. He previously invested in deep tech and industrial infrastructure at SRI Ventures and GE Ventures; managed a large portfolio of open-source technology projects at the Linux Foundation; and headed early-stage startup investing at Intellectual Ventures’ Invention Development Fund. Raghu also has held buy-side and sell-side roles at Wall Street firms and brings extensive experience in hardware and software design (Texas Instruments, Intel, Cadence Design Systems). He received an MBA in Finance and Investments from Southern Methodist University and an MS in Computer Engineering from Iowa State University, and he currently serves as a Kauffman Fellow.