Can Grid+ actually disrupt energy markets in the US?

Overview

Grid+ spun out of, and is owned by, New York blockchain development house ConsenSys.  ConsenSys, which uses blockchain technology to create applications in many different fields, identified the opportunity to create a solution for the energy space.  The goals of Grid+ are to demonstrate production-ready blockchain-based energy solutions at scale in competitive commercial environments in order to enable the transactive grid of the future and prove the advantages of Ethereum over incumbent technologies.

To get started, Grid+’s strategy is to become an energy retailer in Texas and to win customers by offering energy savings compared to the incumbents.  They will use their own hardware solution for energy management combined with efficiencies from trading using Ethereum.  Their hardware solution is called the Intelligent Agent.  It is a computer that basically pays for the customer’s electricity use in real time by reading from the smart meter. The Intelligent Agent then reads the customer’s energy use from the smart meter and pays accordingly in USD-backed BOLT tokens.

Business Model / Product Offering

Grid+’s initial goal is to allow consumers to access the wholesale market.  They claim, and I agree: "If consumers do not have any ability to know the pricing and respond accordingly, a situation is created where the grid has to be vastly overbuilt which drives up costs.” 

Grid+ will start out by becoming a retailer in ERCOT and will introduce market pricing, based on wholesale market prices, to their customers.  The idea is that access to near-wholesale prices should result in savings for customers and the opportunity to generate revenue through energy arbitrage. According to Greentech Media, Grid+ hopes to sign up around 20,000 customers by the end of 2018 and up to 100,000 by the end of 2019.  By the end of 2019, they expect to be processing around 120 GWh of electricity purchases a month using the blockchain.  The company will also start licensing its technology to utilities worldwide from 2019.

Future geographies include California, and New England, chosen based on smart-meter penetration, regulatory 'friendliness', and price of electricity. After starting in the US, Grid+ will seek to expand internationally to strategic regions, possibly Australia, Germany, and the UK.

In the future, Grid+ wants to leverage their energy blockchain network to allow peer to peer trading and a completely decentralized market:  "In a future world where there are many localized markets with dynamic pricing based on supply/demand and distribution congestion, centralized administration of settling is neither economically efficient nor technically feasible. The distributed p2p nature of Ethereum provides a complementary settlement layer to the distributed geographically specific p2p energy markets.”

Grid+ is developing a hardware and software stack to create a secure Ethereum-enabled gateway and connect Internet-of-Things (IoT) devices. The hardware gateway, or “smart energy agent”, is Internet-enabled and will securely store cryptocurrencies and process payments for electricity in real-time.  “The Smart Agent” will also be able to programmatically buy and sell electricity on behalf of the user and intelligently manage smart loads (e.g. Tesla Powerwall or Nest thermostat). The software stack will work in conjunction with the Smart Agent to make payments, using a combination of Grid+ designed payment-channels and a Raiden network hub (when available).

Grid+’s vision to allow consumers more direct access to wholesale markets is based on the user agency concept.  The Smart Agent represents user agency, and allows users to retain control of their own assets and the ability to choose exactly how they are utilized in the system.  By pushing market signals to customers, Grid+ enables customers to make smarter decisions about their energy usage. This lowers their own costs, while also increasing the efficiency, robustness, and reliability of the grid as a whole, assuming the market signals are correct.

Grid+ will generate revenue by marking up wholesale energy prices about 20%, taking transaction fees, earning interest on capital backing BOLT tokens, and by selling the Smart Agent (assumed to cost $50 to manufacture).  Grid+ feels that, over time, they will have very minimal customer acquisition costs. Since Grid+ is able to offer substantially lower prices, it will have much lower customer turnover, which can be as high has 30% per year for traditional retailers in deregulated markets.

There are a couple of areas that concern me about the current plan.  These can probably be worked out over time, since Grid+ has plenty of money to work with, but they'll need to be considered.

1. Hardware:  It's not as easy as one may think to produce high quality, inexpensive hardware.  Ideally, this would be outsourced to a partner who specializes in this sort of thing. Why even bother messing with hardware production of any kind when your area of expertise is software?  
2. Data Access:  In Texas, Grid+ will take advantage of the ISO-provided smart meter data to operate.  Once customers sign up, smart meter data will be obtained from the meter and customers will be billed using this freely available data.  However, many regions do not have smart meters.  A shocking number of customers won't have them for decades to come.  This might work for Texas but could be an issue elsewhere.   
3. Control:  Intelligent control over energy usage is critically important but also may be more difficult than Grid+ anticipates. The claim that "the smart energy Agent can modulate a household’s consumption based on market pricing", and that this will create "a situation where the consumers can dynamically respond to supply and demand which will immediately lower direct costs, as well as lower the amount of total required infrastructure over time."  What does this mean for homes with no battery or connected loads?  Will loads be controlled?  How will the smart agent connect to and control devices?  If energy can’t be directly controlled, how will customers without DERs actually be able to generate savings from wholesale market prices?  Most consumers aren’t that actively involved in thinking about and changing energy use without a major campaign to get them to do so.  Additionally, residential savings may not be large enough to motivate change.  
4. One of the ways that Grid+ will make or save money is by using the blockchain to facilitate real time payments for electricity.  Customers are required to make deposits ahead of time to purchase energy, which results in the complete removal of bad debt expenses.  This saves Grid+ the expense of having to purchase wholesale supply for their customers based on credit.  This is great for Grid+ but raises the question for the future about who supports low or high risk income customers. Public utilities generally have an obligation to serve all customers, regardless of risk.  As the energy market changes, this will have to be revisited again to determine how to ensure access electricity does not become a privilege.

A colleague of mine has similar concerns that you can read about on his LinkedIn page here. Again, a big bank account gives you a long runway, so you have room to make mistakes.  I'm optimistic that the team will learn quickly and bring the right people onto the team to move the vision forward successfully.  The markets and the regulatory environment are not easy to navigate in energy.

Technology

Grid+'s solution will leverage the public Ethereum network.  Grid+ will take advantage of channels, which allows ledger updates to be verified outside of Ethereum (“off-chain”) and only one proof (typically the last one) is needed to close the channel. This will reduce transaction costs.

Grid+ will leverage Proof of Stake. The coming Casper implementation of “Proof-of-Stake” is a significant upgrade to the Ethereum protocol expected to be deployed around Q1 2018. Casper allows users who own ether to deposit it to a smart contract and then become permissioned to update the ledger.

When customer sign up with Grid+, they will purchase a Smart Agent, and buy BOLT from the Grid+ web console.  The Grid+ Smart Agent, once registered, will allow customers to transfer BOLT tokens  to the Smart Agent to pay for electricity in real time.  An automatic payment option can be set up so that if a Smart Agent runs out of BOLT, it can be refilled automatically.

Each Smart Agent will be registered using the serial number from the device in the Grid+ registry contract. Only Grid+ can register devices in the contract, which will ensure that unsupported devices do not report data and cannot make transactions. After registering the device, its serial number will be mapped to an Ethereum address generated by Grid+.

Once received by the customer, the Smart Agent will be registered with the serial number found inside the box. This will map the owner’s wallet address to the serial number, which will be associated with the Smart Agent’s digital identifier. The Smart Agent will be capable of making digital signatures from a secure hardware enclave and may act autonomously while still being registered with Grid+ and owned by the customer. To support user agency and security,  the device   will be designed to generate its own key after the user claims it.  Once the user receives and boots the device for the first time, it will automatically generate a new key-pair and call the registry contract to replace its setup key with the new wallet key-pair.  Only the consumer will have access to the newly created private key, thus ensuring user agency.

An overview of the system architecture, from the Grid+ white paper, is shown below.


Grid+ System Architecture (source: Grid+ Whitepaper v2.0)

Future Vision of Energy Trading

Grid+'s future vision is to be able to aggregate bids for grid services across a group of Grid+ customers to the grid operator.  For example, demand response signals could be broadcast to all nearby Grid+ Smart Agents, which could offer bids stating they will turn off their household air conditioning if a certain price is paid. If enough bids are made to satisfy the operators requirements, then the bid would be submitted by Grid+.   The revenue generated would be shared among the Smart Agents who participated.

Ideally, the Smart Agent will allow customers to:

• Be smart about purchasing power in advance when it is cheap
• Arbitrage energy with batteries and other energy storage devices
• Load shift with thermostats or other connected load control devices
• Provide DR or other grid services to the grid operator or market 

In reality, the Smart Agent will need quite a bit of energy intelligence to be able to do these things successfully.  Even a question as seemingly simple as "should I buy electricity now or curtail load?" requires a fair bit of analytics, including the ability to forecast load and energy prices, to determine how to best respond.

Funding

Grid+ completed a successful ICO at the end of 2017, selling their GRID token.  They raised $35M, which is currently probably worth closer to $75M due to the rise in the price of both Ether and Bitcoin.

Like Power Ledger, Grid+ has a two token model - BOLT and GRID - but for seemingly different purposes.  The BOLT token will be treated by Grid+ as a stable-coin, redeemable by Grid+ customers for $1 worth of energy from Grid+ and backed by USD deposits. Any Grid+ customer who holds BOLT will be free to exchange them with Grid+ for USD at any time. The GRID token will allow Grid+ customers to purchase electricity from Grid+ at wholesale price. In particular, each GRID token may be redeemed by a Grid+ customer for 500 kWh of electricity from Grid+ at the wholesale price.

BOLT will be the currency required to use the Grid+ platform.  It will be treated by Grid+ as a stable currency, with each BOLT redeemable for $1 (USD) worth of energy on the Grid+ platform. BOLTs will only be created when customers deposit fiat (or ether, which will be sold by Grid+ for USD) to Grid+, and will be destroyed when Grid+ customers redeem BOLT for USD.

A fixed number of GRID tokens (300 million) were created prior to the ICO and 90 million were made available in the sale at $1.15 each (or $0.90 in the presale).  No new GRID will ever be created.  Each GRID token purchased in the ICO can be redeemed by customers of the Grid+ platform for 500 kWh of electricity at the wholesale price.  However, only a certain tool number of redeemed kWh will be able to be used in each region in a certain time period.  What this amount is or how restrictive this will be is not discussed.

Of the 300 million GRID tokens created, 30% were allocated for the sale, 20% were allocated to the founders (time-locked for 6, 12, and 18 months), another 20% were designed to be held, time-locked, by external owners of Grid+,  and the remaining 30% were being held by Grid+'s treasury. These treasury tokens will be used to incentive new customers to join Grid+ or in connection with utility partnerships.

References

• Grid+ white paper:  https://gridplus.io/assets/Gridwhitepaper.pdf
• Grid+ overview of the vision, by Alex:  https://blog.gridplus.io/the-p2p-grid-we-all-want-d7b1b923f02c
• Grid+ token sale blog post: https://blog.gridplus.io/announcing-the-grid-token-sale-77858bab8276
• Grid+ third-party ICO analyses: 
• https://medium.com/power-ledger/blockchain-energy-and-icos-a-new-way-to-fund-the-energy-revolution-3615e435ae7b
• https://hacked.com/ico-analysis-grid/
• Greentech Media coverage:  https://www.greentechmedia.com/articles/read/grid-raises-40-million-as-blockchain-fever-grows