NARRATOR Welcome to the DNV GL Talks Energy podcast series. Electrification, rise of renewables and new technologies supported by more data and IT systems are transforming the power system. Join us each week as we discuss these changes with guests from around the industry.
MATHIAS STECK Welcome to another episode of DNV GL Talks Energy. My guest today is Belinda Kinkead, who will talk about the Brooklyn microgrid. Good morning Belinda.
BELINDA KINKEAD Good morning.
MATHIAS STECK Belinda, we want to talk about a very exciting project you are doing in Brooklyn in New York at the moment. But before we get there, it would be really great if you could introduce yourself as well as the company you work for, which is the company having that project in Brooklyn.
BELINDA KINKEAD Sure. So, I’m the Australian Director of LO3 Energy. So far, our presence in Australia is quite small. It’s just me. We’re a startup that’s based in Brooklyn. We have offices in Brooklyn and Portland. Probably about 25 people worldwide at the moment. LO3 Energy is an energy technology company, so we have a blockchain-enabled platform that allows P2P energy trading. So, where people that have solar generation, for example, on their roofs could sell their excess power to a neighbour, rather than back to the retailer, and also enables local energy marketplaces. So, it’s really about changing the way that consumers can engage with energy.
MATHIAS STECK Right. That sounds good already. And tell us a bit, what did you do with that technology in Brooklyn? What is this Brooklyn microgrid?
BELINDA KINKEAD Our flagship demonstration project is the Brooklyn microgrid. It’s a community microgrid. Brooklyn microgrid is actually 50% owned by the local community and 50% owned by LO3 Energy. It is both a virtual microgrid and a physical microgrid, which means that part of the project, it allows, it covers a ten-block radius in Brooklyn that would be able to island, which means disconnect from the greater grid in a time of either extreme weather or some other catastrophe.
So, some of the motivation for siting this project, which is a pilot, so it tests our technology, but some of the motivation for siting the project in Brooklyn was the aftermath of Hurricane Sandy.
So, the physical microgrid covers Park Slope, which is a very wealthy neighbourhood in Brooklyn. It’s just across the water from Wall Street, so you have a lot of people with very nice brownstones. And then just down the road is the Gowanus, which is still quite a lot of light industrial, so factories, and a lot of social housing as well. So, when Hurricane Sandy came through, some of those social housing apartment towers were without power for more than ten days, and that meant people were actually trapped in their apartments because there were no lifts and there were no lights in the hallways, and things like that.
So, the government was quite keen to look at how they might use something like our technology to build resiliency within the local community. So, we have… Brooklyn has a reasonably high penetration of distributed solar. Nothing compared to what it is in Australia and some other countries, but it’s pretty good, so, there’s a lot of quite active people keen on sustainability. And there were assets already in the community. In the time of a catastrophe or a natural disaster the physical microgrid disconnects from the wider grid and the generation assets within the microgrid will direct their energy towards critical infrastructure.
So, for Brooklyn it’s a high school that would act as an evacuation centre and some medical facilities. The virtual microgrid’s part is… There’s a lot of interest in the project and people that weren’t necessarily on this ten-block radius that would island, were also interested in the prospect of being able to buy and sell electricity from their neighbours. So, we have virtual participants; it all uses the existing grid infrastructures, so the existing poles and wires, and people opt to join the Brooklyn microgrid.
The Brooklyn microgrid becomes essentially, I guess, electricity retailer. They would use an app. So, we have an app that allows people to select where they want their energy to come from, so, fuel source preferences, whatever that might be. So, it’s really about reflecting consumers’ individual preferences. Most of them really like local green energy, so, that’s what’s very in demand. But if you were worried about cost you can select, you know, traditional brown energy. Or, for some reason, wind energy kills birds and so, if you really don’t like wind energy you can select to not have wind energy.
So, they can set fuel source preferences. They set price caps as well. And those, that information, sort of, acts as a bid into a local marketplace. And on this local marketplace people are selling their excess solar generation or any other, sort of, distributed generation, discharge from a battery or also their demand response capability. So, demand response is, we term it megawatts. So, the ability of being able to turn something off. If you have network congestion, that has the same effect as generating more, so, people are also able to set price points of when they would turn things off. So, maybe turn their air conditioning off, or their lights, or what have you.
At the moment we have hardware, so, it’s a smart meter that is both a smart meter and a computer. The marketplace is enabled using blockchain, which I’ll talk about in a little bit, but the computer aspects means these meters are hosts of the blockchain. So, it’s, I guess it’s like a super smart meter. It does everything a smart meter does, but it has a bit of extra computational grunt. Those meters are able to combine with smart devices in the home.
So, this whole Internet of Things, you can have the meter knowing the load of your smart fridge or, you know, your electric vehicle battery, or your air conditioner. And it knows, through the app you set price points, which become bids, into this demand/response market. So, the meter knows, or can offer into the marketplace, your capacity to turn things down or turn things off as well.
MATHIAS STECK Right. So, I think you hinted towards that already, but there’s a lot of transactions going on, so how are these transactions managed and how do you pay for what you get?
BELINDA KINKEAD So, we use a technology, blockchain. So, there are many, many different types of blockchain. The most famous type of blockchain is probably Bitcoin, which is a financial blockchain or a cryptocurrency. So, we’re not… We don’t use a cryptocurrency per se. We have a specific energy blockchain. So, our blockchain is modelled…
It’s designed to model the physics of an electricity grid and the transactions that we undertake are not necessarily in currencies, but in terms of kilowatt-hours or megawatts or kW or… So, it’s very much about the energy… It’s an energy transaction, which you can then plug into a billing system, whatever that may be, and you can settle, but you don’t necessarily use a cryptocurrency.
So, the founders of the company, Lawrence Orsini and Bill Collins… Lawrence had done quite a lot of work in the transactive energy space, which is a, I guess, a philosophy that generation, consumption, storage and transportation should all, sort of, evolve around economical price signals. So, you use price as a proxy for control of all these assets. And one of the issues has always been scalability. So, if you imagine the grid edge becomes all of these, you know, the Internet of Things, all of these devices, all of these distributed generation sources that are able to participate in a marketplace.
For them to really participate you need the transaction costs and also the speed and reliability of those transactions to be very fast and able to cope with, you know, massive volumes of data, massive volumes of tiny transactions. So, when blockchains started to become a thing, they had their little light-bulb moment of this could be the way, this is how we do it.
I mean, there are obviously other ways to enable demand/response capabilities and, you know, have marketplaces, but our vision of the future, I guess, is that the grid evolves to become a series of interconnected microgrids. So, you have a lot of generation that’s distributed amongst the communities that are consuming it, and they’re still interconnected so they can provide support for additional communities or call for support from additional communities.
But, as much as possible, they’re balancing their demand and supply. They’re, you know, keeping their grid stable and that does mean, potentially, billions and billions of tiny transactions. And if you take that across, you know… So, you have, you know, Brooklyn, and then you take it across New York, you take it across the US, you take it across the world. That’s, you know, a big challenge and we think blockchain has the potential to overcome those issues of dealing with that; the sheer volume of little transactions that are necessary.
MATHIAS STECK Right. That sounds like a lot of technology required. Did you do this all yourself or are there any technology partners helping in the project?
BELINDA KINKEAD We are working with Siemens, so, in the Brooklyn microgrid they have a microgrid management system which does a lot of the grid stability services, and we’re actually looking at integrating the algorithms from the microgrid management system into our blockchain. So, essentially, testing whether or not they can, first, communicate with one another so that the microgrid management system understands the blockchain, and then being able to put those algorithms actually into the blockchain.
So, it’s happening without the need for installing a microgrid management system. So, that’s… We haven’t done it yet in Brooklyn, but it’s something that we’re working with Siemens on trying to do.
MATHIAS STECK I see. Okay. So, how is the acceptance of the community? How do they like this?
BELINDA KINKEAD They love it. And it’s really interesting, actually, because in Brooklyn they’re very proud to be from Brooklyn and they’re very big on, you know, Brooklyn-made things. So, whether that’s artisanal, you know, bread or locally brewed beer or, you know, coffee, whatever it is. So, the Brooklyn electrons have a little bit of a social caché and people are actually willing to pay more for those locally generated green electrons. Which is not necessarily what we’re observing or hearing in other communities, but they are actually… They want them and there’s not enough to go around, and they’re willing to pay more for those local electrons.
So, the drive is in Brooklyn. A lot of it is to do with keeping money within the local community. They want… So, rather than their energy dollars going to, you know, a utility company that’s headquartered in Texas, their energy spend stays within the local community, supports local people and local jobs.
I think the first transactions that were done, I think it was, like, $4. That was, you know, a transaction between a neighbour buying electricity and one selling. And he decided he would take his grandson down to the ice cream shop to buy an ice cream with his $4, which is, you know, a really nice symbol of keeping money within the local community.
There was, one of the ladies who was very, an early adopter, or participated, she was very keen on green power and she was horrified to learn that, actually, even though she had, you know, had been purchasing 100% green power for a long time, that didn’t actually mean that she was getting green electrons. And she’s, “oh my God, I’ve been using more electricity because I thought I was doing the right thing, but you’re telling me that actually, the electricity I’m consuming is coming from that coal-fired plant across the river”.
So, for her it was a little bit, well, you know, I don’t want to do that. I want green power, but I want locally generated green power, so I have those very localized environmental benefits as well. And it’s…
So, one of the other aspects of the project is… The community has a lot of differences in socio-economic status. And it’s also about enabling people that don’t own a house, or maybe don’t have a suitable roof or a suitable site for putting in their own distributing generation, or don’t have the upfront capital that’s involved. Or you live in social housing or you’re renting.
Being able to give those people an opportunity to also participate, in terms of owning a community asset. So, there is an option in the app where people can, you can see where are the solar panels or other distributed resources located already within the community. And is there a site that you think would be suitable for a community owned asset? So, you know, a roof of a school or somewhere else. And then it gives people the option to put a little bit of money, like a crowdfunding, you know, $50 or $250 into a community owned asset. So, even if they can’t afford a system themselves, they still get that ownership, or part ownership of a community asset.
And the fact that people are willing to pay more for the local electrons, that’s a really strong signal, price signal, that there needs to be more investment in that type of asset within a community.
MATHIAS STECK Okay. So, when I invest into a community asset, do I get power for cheaper or do I get a discount? So, what is my benefit there?
BELINDA KINKEAD You have options, but it could be that you get a return. We’re still trying to work that out with the financial services in New York, but it could be that you get some of the electricity for free or that you earn a return on your portion of electricity that was sold within the local marketplace.
MATHIAS STECK Oh, okay. So, that sounds really incredibly exciting, but what I also hear is that you are on the verge of cutting intermediaries out. You are still using the local distribution network. So, what about regulatory barriers and scalability of that project?
BELINDA KINKEAD It’s a good question and yes, the regulatory barriers are significant, I would say. So, I think we have an idea, and I would say many utilities see the future is moving towards a lot of distributed generation. And it’s important to have that distributed generation integrated in some way. So, we kind of know what the endpoint is, but there are many different paths to get there.
And for regulators it’s, it’s a big change. So, we’re moving from very centralized generation and long transmission distribution networks to a very bi-directional grid where you have many, many sources of generation at the grid edge able to put electricity back into the system. And it’s not what it’s been designed to do, and I think there’s a lot of questions for regulators about what the impacts are, how does it fit within the existing regulation, and it also involves changes to tariffs, potentially.
So, for example, network companies in a lot of countries, they earn guaranteed returns based on the capital that they spent. And, you know, the case in Australia, for example. A guaranteed return of whatever it was, seven or 8%, based on how much copper went in or out. And that has changed now, and a lot of electricity bills in Australia, 50% is network charges. And people get kind of annoyed about that, especially because once that infrastructure went in that’s when energy demand started to actually taper off.
So, it’s over-built the grid, in some areas. But, of course, for a lot of those players they’re incumbent and, you know, people need electricity. Electricity is really a… It’s not a desire, it’s a need. It’s a necessary service, so, regulators need to be sure that people will still be able to turn on their lights, still be able to access, you know, power. So, for a lot of the places where we’re looking at trialling our technology, we’re working with regulators to, sort of, carve out a little bit of space or what’s called a regulatory sandbox, where we can experiment, work with real people, real businesses. And they will give us a dispensation from some of the regulations. And they want to watch what happens and see how people use it, what are the impacts, what are the potential unintended consequences.
And if there are winners and losers from this move, who wins and who loses? If it’s in theory, consumers should be able to get cheaper electricity, more reliable electricity, which is great. But if they don’t, that’s not great for the regulator. If it’s retailers and, you know, distribution companies who are losing some of their profit margins, well, you know, is that politically acceptable? It’s probably more acceptable than consumers losing out.
So, there’s still a long way to go and it’s a lot of… that’s primarily what we’re doing at the moment, is testing something like the Brooklyn microgrid in different regulatory regimes, but also different communities and cultural settings, to really… You never predict how people are going to engage with it, and they’re very… they’re not necessarily economically rational as well. So, it’s very interesting for regulators to have hard data on, we installed it, we put it in this community and this is actually what happened, which speaks volumes compared to this is what we modelled.
Having hard data, I think, is what will make regulators more comfortable. And then it also helps us so we can, sort of, tweak how we engage with communities or how the platform works.
MATHIAS STECK Very interesting. Unfortunately, we are running a little bit out of time for this episode, but I have one last question for you. This is the special Singapore International Energy Week edition. So, what was your main takeaway from Singapore’s International Energy Week in 2017?
BELINDA KINKEAD Just how quickly renewables are growing in Asia, and that there’s a lot of, I would say there’s a lot of potential. It’s not necessarily under the pressures that some of the developed countries are, you know, like Germany and the US and Australia, with the penetration rate of distributed generation. But it’s definitely coming, and I’m amazed. There are a lot of people that are interested in blockchain as well, so, there’s a lot of opportunity in Asia, I think. So, watch this space.
MATHIAS STECK Belinda, thank you very much for these very valuable insights, and thank you very much also to the listeners for joining us here again. That was Belinda Kinkead, Director of LO3 Energy, talking about the Brooklyn microgrid. Unfortunately, this episode also brings us to the end of Series Three of DNV GL Talks Energy. I hope to talk to you soon again. Thank you very much for listening.
NARRATOR Thank you for listening to this DNV GL Talks Energy podcast. To hear more podcasts in the series, please visit dnvgl.com/talksenergy.