Podcast #50: Platform For a New Energy Economy

Good day everyone, this is Ed Maguire Insights Partner, with Momenta Partners, with another episode of our Digital Disruptor Series, and with us we have Dave Martin who is the Co-Founder Managing Director of Power Ledger, which is an extremely interesting and innovative company based in Australia, focused on helping to advance a once in a lifetime, or even once in a century, transformation of the energy industry. I’ll let Dave tell you more in his words, David it’s great to have you on the podcast. 

It’s great to be speaking with you Ed, and thanks for your interest. 

I’d like to dive right into it, could you talk from a very high level what’s the big macro problem that Power Ledger was created to address? 

At a very-very high level what we’re to do is limit the impact of the disruption that’s being caused by the spread of distributed renewable energy resources, so things like PV systems, batteries, micro-wind, community scale renewable energy resources, which if not managed can really reduce the economic efficiency of networks, electricity networks, particularly distribution networks, and then impact consumers who are unable to play in that DER space. So, as more and more renewables come onto the grid, as more consumers look towards self-sufficiency, the underpinning economics of electricity transmission and distribution become undone. For those people who can’t participate in that environment, that means a rising cost of energy, and a particular serious problem around managing what is a very important social asset. 

Let’s talk a little bit about what you put together with Power Ledger, talk about some of your offerings and the technologies that have come to bear. 

Maybe I should go back to why we started, and what we’re seeing here. Western Australia, Australia generally is a bit of a canary in the coalmine I think for the energy industry, because we’ve got such a deep penetration of distributed renewals. Where we are in Perth its greater than 1 in 4 households now have rooftop solar, in other parts of Australia it’s more than 1 in 3, so we’re starting to see the impact of unmanaged penetration of distributor renewables, we’re starting to see the low perfection  that’s occurring, we’re starting to see a rising contribution of network costs to the overall cost of distributed energy, so we’ve got a bit of a heads-up on the rest of the world. 

What we did with Power Ledger is recognized the fact that if we didn’t find a reason, an economic principle that said to a consumer with DERs, stay connected to the grid, monetize your excess energy, participate in the system. Well, if we couldn’t do that then the next best thing for those individuals was to install storage and to disappear from the grid. As storage becomes more affordable, more available, more and more consumers are looking to follow a narrative which says, ‘Get off the grid, become completely self-sufficient to the extent you can, and use renewable energy because it’s good for the environment’. What that doesn’t factor is that the diversity you get, the ability to optimize the diversity of energy demand by being connected to the network means we can share the benefit of those distributor renewables, we don’t have to install as much capacity, and we can reduce the cost and carbon impact of energy far more successfully, if we can keep those assets connected to the grid. 

So, Power Ledger as a training platform is intended to create an economic environment where consumers are incentivized to install distributed renewables, but they’re also incentivized to stay connected to the grid in order to monetize their investment. 

You’re using blockchain technology as a way to track the exchange of power and value, but also as an incentive as well. Could you explain how the role that blockchain is playing in the broader solution, and how you’ve set up the ecosystem as well? 

I guess the reason why blockchain is such a great tool for the challenge that we’ve got with the energy system at the moment is, it deals with the complexity of transactions. Historically in the energy space we’ve had linear transactions, big power stations pushed energy to consumers via transmission and distribution networks, and consumers had one-way relationships with their utility or energy retailer. But that’s breaking down now as more and more distributed energy resources go out into the grid, those physical transactions are multi-party, they’re multi-temporal, and they’re for different services. They’re not just for energy, they’re for capacity, they’re for frequency control, they’re for a range of things, so what blockchain allows us to do is manage the complexity of those transactions, better than any tool we’ve been able to see at this point in time. 

With that platform we basically read all the meters all the time, at a very high level. We’re seeing what’s being produced, by whom, when, at what price, through what mechanism. We’re seeing what’s been consumed, where, when and by whom, and again at what price, how that energy is being transferred, or how that service is being provided, if it’s a network or a market service. By using blockchain we can create an immutable record of all the physical contribution to that energy transaction, and because it’s an immutable record we can then tie financial transactions to those, and we can settle that transaction in virtually real-time. So, we can reduce the cost and timeframe of energy transaction reconciliation and settlement, we can reduce the risk of non-payment, we can provide consumers with a greater real-time incentive, and sync it for participating in demand side management, or other energy management services.  

So, blockchain is a really important tool in this environment, but what it allows us to do is to encourage distributed consumers to play a more active part in the operation of a highly-efficient, secure and resilient energy system. 

Could you talk about this emergence of the distributed grid, and this is something I think you alluded to, that Australia is certainly at the leading edge of adoption of solar technology, rooftop solar in particular, but also the adoption of microgrids. Could you talk about the inherent challenges that face existing systems and utilities, when you start to build out let’s say a distributed energy grid, and how you look at the role that your solutions are going to be able to play in helping to bridge some of those challenges? 

I think the number one challenge isn’t a technology one, the number one challenge your facing now is a cognitive one. We’ve been running this system virtually the same way for the last 60 or 70 years, and we still have at the core of all of our systems our total governments framework, whether they’re market frameworks, regulatory frameworks, or commercial frameworks, this sense that there is a command and control centralized planning role in the development of the system. That’s been the case as I say for the last half a century, but now the people who are going to be the developers, installers, and operators of the energy system of the future are property developers; they’re people building the new sub-divisions of the future, the new apartment towers, the new smart embedded networks, the new smart microgrids. It’s not necessarily energy companies themselves that are going to be the ones in control of how the system evolves into the future. 

So, that idea of being able to command and control, or centrally plan and deploy is breaking down. The way we can best manage those systems is to think of them now as an ecosystem, rather than a hub & spoke model where somebody is sat in the middle controlling everything, we need to put signals into the market which encourage consumers to operate their particular element of the system, their DERs, in a way that’s sympathetic with the rest of the system. So, platforms like Power Ledger that allows the creation of an economy where consumers are actually incentivized, financially incentivized, who operate their DERs in a way that’s sympathetic with the rest of the system are going to become more and more important. DERMS (Distributed Energy Resource Management Systems) have been around for a while in various forms, Smart Grids have been around for a while in various forms but they haven’t proliferated because they’ve been expensive, and when a centralized utility has looked at the cost benefit of installing distributed resources to improve reliability or resilience, or reduce cost, it hasn’t stacked up because they’ve had to go out and install not just the switches and the sensors, but they’ve also had to install all the hardware as well, all the energy resources, storage and generation. 

Now, consumers are doing the bulk of the heavy lifting, they’re installing the DERs, the batteries, the inverters, the solar systems, and now it comes down to how we incorporate those assets into a system, and orchestrate their behavior. So, platforms like Power Ledger that provide an economic signal to a consumer, to allow other people to operate their systems, or to allow AI to operate their systems in a way that maintains the viability of the grid, are important, and are going to become I guess the mainstay of, rather than one big centralized system, a group of decentralized but integrated, and dynamically integrated micro grids micro networks, smart circuits, and embedded networks. 

It really is a massive transformation, kind of unprecedented at least in our broader energy-dependent economy.  

It isn’t though, because the energy industry has dealt with technological change really well, for a long time. The generating technology has changed remarkably, power electronics has changed remarkably, we’ve been really good, I’ve been involved in the energy industry for nearly 20-years, Power Ledger has been around for three years, I’ve been dealing on this point for a little while, but I see myself as an energy market participant. As such, the energy market and the energy system has been good at integrating technology. Where that challenge now sits is that we don’t have control anymore, we need to find a new cognitive model for how this system will operate into the future. If we don’t, the disruption that’s already occurring will continue unabated, will have property developers building new micro-grids as they build new cities, and if they’re not integrated with the larger grid, then we’re missing an opportunity. That disruption will occur unabated, and I guess that’s the real challenge for us; how do we not try to control the disruption which provides signals to the disruptors, to continue what they’re doing, but doing it in a way that’s sympathetic with the rest of the grid? 

Could you talk about some of the offerings that you guys have put together, and how those address different aspects of the value chain? 

At its core, Power Ledger began as an energy trading platform. As I said earlier, we read all the meters, we read all the consumers, and we could create a transaction between a generator and a consumer. I guess that is our base capability, but you can extend that if we can identify how consumers are trading or generating energy, we can create a marketplace, but we can also create on the basis of a very fast, low cost, in-autonomous environmental attribute valuation model, so we can create very quickly that, without measure, and report on the creation of carbon certificates and other environmental attributes. We can use the power of blockchain to create a financing model that allows individual investors, retail investors or community investors to invest in distributive renewables, at a scale that they haven’t been able to invest in previously. 

So, all the offerings we’ve got around energy trading in micro-grids across networks, electric vehicle integration with those things, the discharging potentially of electric vehicles into those grids, all of that sits around our trading capability. Building on that is our environmental certificate, validation reporting and trading, and then from there the financing of renewable generating, distributed renewable resources.  

So, it’s probably those three things, energy trading, carbon creation and management, and energy financing. 

You’ve been pretty active in terms of having projects that are out in the field. Could you talk about at least some of the projects that you’re involved with, and how they’re tracking so far? 

Probably my favorite project of all of them, because it demonstrates the power of the creation of an economic model in this environment is, my microgrid that we’ve developed in Bangkok with a company called BCPG. In Bangkok we have six or eight buildings involved in an energy trading environment, there’s PV installed on some of those buildings, so buildings that are part of a school, and apartment building, a shopping mall, a dental hospital, they all have very different load profiles, they all have very different roof spaces. Just as an example, we can plaster the roof of the school with PV, but for 12 weeks of the year there’s nobody there, and on weekends there’s nobody there. So, historically that school will have been incentivized to install enough PV to cover their minimum demand.  

Now they can install enough PV to cover their maximum demand, knowing that when nobody is there, they can sell their energy to their neighbor, knowing that in an apartment building or a shopping mall there’s always going to be demand for energy at the time that they’ve got an excess of generation. So, we can create an environment where somebody can install PV in those buildings, confidently, and know that they can sell 100 percent of the energy that’s produced. The owners of those buildings know they can contract for 100 percent of the energy that is produced, knowing it will off-set their grid demand, and even when they’re not able to consume it themselves, they can sell it to somebody else who will. 

It creates an environment that incentivizes the installation in a large way of distributive renewables, and uses the diversity demand over multiple consumer types to optimize its performance. Now, that’s a microgrid that’s dynamic, it operates across the MEA’s (Metropolitan Energy Authority) distribution network in Central Bangkok. If we can do that in an environment in a city with such a dense power demand as Bangkok, we can do it anywhere. 

Then the other projects running in the US, on the West Coast, a project with Silicone Valley Power where we’re helping them automate the measurement validation and reporting of the creation of low carbon fuel substitution credits, making that process far simpler, lower cost, faster, and enabling them to monetize the creation of the environmental attributes, attributable to their energy production in sales. 

Then back home in Perth, we’re running a smart cities project where for the first time consumers in that trial are able to set their own buy and sell price for energy, so the creation of a real dynamic market at a distribution level, where some consumers have PV, others are just buyers in that environment, and they’re interacting in virtual real-time to set that buy and sell price, depending on how they feel the cost of energy and the value of their consumption plays out at that point in time. 

So, that’s three projects. We’ve also got projects operating in Japan, and a number of commercial deployments within apartment buildings in Australia. I’m working now with one of the largest shopping center developers in Australia to help them monetize their investment in renewables and their shopping centers, by giving them the ability to transact directly with tenants in virtual real-time. 

It is amazing how the enablement of these multi-source grids is so closely tied to the ability to monetize excess capacity, and normalize both the demand curves, as well as the timing of supply, and it seems like the world is ripe with opportunity. 

Could you talk a bit about who would be your typical customer, and how a company like Power Ledger operates in this ecosystem where there’s a lot of interdependencies. Who is your customer, and ultimately how will you guys grow as a business? 

When we first started, we saw ourselves as an energy trading enabler, we were creating software that allowed us to help people trade energy. We realized pretty quickly that if we didn’t become a platform, then in order to achieve our aspirations for working on the spread of distributed renewables, we would have to become enormous. We took what was an application and turned it into a platform, to enable other people to use that platform to create trading environments. So those people are probably what you would refer to as our customers, so at this point in time they are utilities like KEPKO, The Kansai Electric Power Company in Japan, where were working with them to help them develop a virtual power plant model where they can use our platform to reward consumers in real-time for their participation in the system. In Japan our customer there, BCPG is a renewables installer, so they’re using our platform to provide their customers with a broader benefit, which helps them sell more solar panels. 

In the US we’re working with Silicon Valley Power, so again a utility, helping them to monetize their investments in distributed renewables and EV charging capacity. Whereas here in Perth we’re working with the Network Company, and a retail company to help them include their consumers in the management of the systems. So, encouraging consumers to install capacity where there may be a need for investment, though they can defer that investment; or using customers to mitigate peak demand incidents, or to shift load, those sorts of things. We’re also working with property developers who are looking at a completely new model of property development, where rather than just building a new subdivision of 1,000 houses and connecting it to the grid like they’ve always done, seeing an opportunity to create those new developments as microgrids or smart embedded networks, incorporating generation and storage in those developments, reducing the cost of supply to consumers, and reducing the carbon impact of those developments as an incentive to sell those lots of land. 

So, our customers are a pretty broad group, largely energy consumers, but they range from property developers through to the utilities themselves. 

It sounds a classic platform model for a technology company, that you’re enabling partners to create value and essentially applications, or applications of different technologies to drive business value. That’s pretty exciting. It’s still a very early market, so the idea that there’s going to be a lot of established competition is maybe a premature question, but I’d be interested to get a sense of how much of your sales process is still evangelization, and whether there are alternative approaches, or competitors that you need to position yourself for projects that your winning? 

Yeah, to differentiate ourselves. I think you’re right, I think there is still a lot of evangelization. We are still having conversations around the future of the energy system and that transition, though the conversations now are less about us saying, ‘Hey, there is a problem here, there’s smoke on the horizon’, and more about saying, ‘Well this issue, this problem, this transition that we’re all experiencing now, there is a way, a new concept or paradigm for addressing that’. It isn’t about everything getting smaller, or the commercial opportunities shrinking, they’re about growing the pie, growing access to renewable energy, growing access to low-cost energy.  

So, evangelism is still there and a big part of what we’re doing, but its less about convincing people that there’s a problem, and more about identifying and talking about what the solutions might look like. In that regard there are a small number of other companies like ours, proposing similar kinds of models of the future, sometimes using different technologies although blockchain is starting to become a central thread, because of its ability to deal with the complexity of the transactions, but slightly different model; some looking at operating in a wholesale space, some looking exclusively in the microgrid space. 

I think our differentiation is that we are trying to integrate a new energy future with the old one. We’re trying to say there is an opportunity to protect the value of the old system, by incorporating a new way of doing things; we can drive utilization of the old system by incorporating a new model that is largely funded by consumers, and I think that’s probably our differentiation point. We’re still evangelizing on the technology because blockchain itself is still a relatively nascent technology, and there’s a lot of hype around it, so in that regard it’s easy to get doors open than having a conversation around how blockchain can work in these environments is part of our sales process, but one that’s getting easier and easier, as the technology is getting easier, or better understood. 

Then the competition is coming as you’d naturally expect, because people are waking up to the market opportunity. But in a lot of ways, that competition is great at this point, because its validating the argument we’ve been making for the last few years, in that we need to find a way to steer this transition, we can’t necessarily control it; but if we can steer it in a way that maintains the viability of the system, then there’s opportunities for lots of players. The competition really is different, it’s emerging, but it’s helping to validate the argument that we’ve been making. 

Absolutely, and as you look forward over the next decade, what are you most optimistic about, and are there some concerns that keep you busy, or keep you up at night? 

There are a couple of concerns, when I see government policy or subsidies for the spread of distributed storage, without an economic model to sit behind it, I worry that we will miss the boat, and the narrative around disconnection wins that day, and that consumers will defect from the grid and other secondary markets to support grid defection will emerge, and the value of the grid will be fractured. 

But then I look at the ingenuity of the innovators in this space, and the work of property developers now who are vastly nimbler and more creative than some of their utility counterparts, and I see that the options are growing. 

So, I’m pretty optimistic around what the future holds for energy, I think we will get to a state where the energy system will be largely renewable, and it will become lower and lower cost, and more accessible to more people because of the scalability of the technology. So, I think the next 10-years will go faster than the previous 10-years, and there’ll be more change in the energy space than probably the previous 100 years. But its heading in the right direction, and if we can create an economic model that supports the disruption that’s coming from the change technology model, then I think it’s a really positive future for the energy industry. 

Absolutely, and my final question is about your global view, and given that you’re operating on multiple continents, are there any distinct differences in the adoption curves, or awareness across the different projects that you’re involved with in different regions, which stand out to you? 

In areas like Australia and the US, and parts of Europe where we’ve had well-entrenched regulatory frameworks for multiple decades, the conversation around changing those regulatory frameworks is difficult, not impossible, and getting easier, but its been difficult because we’ve been doing this thing the same way for the last 50-years, and giving that up is hard work.  

But environments like Thailand, SE Asia, even Japan, where those regulatory frameworks aren’t as entrenched, they’re not held onto as dearly or as tightly. So, we can have a conversation around new ways of supplying energy, and new opportunities for consumer interaction with the market which are simpler. The conversations in Thailand are a great case in point, and we are trading across the distribution network in Bangkok without a regulatory model to support how that occurs, but we have a really involved and forward-thinking energy system over there, and a group of energy policymakers and regulators saying, ‘Well this is the way of the future, let’s find a way to make it work, and lets change the regulations because there’s nothing to lose’. 

So, depending on where you are, what part of the world and how entrenched those regulatory frameworks are, progress is faster or slower. But the good news is that as we demonstrate the opportunities in place, just like Thailand, Japan, and on the West Coast of the US, other jurisdictions are looking over the fence and saying, ‘Well, if they can do it, we can do it. If they can get access to low-cost and low-carbon energy, if they can encourage the consumer to make the bulk of those capital investments, then why shouldn’t we be able to do that as well?’ 

That’s fantastic. David it has been illuminating hearing the story, I think all of us are very excited when we hear the changes that are possible with a new way to exchange value, and generate and consume power, it can be evolutionary/revolutionary at the same time, and transformative as well.  

Thank you so much for taking the time David, really appreciate it. 

My pleasure Ed, any time. 

This is Ed Maguire, Insights Partner at Moment Partners, and we’ve been speaking with David Martin of Power Ledger, and thanks once again. 

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