Article contributor: Jonathan Koch, Junior Analyst, CTG
LO3 Energy is the organization behind the Brooklyn Microgrid. The company recently announced the launch of EXERGY, a blockchain-based energy marketplace that aims to empower consumers with access to and control of their energy data, and redefine how they interact with energy markets globally. To learn more, we spoke to Lawrence Orsini, the company’s CEO, who will join us at next week’s Cleantech Forum San Francisco on January 22-24.
Jules Besnainou: What is the story behind LO3 Energy?
Lawrence Orsini: I started in the energy industry in 1999 in the midst of the California deregulation, and I found myself settling in a nonprofit consulting company that was working on energy efficiency projects. We grew that company from 25 people to about 480. I left the company probably around 2013 to develop LO3 Energy.
At that time, it was clear to me that energy markets were shifting dramatically, just watching the dropping prices of distributed generation, what fracking was doing to coal, and the push for data analytics at the grid edge. I started LO3, spent the first couple of years actually just writing IP and designing business models, and then moved to develop hardware and software in the past three years. The goal was to get ready to take a leadership role in this new emerging distributed energy economy by focusing specifically on enabling peer to peer network transactions and this full vision of transactive energy. The idea being that you can transact small bits of energy and then take a much broader value stack for that, not just the kilowatt hours but all the grid services.
I think at this point we’re around 25 people internally, and we employ probably a little more than that as consultants, externally, for a lot of our development work.
JB: Did you start the company with the idea of being a hardware company, and moved towards software later on?
LO: Well, the hardware didn’t exist and still doesn’t: there simply are no utility meters that can hash a blockchain and contribute data at the scale that we need them to, so we had to build our own hardware. We don’t want to be a hardware or metering company in the future, though. That’s why I’m working with partners to identify meters that could do some of the work, and talking about ways they could update their devices to host the EXERGY network.
JB: Did blockchain always have a part to play in this solution, or did it emerge as a potential enabler along the way?
LO: I’ve been looking at transactive energy since probably around 2003, and it was clear to me early on that what was preventing it from happening was the ability to organize distributed loads and storage, and the billions of smart devices at the grid edge. As I moved from San Francisco to New York in 2013, I spent some time at the bitcoin center, which was a few blocks from where I lived, and learned about blockchain. I fairly quickly determined that we could use that technology not as a currency, but as a communications platform, as a way to efficiently organize grid edge device control or at least provide prices as a proxy for control at the grid edge.
JB: How exactly are you using blockchain – as an informational layer or a transactional layer?
LO: Both. It’s an information layer that informs transaction. The transactions themselves in the early stages are happening via self-executing contracts, and this information is carried across the blockchain.
The focus is not to have cryptocurrency transactions. Nobody really pays their electricity bill with cryptocurrency today, and we don’t want that to limit the growth of the technology. People paying for kilowatt hours with tokens… I just don’t see that scaling quickly enough to have much of an impact.
JB: You were recently quoted saying that you’re using blockchain to run a grid rather than to do financial settlements. Can you tell me what kind of blockchain you’re using and how it deals with the grid?
LO: Sure. It’s a proprietary blockchain. We started off using Ethereum, but as it became clear that Ethereum wasn’t going to scale, we started building our own. So, we’re running a proprietary blockchain, which is really about transporting information about grid edge telemetry. That means everything that is happening on the grid, not just kilowatt hours, but also volts, vars, phase angle, reactive power, real grid telemetry. Because when you run a grid, you need that data, and the ability to transact a value of those devices that offer responses to that grid telemetry. Ultimately the vision is to create a value stack of grid edge information. Think of it as demand response, reactive power, and being able to sell these services using your grid edge devices. Your light bulbs, your appliances, your heater would all be responding in real time, machine to machine, to grid edge information.
The first phase we’re working on today is transacting the value of kilowatt hours being generated. This year, we’re going to start transacting with the value of negawatt (negative watt), meaning the ability to control or organize the reduction of loads at the grid edge. If you know where the loads are, you can target where you’re going to turn things off and alleviate congestion on the grid based on predictive analytics and power flow calculations. That’s one of the projects we’re working on in Germany.
JB: Does that mean that you’re going to have control over more and more hardware? Meaning, if you want to turn off my toaster to avoid congestion, does that entail control at the granular level over individual devices?
LO: We’re not controlling. I would never set up a company that controls peoples’ devices. I wouldn’t use it, and nobody else would. What we’re doing is providing prices as a proxy to control. You get to decide how your devices interact with the grid edge. You enter the parameters for the devices to manage themselves at the grid edge based on grid edge telemetry and the value for their control.
JB: And would that put the onus on the user to make those decisions?
LO: Yes. Although I would think of it less as the onus, more as the opportunity. The real opportunity here is that you’re now going to be exposed to the transactive layer. Think about having smart appliances and devices that now start having payback, and generate revenue by offering up grid services for control.
JB: Do you think those gains will be sufficient to maintain customer engagement?
LO: Yes. My previous job was to design large scale energy efficiency retro-commissioning that engaged customers on something far harder to sell, and we were incredibly successful at selling it, so I’m comfortable that we’ll be able to engage people with this model.
JB: Can you reflect on learnings from the Brooklyn Microgrid in terms of customer engagement?
LO: Yes. Most of the interest in Brooklyn is really around ‘buying local’ and in having local impact. People understood that we weren’t talking about RECs, we weren’t talking about the global impact of efficiency or renewable energy production; we we’re talking about the local impact, and a lot of people were interested in buying from their neighbors and driving change by helping the community.
JB: Is the time users will have to spend making decisions on the system and devices not a concern?
LO: You need to think about the experience that you’re creating for the user. It’s not about day trading electrons, nobody will ever do that. It’s more about the community experience and reinforcing community values by providing avenues for community investment.
There is for example a micro investment module to be added. In the near future, you’ll be able to invest in local energy production assets, and you’ll get to decide if you want to sell your shares in it or use the energy for yourself – or if you want to gift it to a local community shelter. These are all options that people never had before. Currently you don’t really have a choice, you pay what the utility wants you to pay. Every time you take people that had no choice in the market and you give them a choice, the first 30% of the market is going to move very quickly.
We have people from all over the globe reaching out to us. We’re actually just launching the community microgrid app, which is a global app that gives people the tool to start building their own generation assets and start their own community microgrids wherever they are.
JB: Speaking of international expansion, how much do your projects and business models change from one country to another?
LO: It’s different on every continent, in every country, and sometimes in every state. It’s not in any way ‘one size fits all.’ So, what we’re really focused on is testing models and seeing where the emerging models really stick and using that to drive regulatory change. You’re not going to get the market to move with a technology-focused market intervention. You have to work with the regulators on the back end to enable the entire market to move through the transformation process. That’s 30% of my time, flying around the globe and talking to regulators and policy makers.
In terms of differences, I think Australia is going to move first to transactive energy models because they have grid physics issues, significant market manipulation issues, a lot of sun and a lot of batteries, and have strongly independent people. Europe is probably going to move after that, but for different reasons. The projects in Germany are very technical projects, rooted in good physical infrastructure and in partnership with distribution system operators to help them organize loads and storage, EVs, and generation. The US is probably going to be the slowest to move, but it’s the biggest and the one with the most regulatory overhead as well as embedded lobbying power, so it is going to take a while to push things to shift. But that doesn’t mean it’s not going to go.
JB: Can you explain the transition from Brooklyn to EXERGY and what prompted it?
LO: Sure, EXERGY always has been the driver. It became clear to me early on that we never had an energy problem but an exergy problem. Energy is made out of a few components: anergy is the amount that will be lost as waste in the system, and exergy is the amount that is turned into useful work. We don’t have a problem producing energy, we have a problem making it into useful work, due to conversion process, the transport process, the consumption, all the way down to the device use process. There is incredible waste in the system. Today’s energy economy is really focused on the production of energy, not the production of work.
EXERGY is about enabling the market shift to an economy that looks towards useful work more than it does to the production of energy. The platform itself is, at its core, about releasing grid edge data, so that devices can start to respond in real time to actual grid edge telemetry. Enabling devices to respond to a burn out, or a congestion, or over-voltage. Getting that data and localizing, at the granular level, is really the function of the platform.
Also worth noting is that data in different speeds or resolutions has a different value. The faster you can get the data, the quicker you can respond and the more value there is to whatever that intervention might be. In the future, we might be able to look at something like synthetic inertia on the grid, so pulling large scale power plants off the grid that are idle, waiting for loads to hit the grid, and having instead loads themselves respond in very quick timescales. It’s not environmentally or economically efficient to have big spinning reserves sitting on the grid and waiting for loads, that’s just a system without exergy in mind.
JB: So, the EXERGY project aims to be a marketplace for data from endpoints?
LO: Right. The idea is that you can get that data at the right timescales, you can verify it, you can localize it, and then developers can build on top of that data. You can build apps that do many different things, like demand-response and so forth.
The launch of EXERGY will also incorporate a foundation whose real focus will be on building the value of the network, expanding the network and providing that data to people to build on, because the more data you have the more valuable the system becomes for everybody, and the more investment goes into grid edge devices that can respond. This has the effect of significantly reducing the investments that are made by utilities and shifting from grid center to grid edge, allowing new participants to enter this market.
JB: How will the tokens fit into that picture?
LO: Think of it this way. You’re a participant on the market, you have your meter, your smart light bulb, and the information created by those things is a valuable commodity. Through the network you’ll be able to permission that, so that other people can buy that value from you. If I’m a utility and I haven’t installed smart meters, instead of installing smart meters, I might just buy the consumption data from you. The ability for you to permission and de-permission that access to the data, as a consumer or a retailer, is key. You have control of your data.
JB: So, the token will be used to kind of purchase and sell data?
LO: Again, purchasing can happen across that data, purchases won’t need to be with a cryptocurrency. Apple Pay, Android Pay, your debit card, whatever it may be – there are a million services that help you settle bills across information. So, again I’m not a fan of pretending we’re going to put a kilowatt hour token into the market, that’s just not going to be the biggest interest for anybody.
JB: Can you tell me a bit more about the choice of launching a token sale right after a very successful venture round. Are they following different objectives?
LO: No. We’ve planned for this roll out to happen, it just moved a little bit quicker than I was hoping for, but the market is just moving so much faster than I thought it would.
JB: Is the sale going to be opened up to the public at some point?
LO: Yes, it will. Realistically, I’d say in Q3 or Q4.
JB: How soon are external developers going to be able to play around with that and build applications around it?
LO: The timing will be around the network release, which will be open source. Once the network is open source, you’ll be able to start building on it. That’s when we expect people to really get engaged – probably in Q3 or Q4 of this year. We’re still working on the blockchain right now, and there are some improvements that we definitely want to make. We’re trying to get block speed down even further, although we’re already at around a second/block speed at the edge, but we want to get it down even further.
JB: Thank you, Lawrence!
Interested in hearing more? Lawrence Orsini will be speaking at our Cleantech Forum in San Francisco on January 22-24 for a session on Blockchain in Energy & Industry: A Growing Intersection.