Our energy system is decaying. Decentralization is the answer.
TL;DR:
- The centralized energy model is failing. Monopoly institutions can no longer provide the services we need. Decay has set in.
- The electron is becoming the most important commodity in the world. Reliable, inexpensive access is imperative.
- Decentralization is the key to a resilient, cheap, intelligent, and consumer-centric energy system.
- React is building a decentralized energy protocol to accelerate the transition to a decentralized energy system.
The need for clean, reliable energy has never been more urgent.
Energy is society’s most foundational industry. It underpins the entirety of the economy- transportation, manufacturing, computing; energy is a core input to every sector of the economy. Humanity’s growth is linked to energy.
Our energy system is undergoing the most significant paradigm shift since replacing whale oil with kerosene. In the battle against climate change, our energy system is shifting from fuel-based to electricity-based. We often refer to this as the electrification of the economy. In this new system, the electron replaces oil as the world’s most critical commodity. Reliable, inexpensive access to electrons will be critical for building modern economies.
But our energy system is decaying.
The centralized model pioneered over a hundred years ago is no longer sufficient. When our electricity system was first constructed, economies of scale dominated. We built massive, centralized power plants away from our population centers, and then constructed miles and miles of wires to pipe electricity one-way to serve our cities. We granted government-protected monopolies to utilities to operate the system and preserve reliability.
The centralized energy monopoly model is broken. The reliability of our energy system is at an all-time low. Bureaucracy is stifling innovation and expansion. Energy prices are reaching all-time highs in many areas, with no signs of slowing down.
The war in Ukraine has wreaked havoc on the European energy system. As a result of Russia turning off Europe’s access to its natural gas resources, power prices are spiking. This volatility in prices is a clear signal of the fragility of centralized systems.
In the U.S., electricity rate inflation is becoming a major problem. 20 million people (nearly 1 in every 6 homes) have fallen behind on their utility bills. The average retail electricity rate in the U.S. has increased to $0.16 / kWh, a record high. August electricity bills for U.S. consumers increased 15.8% from the same period a year ago, the largest jump since 1981.
Meanwhile, the U.S. energy grid is crumbling. Most of today’s grid infrastructure was built in the 1950s and is well past its 50-year useful life. The U.S. records more power outages annually than any other developed nation. Major power outages (defined as affecting more than 50,000 homes or businesses) increased 10x from the mid-1980s to 2012. Weather-related outages doubled from 2003–2012.
Variable renewable energy compounds the situation. While renewables bring significant benefits to energy grids including carbon-free generation, cheap prices, and energy independence (by removing the need for fuel inputs), they make the grid much harder to operate. Renewable energy sources are intermittent, meaning energy generation is primarily from sources that do not have guaranteed availability due to external factors that cannot be controlled (e.g. sun and wind). Historically, the operation of the power grid has relied on the ability of power generation to be highly controllable and responsive, allowing it to be adjusted to precisely match demand. Without this balance between supply and demand, the grid fails.
Intermittent generation from renewable sources means that we need to find new ways to balance the grid and ensure our energy system can decarbonize while remaining stable. The centralized model is no longer sufficient.
The electron is becoming the world’s most critical commodity. It is imperative to rearchitect our system to prepare for an electron-based economy. The centralized model has demonstrated that it no longer works. Our new system must be decentralized: energy generation and storage located in our homes and buildings, coordinated together to route electrons back and forth just as the internet routes packets.
Our new system will replace centralized, archaic systems with distributed energy. Distributed energy resources (DERs), like solar and energy storage, allow energy to be generated, stored, and consumed on-site. By generating and storing energy at the point of consumption, we will make the new grid:
- ⚡Resilient
- 💵Cheaper
- 🧠Intelligent
- 🏠Consumer-centric
Resilient
Decentralized energy increases the resilience of energy supply. In the centralized energy system, thousands of miles of wires and expensive infrastructure such as substations and transformers hold the system together. This creates significant fragility — a failure at any point in the system causes a failure in energy supply. This is increasingly problematic as blackouts become more common (as we’ve seen across CA and TX) and natural disasters increase in quantity and scale. Decentralized energy systems are antifragile. Individuals and communities can generate and store their own energy, eliminating their dependence on aging infrastructure.
Cheaper
In many places today, the cost of DERs cheaper than procuring energy through the old centralized model. The only major cost associated with solar and storage is the one-time capital expense because they have zero marginal cost. There are no fuel costs, and once installed ongoing operation and maintenance costs are very low.
As of September 2022, the average U.S. electricity rate was $0.16/kWh. Today, the average cost of rooftop solar is equivalent to $0.07/kWh. In today’s inflationary environment, electricity rates show no signs of slowing down. The zero marginal cost of decentralized energy can create significant consumer savings.
Additionally, DERs can offset the need for new transmission and distribution infrastructure investments. New transmission lines are incredibly difficult to construct, but it is also incredibly difficult to decarbonize a centralized energy system without massive transmission buildouts to serve new load. It’s a green energy catch-22.
Because DERs generate and store energy locally, they can reduce the amount of electricity that has to be transmitted over long distances. This helps to reduce the amount of new transmission and distribution wires that need to be developed to serve the growing needs of the energy system, which is why you’ll often see DERs referred to as “non-wires alternatives”. This helps reduce the cost and environmental impact of the power system.
A great case study is New York’s Brooklyn-Queens Demand Management (BQDM) Program, designed to delay an otherwise necessary $1 billion substation with $200 million in non-wires alternatives. By utilizing DERs and demand-side management, New York is significantly reducing the cost of new infrastructure to consumers.
Intelligent
One of the key benefits of DERs is that they can provide critical flexibility to the energy grid. By generating and storing energy locally, DERs can help balance supply and demand in real-time, which is essential for maintaining a stable and reliable power system. As the world develops more intermittent renewable energy, and new end markets get electrified, DERs networked and orchestrated together as virtual power plants will provide the critical service of balancing energy grids, ensuring the broader energy system remains stable.
Eventually, consumers may be able to transact with others in local energy markets. Early pilots are ongoing, especially in Europe. The results are promising- individuals are able to procure electricity at a cheaper rate than from the old monopoly, while individuals with a surplus of energy are able to monetize it. These markets for electrons will eventually be ubiquitous in the new energy system.
Consumer-centric
It’s no secret that consumers are unhappy with their utilities. The average Net Promoter Score for utilities is roughly the same for the U.S. Postal Service. Decentralized energy systems enable more competition and choice for consumers. It will allow consumers to take control of their energy supply. Customer support and engagement will become an increasingly critical piece of the energy business model.
React’s mission is to replace the centralized architecture of the grid with the dynamism of decentralized systems. By incentivizing and rewarding distributed energy deployment with token incentives, React is driving the adoption of this new type of energy system. By connecting these systems on an open network, we can build a better foundation for the future of energy.
