Powerhouses: A Comparative Analysis of Blockchain-Enabled Smart Microgrids.

• Author: Shackelford, Scott J.

1. INTRODUCTION 1004 II. BACKGROUND ON MICROGRIDS AND BLOCKCHAIN 1007 A. The Once and Future Grid 1007 B. Blockchain: An Internet of Electricity? 1011 III. CASE STUDIES 1013 A. Brooklyn, NY 1013 B. Australia 1015 C. Switzerland 1020 D. Summary Table 1021 IV. LAW AND POLICY CONSIDERATIONS 1022 A. Improving Regulatory and Legal Clarity 1022 B. Security & Privacy 1026 V. CONCLUSION 1028 A. Summary of Policy Suggestions 1028 B. Research Agenda for Blockchain-Enabled Microgrids 1029 I. INTRODUCTION

   In centralized systems, small failures can have far-reaching consequences. When a centralized cloud computing service goes offline, thousands of home security cameras can stop recording footage. (1) When a government halts imports of lithium-ion batteries from a centralized source, production of electric vehicles can grind to a halt. (2) When a central bank implements an unwise fiscal policy, a national economy can skitter into recession. (3) Centralization can be a source of fragility.

   Nowhere is the flimsiness of centralization more threatening to human security than in the national electrical grid. In 2003, a tree in suburban Ohio fell on a sagging electrical line, triggering a domino-like chain reaction of system failures that, hours later, plunged the eastern seaboard into darkness. (4) Since then, more frequent blackouts in the United States have threatened public health, safety, and productivity. Every power outage is caused by a unique set of circumstances--a biography of sorts. But behind the particulars, nearly all outages stem in one way or another from the centralized architecture of the U.S. power grid. Power plants deliver electricity to homes and businesses through high-voltage lines that branch out, vein-line, across the countryside, and terminate in familiar wall outlets. Take out a single power plant, or even a critical power line, and the whole system can blink out like an old lightbulb.

   Policymakers and the power industry are trying to strengthen the grid by changing it into something new: a distributed, organic, flexible network composed of millions of decentralized power generators and users. (5) This vision of a "smart grid" embraces the idea that electricity can come not solely from large commercial powerplants but also from small "microgrids" in neighborhoods and business districts. (6) Lawrence Berkeley National Laboratory defines a microgrid as "energy generation and energy storage that can power a building, campus, or community when not connected to the electric grid." (7) Microgrids often generate power through roof-top solar panels, store it in large batteries, and distribute it around the block, or perhaps one day, across the county. Such systems in the future might only allow homes and businesses to collect, store, and transact in power locally. The vision is that of a commons: neighbors might someday share electricity the way they share greenspaces, parks, and other commons.

   Microgrids could offer some meaningful advantages. By reducing public reliance on large power generators, the smart grid could provide a more resilient energy future. Such a system would also reduce the need to transmit electricity over long distances--a key source of inefficiency in the current grid. As an added benefit, by introducing more solar panels to the power system, the smart grid could reduce the public's reliance on carbon-generating fuel sources like coal and natural gas that many powerplants burn. What's more, microgrids seem more feasible than ever before. Federal and state legislation permits private homes and businesses to generate power locally through roof-top solar panels, and some states require power utilities to buy excess solar energy back from consumers (this practice is called "net metering"). (8) With some adjustments to infrastructure, these power sources could be used to transmit power to neighbors rather than back to utility companies.

   A barrier stands in the way of community-based microgrids, however: a system for mediating transactions between neighbors. If neighbor "A" wishes to buy 100 kilowatts of power from neighbor "B," how should they agree on a price? How should payments be handled? How can such a system mediate thousands of transactions every day between neighbors who don't necessarily know one another? If microgrids are to serve as reasonable alternatives to plant-generated power, they must allow for transactions that are automatic, low cost, private, and often between neighbors who don't know one another. Looming behind the myriad technological questions this problem raises is an old and familiar human problem: trust. How can we trust people who we might not know well to pay us what we're owed and to deliver what they've promised? As Nobel Laureate Elinor Ostrom once remarked, "[t]rust is the most important resource." (9)

   Some technologists believe that blockchain technology, the decentralized software that brought the world Bitcoin, is the answer to this puzzle. Although there is ample (and reasonable) skepticism about the utility of blockchain technology in many settings, its use in this context makes some intuitive sense. The microgrids that technologists envision follow the model of a shared common-pool resource--a model that eschews centralized command-and-control in favor of ground-up cooperation. Blockchain is, at its heart, a system that allows for decentralized transactions between peers. Proponents often call the system "trustless" because it removes the need for parties to a transaction to trust one another--they need only trust the protocol. Many industry experts already believe that blockchain will soon decentralize and bring resiliency to secure supply chains, (10) property transactions, (11) and financial services. (12) Without a decentralized transactional system of some kind, consumers seeking to buy and sell power from each other would need to rely on a middleman of some sort. This would introduce centralization to the smart grid--a system premised on the idea of decentralization. (13) To put it more simply, it makes intuitive sense for a decentralized grid to have a decentralized metering and payment system. (14)

   Of course, there's often a gap between theory and practice. Legal scholars have written helpfully and hopefully on theoretical uses of blockchain technology in the smart grid of the future. (15) Technical experts have described how the technology might be put to use in theory. There are some obvious practical questions, however: for instance, public blockchains such as the Bitcoin network have sparked widespread concern for the massive amounts of electricity they consume. It seems natural to wonder if the energy costs of blockchains might exceed any design benefits they could offer the electrical grid. There have been very few empirical studies examining how blockchain-based microgrids are working in practice, however. Similarly, few scholars have explored what bearing law and policy might have on the use of this technology.

   This Article builds upon the current literature by examining two questions: (1) is blockchain a useful governance mechanism for managing electricity as a shared pool resource?; (2) what steps, if any, might policymakers wish to take in response to this emerging technology? We think these questions are important. If blockchain-based microgrids can improve electrical service, then policymakers may wish to take steps to encourage their adoption and to remove legal barriers to their use. On the other hand, if this technology is unlikely to deliver the benefits that its supporters hope for, government and private industry might better direct their energies to different solutions.

   This symposium contribution examines the foregoing questions by investigating blockchain-powered microgrids located in Brooklyn, NY, Switzerland, and Australia. Our goal is modest and largely descriptive (rather than normative): we wish to offer readers a first step toward better understanding blockchain technology as a governance mechanism in energy commons. The discussion is high-level and geared toward readers without prior knowledge of how electrical delivery or blockchain technologies work. We hope the discussion will serve as a foundation for more in-depth empirical work and policy analysis in the future.

   This Article is structured as follows: Part II provides an overview of the smart grid and blockchain technology. Part III features a comparative microgrid case study. Part IV analyzes the findings from these case studies in light of the legal and regulatory landscape. Part IV places a heavy emphasis on the security, environmental, and transactional dimensions of microgrid use. We conclude with a summary and preliminary policy suggestions. We also offer a research agenda for further work to more fully unpack the myriad governance challenges and opportunities presented by deploying blockchain tech in the energy sector.

2. BACKGROUND ON MICROGRIDS AND BLOCKCHAIN

   This Part describes how and why the electrical grid--arguably the largest and most complicated machine ever built--is changing into a smart grid. Like "open source" or "blockchain," the term "smart grid" doesn't describe a single technological protocol but rather a new way of doing things. The smart grid emerging around us today is built from technology, laws, regulations, and transactions. Beneath those visible layers are new beliefs about how electrical power should be governed. The watchwords of this philosophy are "decentralized," "resilient," and "participatory." As liberating as the idea sounds, the smart grid faces some significant challenges. Chief among these is how to enable homes and businesses to buy and sell energy from each other at the local level. This Part begins with an explanation of how our electrical system works today at a high level. It then describes the optimistic vision of the smart grid and what role blockchain might play in the future.

   1. The Once and...