Christoph Burger is a senior lecturer at the European School of Management and Technology, ESMT, in Berlin. Before joining ESMT he worked at leading global service firms and also as a consultant. Christoph’s research focuses on innovation, blockchain and the energy markets. He has published on vulnerabilities in smart meter infrastructure, blockchain and the energy transition and on the electricity supply industry. He holds a MAE from University of Michigan, and degrees in economics and business administration.

Gabriela: I greatly enjoyed your “Decentralised Energy” book. It was just published this year, so extremely current. You and your co-authors explain that renewable energy becoming competitive, storage solutions gaining importance, and digitalisation enabling smart grid solutions and new business models, are the drivers of a global boom in decentralised renewable generation.

Distributed generation can solve security of supply, resource efficiency, and sustainability, and has a truly revolutionary potential, with final consumers transcending into local and autonomous producers of energy. You explained in the book that we shall see three phases of this energy transformation. First, a grid-based energy system with decentralised renewables as a niche (below 10%), then a second phase where decentralised energy gains importance and a final third phase where decentralised renewables is the dominant model, based on fully autonomous solutions.

Please tell us more about where you think we are in this process, what phases you have observed in different countries, and how you see this transition through phases evolving in the next 5 to 10 years.

Christoph: Thank you. It is nice to hear that you like our book that Catherine Mitchell, Antony Froggatt, Jens Weinmann and myself wrote and edited.Germany was one of the first countries with a so-called Energiewende or energy transition. We started in the early 1990s with a societal consensus to promote renewables. In the beginning, their share was still low so the centralized system was still functioning as before. When the share of renewable energies increased, grid resilience, namely the balancing of supply and demand, became a challenge. One can interpret this is as a threat to the existing system or as an opportunity to develop new solutions, specifically driven by bottom-up civic innovations. In this phase, partially autonomous regions develop, and eventually we can observe bio-energy villages, houses or real estate blocks that become energy autonomous, e.g. the new Apple headquarters in the Silicon Valley.

This process happens around the world, and each country finds its own path depending on the circumstances people live in, e.g. functioning grid, availability of fossil or renewable energy.

Australia is one of the leading countries, as the sun is shining and as severe storms occur quite frequently and threaten to damage the grid, Denmark is in-between a strategy of decentralized, local balancing and importing/ exporting with the tendency to prioritize decentralized balancing and import the residual, and New York is an interesting case with the creation of decentralized markets via distribution system providers that shall establish platforms for transactive energy services.

If we take the long-term view, we can assume that RES and storage solutions will become still cheaper. Many industry players have noticed that the battery market not only for energy but also for vehicles will boom, and fight for their market position. If we consider these trends, we can assume that decentralized autonomous solutions become more and more competitive compared to centralized solutions. Whether this will be full autonomy, like in many developing countries, or autonomous regions remains to be seen. What we will definitely see, though, is a shift towards phase three with the three phases of the energy transformation coexisting in most countries.

Gabriela: We recently interviewed Chris Goodall, the author of the book “The Switch”. He thinks V2G will change everything and make distributed generation prevalent and disrupt the traditional model of utility distribution. Do you share that view?

Christoph: Yes, I agree that electric cars will play an important role in the electrification of energy services. I was flabbergasted when I saw the pipeline of electric vehicles that will come on the market during the coming years. More electric cars will help us to understand that a new era of energy has started.

This together with political programs such as the EU National Energy and Climate Plans to achieve a Net Zero carbon economy in 2050 will provide additional momentum.

When we look at the share of electric cars as stabilizer of the grid, I wonder, though, whether this might be overestimated. In Germany, most car drives are below 50 km. So you can load your electric car at home, drive your daily distance and then recharge at home again. In cities, parking houses are getting equipped for this purpose. Also, retailers such as Aldi provide free charging to attract customers. The market for balancing decentral energy supply and demand will not only encounter vehicle batteries but also home batteries, other storage solutions and the optimization of flexible supply and demand.

Gabriela: You see blockchain as another source of digital disruption of the energy sector. As a distributed database of data records, blockchain links transactions and provides transparency. Please tell us more. Is blockchain to be an intricate part of P2P trading? Is the technology already at what needs to be? What other features and functions in can be a solution for?

Christoph: When you look at the development of the energy markets from a central towards a decentral system, digitalization plays an important role to deal with the inherent complexity. With digitalization comes the question of data security. Taking these two aspects into account, Blockchain comes as an obvious solution to mind, with the potential of also reducing the transaction costs related to intermediaries or brokers in peer-to-peer trading.

The issue with Blockchain is its scalability. This can be solved with so-called private or permissioned chains where the validation of transactions is not done by proof of majority but by proof of authority – pre-defined nodes that validate the transaction – while there is still public access for everybody. Grid Singularity aims to offer a subscription fee-based business model to solve this difficult, small-scale market segment. The first steps though are to establish a decentralized asset registry and to allow for Balance Responsible Parties reporting. Also, IBM is pushing solutions in this regard after having established a supply-chain solution via TradeLens.

Gabriela: There are different models, not based on subsidies from governments, already emerging or in place. It would be great to get into some of those models in more detail. Please tell us more about the business model for energy autonomous houses, and the business model for those trying to redefine building efficiency.

Christoph: For example, the idea of German professor Timo Leukefeld to offer an energy autonomous house is an interesting one. You can buy the house for 450,000 EUR or you can rent it for 10-15 EUR per square meter all inclusive. And “all inclusive” means rent, heat, electricity and electric mobility. The house is 100% electric autonomous and 70% thermal autonomous – as the so-called Dunkelflaute (when there is no sun and no wind in Winter) is still difficult to bridge. Many people in retirement are interested in this as they want to lock in energy bills and as they do not want to worry about ancillary services or mobility anymore – all is taken care of. For utilities, this might be an interesting market segment as well if they are able to go small scale.

On the other hand, we have a large real estate stock of legacy buildings that is not energy efficient at all. While large buildings are getting refurbished and up-to-date, solutions for smaller buildings are often too expensive. The Canadian startup Envio Systems, for example, is offering solutions for this niche, retrofitting commercial buildings. Their Envio Cube is measuring light, temperature, CO2, etc. to analyse the situation in each room, a central control system is then optimizing energy consumption. They also use Artificial Intelligence, not for the energy management though, as AI is still not reliable enough, but for identifying the energy components in the building that have to be connected and optimized.

Gabriela: Distributed generation also has the potential to solve a huge social-economical problem, as we have almost one billion people on the planet still with no access to electricity. The impact of “powering the last billion” would be transformational, as having electricity allows for increase in literacy, better nutrition, reduction of violence – particularly towards children and women. What models of rural electrification and off grid solutions you have seen in parts of the planet, like East Africa?

Christoph:This is indeed a very important issue. In regions where people need energy most, they pay most compared to their income. In addition, grids are not reliable, not spread out to all regions. The conventional way of lighting with kerosene lamps also has health disadvantages.

In areas where a connection to the central grid is too costly, there is no alternative to autonomous solutions. The change is to go from fossil to solar plus battery solutions. German startup Mobisol has been one of the companies pioneering these solutions in Eastern Africa. The most popular applications are to charge the mobile phone and to offer haircuts. With this income, local entrepreneurs can afford the new solutions. A central control system takes care of the monitoring of the system as well as payments done by mobile phones, and certified technicians provide local support and maintenance services. The takeover of Mobisol by Engie indicates that also energy incumbents are becoming aware of the huge market potential.

Also, SolShare in Bangladesh is offering an interesting solution as they combine prosumers to a micro-grid that also helps to stabilize the existing grid.

One could argue that we can learn from these solutions to see opportunities that we do not see, as we are used to our central, well-functioning grid. We have to get used to a new energy future, in which central grids have to compete with decentral solutions and to provide a level-playing field for all of them, incl. heat and vehicle services.

Gabriela: We talked about the three phases of the transition to distributed generation, moving from fossil-fuel based supply structure to a decentralised renewable energy based one. Do we need regulators and governments to support this transition? Please tell us about your eight key principles for political decision makers.

Christoph:You can see the trend towards renewable decentralization as a threat or as an opportunity. In our book, we analysed 8 regions, more specifically Australia, China, Denmark, Germany, India, Italy, California and New York. When evaluating those analyses, we came up with 8 key principles:

1. Transparency and legitimate policymaking: Institutions and the overall the governance system need to be able to offer clear policies and regulation that applies simultaneously to large as well as decentralised generation and public and private sector actors.
2. Availability and transparency of data, as data plays an important role to establish efficient balancing markets and needs to be accessible to all players
3. Customer focus, enabling customer choice as people will play a key role in the future energy system in three areas – first, as investors and operators, as active participants, second, as customers who pay for innovative products that enhance their quality of life, and third, as voting supporters of policies and measures that deliver decarbonisation.
4. Markets to encourage flexibility in supply and demand, e.g. via platforms that do not require an expensive supply infrastructure but build on existing assets, exploit flexibility potential, enable peak-shaving and thus bring down peak costs.
5. Local system co-ordinators in coexistence of the central grid and decentralized micro-grids to establish and ensure access to flexibility services.
6. An inclusion of performance-based elements into sector governance rather than cost-of-service, whereby the utility or company is paid to the extent it delivers the desired outputs.
7. A reassessment of investments in the long-distance transmission grid, as there is a high risk of sunk costs once new transmission grids might be built while decentralized solutions have been developed in the building phase of the grid.
8. An integrative approach to sector regulation that encounters decentralization, decarbonisation and the convergence of heat, mobility and power with regulators to be flexible to establish new processes and encourage innovation across sectors.

Gabriela: Abraham Lincoln once said that the best way to predict the future is to create it. At iClima Earth we follow the companies whose products and services can create this new future, can move the planet towards net zero. Distributed generation is part of it. Therefore, we greatly appreciate that you made the time to talk to us about what this future could look like. We look forward to following your work and reading your future articles and books. Thank you!

The book can be downloaded for free on the following website:

https://www.ubiquitypress.com/site/books/10.5334/bcf/

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