Tech Insights

Decentralization and the Energy Transition

April 06, 2023 by John Cooper

Decentralization describes the activity needed to make the energy system more sustainable and resilient, using decentralized energy resources technology like solar, wind, hydro, geothermal, biomass, energy storage, energy efficiency, and smart grid.

At the outset, electricity grids worldwide were built according to a 20th Century model that relied on economies of scale to drive down the cost of electricity and make it universally affordable. Massive capitalization was required to build out the system from end-to-end: generation (huge, remote fossil fuel and nuclear power plants), transmission (massive arrays of long-distance high-voltage towers and lines), distribution (local medium and low-voltage utility poles, power lines, and substations), and retail (analog then digital revenue meters and billing systems).


20th Century grid model. Image used courtesy of Pixabay


Decentralization in a Distributed World

Decentralization promises a shift to small-scale, renewable power resources close to where the energy is needed, often on the same site. 

This includes a diverse array of solutions like rooftop solar panels, small-scale wind turbines, fuel cells, microturbines, battery banks, microgrids, nanogrids, and community-based renewable energy projects. Key benefits of decentralization begin with reduced dependence on the grid (i.e., energy self-sufficiency), enhanced reliability (i.e., energy security), and resilience (i.e., power continuity despite extreme weather). Further, decentralization opens up new market opportunities from increased competition, innovation, and diversity, with an emergent marketplace that could ultimately track the rise of the internet. 


Decentralization and Decarbonization

In effect, we’re shifting to more flexible components that can be rapidly assembled into custom solutions that give us an array of unique value propositions that improve on the old monopoly utility promise of affordable electricity. Ironically, the low-cost promise also comes with the extra costs of long-distance distribution, such as thermal line losses in the form of waste heat. Further, both small and large power outages are an inevitability of an extended field system that is vulnerable to the elements. Outages become more and more disruptive as they increase in frequency, duration, and severity. 

A key bridge technology in the shift from the very large, remote, just-in-time centralized system is cost-effective energy storage, which has only recently become available. Site-based systems can store surplus rooftop solar power, for instance, to offset peak consumption later in the day. Sophisticated battery operating systems also address intermittent generation and variability, making local power appropriate for export to the grid. Overall, decentralization can contribute significantly to decarbonization by promoting deploying distributed energy resources (DER), reducing energy losses, and enabling energy storage. 


Distributed energy resources are needed for the decarbonization of the industry. Image used courtesy of Pixabay


Decentralization and Democratization 

We use democratization as individuals and communities gain more control over their energy destinies. We’re at the beginning of a huge cultural shift requiring consumer education and market creation. The term personal energy explains the tremendous shift in our relationship with electricity. The drivers of personal energy include:

  • Local communities. DER enables local communities to take control of their energy production and consumption to match their local sensitivities and priorities. A good example of such a shift is the rise of Community Choice Aggregation (CCA) in California, where regional non-profits now make decisions on decarbonization and democratization. 

  • Energy poverty. The pandemic, inflation, and the energy crisis have combined to set back global progress on universal access to electricity. Imagine that nearly 800M people, mostly in the Southern Hemisphere, still lack access to electricity of any type. Clearly, DER holds great promise to provide simple, affordable on-site systems that dramatically improve quality of life in developing countries. Increasingly affordable and versatile DER now provides energy access to previously underserved communities in developed and developing countries.

  • Innovation and entrepreneurship. Opportunities to deploy new and innovative energy DER solutions lead to broader market acceptance of new technologies and business models that promote economic growth and new job creation. 

  • Transactive energy and sharing. As DER proliferates and matures, the potential for interpersonal energy grows. DER will enable sharing between stakeholders, new community energy opportunities, shared ownership models, and, finally, true transactive energy, where smart onsite systems follow personal profiles and market surplus energy when transactions are available. 


Distributed energy resources. Image used courtesy of Adobe Stock

How Does Digitalization Support Energy Decentralization? 

The complexity of grid operations inevitably rises anywhere DER systems dramatically expand. Ten years ago, the informal upper end of how much DER the grid could handle was understood at around 20 percent, but today we see far greater densities in more mature markets. Going forward, DER system integration and management will shift from human-controlled DER management system software (DERMS) to something more akin to the Energy Internet of Things (eIOT), with no arbitrary upward boundaries on DER density. Thus, digitalization will enable the integration of centralized and decentralized energy resources, as well as real-time monitoring, control, and optimization of energy production and consumption. Digitalization could support greater decentralization in several ways:

  • Advanced energy management systems. Digital technologies enable the optimization of DER operations. Real-time data and analytics will help manage energy production, consumption, and storage.

  • Digital energy platforms. Digital platforms have already launched to support energy data integration, validation, analytics, and other value-added activities.

  • Energy trading platforms. Digital platforms enable energy trading between stakeholders, including households, businesses, and communities. As this new concept takes hold, new business models for DER systems will arise to promote energy sharing and cooperation.

  • Smart grids. Smart grids ensure grid integration of DER and storage systems, leveraging real-time data and analytics to manage energy flows and optimize grid operations. 

  • Energy Internet of Things. IoT devices like sensors and meters collect real-time data on energy consumption and production, enabling a data-driven system and an entirely new network topology for power production, distribution, and consumption: a two-way mesh configuration will ultimately overlay the one-way bulk power grid. 

  • Blockchain. Blockchain technology secures transparent transactions between different actors in a market-oriented energy system that supports energy trading and sharing.


Decentralization and Resilience

Overall, decentralization promotes greater resilience by reducing the risk of disruptions, promoting energy diversity, empowering local communities, and enabling energy sharing. 

  • Grid outage avoidance. By design, DER is less vulnerable than the grid to large-scale disruptions that cause widespread power outages. Site-based systems ensure power continuity for site hosts. And a network of interconnected smaller-scale DER systems is far less vulnerable and more resilient to disruption and can more rapidly recover from any negative event. 

  • Energy diversity. An expanding portfolio of DER options now provides an incredible array of options for an integrated system of various renewable energy sources. Such diversity allows DER systems to avoid single points of failure so that redundancy can readily withstand disruptions to any single energy source.

  • Community energy self-sufficiency. DER systems put local communities in the driver’s seat, firmly in control of their energy production and consumption decisions. As prosumers (energy consumers and producers), local communities can better manage their energy demand and supply, leading to greater efficiency and resilience.

  • Energy sharing. DER enables energy sharing among stakeholders within a system (e.g., solar panel households can sell excess energy back to the grid and third parties, producing extra revenue and increasing resilience across the board. 


Barriers to Energy Decentralization 

As promising as decentralization is, there remain multiple barriers to its rapid adoption. 

  • Lack of funding. Historically, one of the biggest barriers to decentralization has been the lack of funding for small-scale projects, which often require significant upfront investment and can be difficult to secure, especially in developing countries where financial resources are limited. 

  • Policy and regulations. Policies and regulations that favor monopoly utility incumbents can constrain the ability of individuals and communities to generate and sell their own electricity, creating a patchwork of complex barriers. Notably, lengthy and expensive utility interconnection permitting processes represent a conundrum. 

  • Technical challenges. DER implementation requires specialized technical expertise, which can be challenging to find in some areas. Additionally, DER deployment may require upgrades to the existing energy infrastructure, which can be costly and time-consuming. 

  • Limited awareness and knowledge. In this nascent market, customer awareness and knowledge about DER remains low, keeping demand down and slowing expected price drops that would otherwise come with wider acceptance and stronger demand. 

  • Access to technology. In some areas, limited access to the technology and equipment needed to implement DER can make it difficult to develop these systems.

For decentralization to achieve its lofty goals in support of decarbonization, more efficient, rapid deployment of clean energy systems will be necessary. Overcoming these barriers will require a coordinated effort from policymakers, industry stakeholders, and local communities. But the promise of DER is real, and the technology is ready and increasingly affordable. For DER to become ubiquitous, it will be essential to provide financial support, establish supportive policies and regulations, build technical capacity, raise awareness and knowledge, and ensure equitable access to technology.