Home-Energy Trading: A Coming Utopia or Dystopia?
Renewable home-energy systems are increasing everywhere, although who controls the electrons is still being worked out, just as in the time of the two great grid pioneers Thomas Edison and Samuel Insull. Edison built the first commercial electricity-generating power station in New York in 1882, while Insull designed how to monetize the juice from an ever-growing supply. Add in the ability today to buy and sell to others along an internet-enabled, “bi-directional” grid, however, and we could soon be embarking on the next big thing or an unregulated free-for-all with everyday customers holding the bag. More
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Photo by Vivint Solar
Renewable home-energy systems are increasing everywhere, although who controls the electrons is still being worked out, just as in the time of the two great grid pioneers Thomas Edison and Samuel Insull. Edison built the first commercial electricity-generating power station in New York in 1882, while Insull designed how to monetize the juice from an ever-growing supply. Add in the ability today to buy and sell to others along an internet-enabled, “bi-directional” grid, however, and we could soon be embarking on the next big thing or an unregulated free-for-all with everyday customers holding the bag.
In a “distributed” energy system, the traditional utility provider isn’t needed, just transmission wires, the internet, and an e-broker. In his 1980 book The Third Wave, futurist Alvin Toffler coined the word “prosumer” as a customer who buys and sells, in other words a trader. With the ease of today’s digital transactions, we are all semi-anonymous, prosuming, e-traders now, requiring only the right app and a secure online payment system. Soon, energy trading may be as simple as borrowing a cup of sugar from one’s neighbor or sharing recipes among friends. What could possibly go wrong?
The dilemmas faced by today’s would-be prosumers in a growing home-energy market are similar to the buildup of the first electrical power systems in the 1880s in New Jersey and New York under the guidance of the world’s most famous “practical problem solver” and preeminent inventor, Thomas Alva Edison, and following in and around Chicago as isolated power plants were bought up to supply power via a conglomerated monopoly across the United States by Edison’s one-time secretary Samuel Insull. If the past is any guide, we may be able to ensure that the coming energy-trading world is about consumers (or prosumers) and not another guise to enrich those pulling the levers at the top.
It took almost five years and half a million dollars to work out Edison’s electrical network, including dynamo design, switching, metering, and the laying of insulated cables below busy streets, modeled on the earlier setup of gaslight distribution. The work was much delayed, however, by Edison building one-off “isolated lighting” units for eager customers and demanding financiers hoping to show off their newly lit wealth. J. P. Morgan’s 219 Madison Avenue mansion and William Vanderbilt’s brownstone double house on Fifth Avenue in New York both sported lighting powered by a one-off basement dynamo built by Edison, although Vanderbilt’s system had to be removed after a smoldering fire appeared in the metallic-threaded wallpaper.
But with electric power safely generated from afar and transmitted on demand for the first time to any hooked-up industrial or residential site, the electrification of the world began for both lighting and power. Highlighting the original application, other electrical appliances were initially screwed into a light socket before two- and then three-prong wall outlets were designed to connect any type of electrical device.
The proliferation of early home appliances – such as the electric washing machine (1907), vacuum cleaner (1908), and home refrigerator (1912) – added to the demand for more, as did the advent of radio in the 1920s and television in the 1940s, while the need for aluminum planes in World War II further increased demand. By the end of the twentieth century, the global electrical supply had reached almost 8 terawatts, delivering electricity to the doorstep of billions (over 10 million times Edison’s original 600-kW DC power station). Our modern world formed from a deservedly famous single light-bulb moment.
Acquiring underperforming and isolated power companies to manage the load more efficiently, Samuel Insull facilitated the electrical rollout from distant power plants along a fast-growing grid. Having started out as Edison’s secretary and Schenectady Machine Works manager, the English-born Insull left Edison’s employ to run Chicago Edison, solving many of the technical problems of early electrification, in particular demand management. Writing the manual on how to share electricity in the early days of the grid – via novel rate plans, separate suburban and rural electrification schemes, and pioneering methods that balanced an uneven load to keep the machines and meters running 24/7 – Insull gobbled up competitors by modernizing and expanding power plants to enable universal electrification and the switch-flicking lifestyle we now take for granted.
For Insull, cooperation aided the bottom line in a monopoly, providing always-on power to the people. Paradoxically, as he noted, a monopoly reduces consumer bills because high, fixed power-plant costs deterred competitors. To establish control over an uncertain emerging market, he also devised the two-tier rate, taking a loss on low-use residential consumers yet making a profit on high-use commercial and industrial consumers via the “demand meter,” offering at-cost installation and discounts to secure more customers, as well as undercutting the competition such as natural gas companies that supplied cooking, heating, and lighting.
Following in the footsteps of John D. Rockefeller’s Standard Oil and J. P. Morgan’s US Steel, electricity became Insull’s monopoly, albeit with a significant twist. Because it could not be stored, electricity had to be immediately consumed, which led to the careful managing of supply – flattening or spreading out the load, initially achieved by balancing daytime streetcars with night-time industries, before hitting on the perfect solution to an uneven demand. Based on his “load factor” analysis, Insull showed that large average use was preferred to high maximum use, flattening the load and keeping generators running at the highest possible efficiency, which he made possible by continuing to widen his customer base.
Insull’s genius was to make power the commodity rather than what power made, be it lighting, manufacturing, or running an elevator, or, in time, plugging in a kettle whenever one wanted. Where once we built a power plant to run a dedicated manufacturing operation and then to power a changing load, all that was needed was a way to spread the load and manage the ups and downs of an averaged consumer. Sharing was cheaper, as not all customers used power at the same time, spreading the risk to the utility company. Early utility companies didn’t even generate power during the day because of low demand, instead operating only for a few hours, typically to provide night lighting.
The problems of the early electricity market are comparable today as we manage an increasing supply of intermittent renewables that can turn on and off in an instant, but unlike how the monopoly utilities gobbled up smaller players, there are now millions more local generators, distributing homemade electricity rather than following the dictates of a central power station. That is, if the regular home owner (a.k.a. “user”) can afford to hook up and understands the basics of networked energy trading. Or too many users don’t choose to go “off-grid” altogether, harkening back to the one-offs of Morgan, Vanderbilt, and others in the 1880s.
Today, as more renewable home-energy systems increasingly appear – from simple kilowatt rooftop solar panels to shared megawatt community power arrays – buying and selling home-generated power on networked wires is conceptually similar to other internet commodities, such as those available from pioneering stalwarts eBay and Amazon. With home energy, a peer-to-peer (P2P) system uses algorithmic software to manage wired transactions and maximize sharing as users upload and download their home-generated power to and from the grid, aided by backup chemical battery storage. Electrical transmission is managed and monitored in real time to ensure a collective payoff without a middleman taking a cut, in theory at least.
The transaction is essentially seamless as home meters go forward and backward already, directly credited or debited on one’s utility bill via a feed-in tariff or net metering scheme (reducing one’s bill to at most zero), or indeed between P2P-enabled prosuming customers. Although showing its age along parts of a rusting, century-old infrastructure, the grid is perfectly capable of two-way traffic. Running electrons along existing wires is just one more thing to be sold with connected ease.
In a reworked home-energy network, someone (or something) still has to manage the transactions, however, to provide the accounting and keep those in charge from taking their usual preferred cut. Enter the mysterious world of blockchain and Bitcoin. If you think e-banking is scary, imagine real-time energy flowing in and out of our homes, every bit of juice tallied in a high-frequency, speed-of-light, free-for-all.
Today’s “smart metering” allows us to arbitrage the exchange, buying at a lower rate (e.g., during low electricity usage at night) and selling back at a higher rate (e.g., at peak aircon time around noon). For the most part, the exchange is mutually beneficial, but as always one must beware, lest today’s prosumer end up as another shell-game sucker. Call it the digital divide, electronic road kill, or echo chamber reverb, predicting the future is big money. Knowing tomorrow’s weather is gold.
On one excessively windy day in West Texas in September 2015, the spot price dropped to negative 64 cents per MWh, while during the February 2021 Texas power failure brought on by abnormally cold temperatures, energy prices skyrocketed, saddling non-fixed-rate customers with astronomical bills, some in excess of $10,000 for a single week. Don’t throw away the candles and matches just yet. We plugin at our peril.
Ceding control to a presumed beneficent manager is also dangerous given ongoing security issues, such as system hacks, identity theft, and fake sources, while system outages from accidents, vandalism, and even war are also worrisome. Imagine a networked energy system in the hands of even fewer high-tech masters, as opaque and usurious as it is scary. Think Metropolis, The Castle, and Brazil rolled into one. It’s enough to make a robot cry.
We are not there yet. The black boxes are not all installed. Few of us have the latest 6G technology to run the high-speed 24-7 bartering. The passwords have not yet been sent (and forgotten). Many of us don’t even have a simple kilowatt home-energy system or know the first thing about how or where to install one, stuck in a chasm of ignorance and jargon. What’s more, those who can afford a big enough system to power all their electrical needs (e.g., 10 kW of rooftop panels and 10 kWh battery system) are questioning if they need the grid at all. Or neighbours. Walls are being raised everywhere to stop the sharing.
Indeed, the rise of the “one-off” may keep the coming connected-energy world at bay for now at least, as wealthy consumers distance themselves from the rest, preferring old-fashioned consumerism to any touchy-feely modern prosumerism and distributed e-sharing. Those with enough funds can hook up and drop out as hypercharged self-interest and supercharged capitalism further erodes the real communities of neighbors. Money has a way of making islands in the world.
Understanding and implementing change in today’s fast-paced energy transition is daunting, from P2P home-energy trading to vehicle-to-grid (V2G) charging and discharging that uses a dormant electric vehicle battery to download and upload electricity during optimal times. Science and technology can no longer be compartmentalized as block boxes for non-scientists or scientists alike, never mind a growing ignorance about technology and basic scientific illiteracy as noted in English scientist and writer C. P. Snow’s 1959 essay The Two Solitudes. Or indeed the overwhelming complexities in the simplest of online transactions. Throw in an arcane accounting to manage the transactions and we have a recipe for disaster: Enron on steroids with unchallenged billing amid ever-fluctuating prices.
The coming robotics and AI-driven systems will also make the mechanics of buying and selling more impenetrable without an accountable callback. Expect the automated responses to be crushingly insensitive. You know those annoying robocalls that start with dead air as the previous customer is serviced before bothering with you. That’s a spit compared to the ocean of e-disturbances ahead. Imagine a creepy HAL 9000 glitch or being unable to turn on an appliance because the “smart” system or cyberjacker won’t allow it.
What about fairness, the cornerstone of a reliable market? In any market, including the burgeoning home-energy trading market, one expects the system to be fair, given enough time to analyze the data. Of course, complete information is not always available or reliable. Markets are replete with inefficiencies, more so with digital transactions, especially when something goes wrong. Mistakes rarely get fixed in a reasonable time (if at all). Try getting your money back from an airline after a cancelled flight, despite all the information about passenger rights and endless chain of button presses.
By nature, there will be winners and losers in any gaming system, whatever the criteria (usually money), but digital ownership has created a gated infrastructure of minimal tolls and maximum users, where e-monopolies turn small percentages into billions, the equivalent of a digital money tree. Spotify pays peanuts to its artists from small-percentage clicks while siphoning billions from listeners. Their label for artists as cheap “content” creators is clear, as singer KT Tunstall noted. Nationwide’s Ticketmaster is now the world’s official e-bouncer, bullying local competition and low-income fans. Amazon has become an online monolith, emptying store fronts everywhere along with the tax base needed to run our bricks-and-mortar towns and cities. Smart accounting ensures that the taxman can’t penetrate the e-walls.
With digitalization, everything is up for grabs, disrupting the traditional Main Street market and reducing competition. Selling its first book online in 1994, Amazon today rakes in more than $50 million per hour, while its founder and executive chairman Jeff Bezos is worth over $200 billion. Selling books has expanded to everything ever bought or sold – from abacuses to astrolabes, books to baby strollers, and cookies to computers. The new electric wires and fiber optics have blown traditional capitalism to bits along with many businesses in towns and cities.
In the early 1900s, Italian economist Vilfredo Pareto quantified the discrepancy in what is now called the Pareto principle or 80:20 rule, where 20% of people (the elite) hold 80% of the wealth. Left unchecked as in modern neoliberal practice, 20-80 becomes 1-99 or .01-99.99, i.e., today’s so-called 1%. In other words, the rich get richer and the poor get poorer, even in a perfectly fair competitive market. Fair trading systems and societies will always tend towards a winner-take-all monopoly left unchecked.
Unfair, supercharged trading further separates the elite and hoi polloi. The digital market changes everything, where one-click shipping is preferred to foot traffic. Continual abuse leads to fixation in evolutionary parlance, a changed species without any diversity. We may be embarking on a novel prosuming existence, enhanced by robotics and AI, while the economics of inequality and enslavement marches on.
Have we come to the end of simple human interactions and the start of a new machine, where politically protected oligarchs push for complete uniformity among users? Unchecked automation is creating a one-size-fits-all compliant marketplace, where those in charge dictate the rules without accountability. Indeed, a polarized energy world is already taking shape. The one-off elite versus the energy poor.
Today, large utilities routinely buy and sell to the grid as conditions in one location lead to excess electric power that can be sent elsewhere as needed. Denmark sells excess wind-generated power to its northern European neighbors, Quebec sells excess hydro-generated power to New York, while utilities all over the world share power with each other via long-distance interconnectors (e.g., CANUSE between Canada and the US). Mixing and matching power production to an ever-changing load across vast interconnected systems is a carefully balanced operation between local and regional plants. The prosuming home-energy market, however, is not there yet. Although with more intermittent energy available from renewables, sharing across the grid is increasing.
If trading was regulated, the winning balances out the losing, and everyone is better off for the increased busyness in a presumed frictionless economy, as in Adam Smith’s supposed unregulated invisible hand. But advantage always accrues to those who can work the odds and shave the percentages. Politics also regularly influences markets, such as fake reporting of oil supplies and the resultant fake prices that underpin the entire global economy via endless OPEC+ and US manipulations.
Although forced out of his own company, Edison survived the first great electrical transition amid ongoing patent battles and the so-called War of the Currents with Westinghouse, turning to movie projectors, concrete homes, phonograph upgrades (including changing the recording format from cylinders to discs to compete with the new market leading Victrola), or whatever struck his wide fancy. But then Edison was always more interested in inventing than in inventions, much to the chagrin of his financial backers.
Insull didn’t fare as well, bankrupted from a Depression-era bear campaign orchestrated by New York bankers wanting to break control of his web of companies and over 60 subsidiaries. He was even indicted for embezzlement and larceny when his over-leveraged stocks collapsed, although he was eventually acquitted. The irony is that single-mindedness is often needed to will into being what does not exist, yet that same single-mindedness makes powerful opponents keen to maintain their own financial leverage.
Indeed, invention is never simple, more so today because of the extraordinary amount of funding required and the financial masters who would rather arbitrage peanuts than ensure fairness and diversity. Edison’s oft-cited adage “Genius is 1 percent inspiration and 99 percent perspiration” no longer applies (if it ever did).
But we don’t have to look to the dystopias of Fritz Lang, Franz Kafka, or Terry Gilliam to understand a failing social contract. The famed American writer, humorist, and social critic Mark Twain wrote all about getting ripped off in his 1876 novel The Adventures of Tom Sawyer. When someone asks you to paint their Aunt Polly’s fence and has the cheek to ask you to pay for the privilege, maybe it is better to keep your kite, dead rat, or 12 marbles. Maybe it is better to say “no.”
The grid may one day become redundant when we can all afford our own one-off home-energy system. Until then, a fair exchange is essential. No need to hook up and drop out. Or pay for the privilege of making someone else rich. Until then, I will happily share with my neighbors as we transition to cleaner, renewable energy, mindful that those in charge will reap as much as they can. Same as it ever was.
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