For too long, a free-market approach to energy policy has been viewed as a veiled effort to line the pockets of big corporations at the expense of communities and the environment. But while many in the green energy movement have long advocated for heavy government interventions to “decarbonize” the economy, new blockchain and microgrid technologies render that approach obsolete and counterproductive. If the environmental crowd is serious about moving America toward renewables, they should work to end Big Energy’s monopoly on electricity distribution and embrace new innovations made possible by free-market competition.
One such innovation is blockchains, the secret sauce behind cryptocurrencies like Bitcoin that may soon allow households to buy and sell energy directly to each other.
Earlier this year, an innovative start-up, LO3 Energy, successfully combined blockchains with a microgrid in Brooklyn, New York to create what is perhaps the first ever neighborhood electricity market where households equipped with solar panels can buy and sell energy without going through a utility.
Here’s how it works. Using LO3’s app, which wirelessly communicates with the household electric meter, homeowner A can buy electricity either directly from homeowner B or from the local utility company. Once purchased, the electricity is then transferred via microgrid from homeowner A’s solar panels to home B. Likewise, when homeowner B is using less power than he needs at any given moment, he can simply sell the excess to one of his neighbors.
This sort of localized energy trading caters to the needs of both cost-conscious households as well as those committed to consuming energy in an environmentally sustainable fashion. For this reason, blockchain-enabled microgrids are attractive from both a free-market and green-energy perspective. Just as Uber and Airbnb are disrupting the taxi cartels and hospitality industry, microgrids and blockchains present the opportunity to expand consumer choice, lower sky-high electricity prices, and help integrate renewables seamlessly into America’s energy mix.
This new trend dubbed, “the energy sharing economy,” should be a huge boon for consumers and the environment. But government policies written to favor massive utility companies could stop the neighborhood energy revolution in its tracks. Even the left-leaning think tank, Institute for Local Self-Reliance (ILSR) — which is no great fan of free-markets — notes that for microgrids to become viable, “major policy barriers must be lifted in order to expand energy democracy to customers and producers.”
The emerging energy-sharing economy relies on the availability of independent microgrids capable of transferring electricity between households, businesses, and other grids. But for the most part, microgrids are undefined in many states, meaning that state Public Utility Commissions (PUCs) haven’t yet designated them as “regulated utilities.” Since independent microgrids could compete with established utility firms, large power companies will likely push hard for laws that give them the exclusive right to develop microgrids or approve independent microgrid operations within their franchise territories. This creates a high degree of legal uncertainty for prospective microgrid developers.
Moreover, the prospect of being regulated to death by state PUCs isn’t exactly a great incentive for companies to invest in the technology. If microgrids are designated as regulated utilities, much of their potential could be lost in a quagmire of regulatory red-tape and bureaucracy.
There is a time for disagreement and there is a time for unity. For free-market advocates and clean-energy groups, this is a time to unify against the goliath cartel of government regulators and utilities fighting to preserve their piece of the energy pie at the expense of both consumers and the environment. Just as deregulation made the IT revolution possible, allowing third parties to build and operate microgrids could open up a whole world of opportunities for a sector long stagnant in a cesspool of over-regulation and central planning.
The green movement’s repeated attempts to co-opt utilities through top-down government renewable energy mandates is counterproductive. Inherent in this approach is an assumption that centralization and concentrated control provides a green energy panacea. But, in reality, the real future of green energy development lies in less regulation, more choice, and increased competition. Besides the practical difficulties of overcoming the utility industry’s resistance to change and political influence, there is abundant evidence that utility companies are no friends of grid decentralization, let alone disruptive green energy technologies.
The kind of peer-to-peer energy markets made possible by blockchain cyber platforms threaten antiquated utility business models. Once homes and businesses can buy and sell energy between themselves, the demand for energy produced by large firms could decline significantly over time.
Large utility companies recognize this danger and are already slowing down green-energy development by using their deep pockets and political sway to crush competition from solar rooftops. For instance, in Arizona, Nevada, and Oklahoma, utility companies are imposing steep fees on households that opt to generate their own power. These fees are having detrimental effects on solar users in states such as Arizona, where applications for new solar installations dropped from 600 per month to barely more than 25, following the fee increase.
From the utility’s perspective, increased fees are justified because self-generation customers still use the infrastructure and charge the company every time they transfer excess power back onto the utility owned grid. But if this is the case, opening utilities up to competition could allow communities and businesses to operate microgrids tailored to the unique needs of users. Instead of imposing exorbitant fees on customers who generate their own energy, microgrid operators would be incentivized to keep prices low while maintaining high-quality infrastructure.
Moreover, neighborhood energy markets like the one created by LO3 Energy could help eliminate net metering, (the bane of utilities) since solar users could sell electricity directly to one another, thereby reducing the need for utility companies to buy up their excess solar energy.
In the era of Uber, Airbnb, Google, and Facebook, why is government still protecting century-old monopolies at the expense of innovation, lower costs, greater choice, and greener energy? It’s time for environmentalists, consumers, entrepreneurs, and free-market advocates to come together to ensure the future of the energy sharing economy.
Daniel Cochrane is a Koch Policy Fellow at the Charles G. Koch Institute in Arlington Virginia and current student at Patrick Henry College studying government and political theory.