Distro is an electricity microgrid project based in the port of Rotterdam, a partnership between S&P Global Platts and BlockLab that brings together local solar and storage assets and enables automated trading between the users participating in the trial. Henry Edwardes-Evans spoke to Janjoost Jullens, energy lead at the BlockLab innovation hub in the Netherlands, and James Rilett, senior director of innovation at S&P Global Platts.
Henry Edwardes-Evans: The idea of a microgrid, a communal energy network, has evolved to the point where sophisticated systems like Distro are springing up in areas where the physical infrastructure is constrained and where there’s a need to use electricity locally to take that pressure off the local network. So what exactly is Distro, and how did it come about?
James Rilett: Distro is a platform that seeks to make everybody an energy trader. We’ve done our first trial implementation in Rotterdam. We think that as the energy transition happens, as we see more renewable infrastructure coming online, it’s bringing a few problems with it. Problems of intermittency, problems of grid congestion. And that needs to be solved.
The legacy infrastructure and market systems that we have for trading power, developed as they are, reflect the previous era with centralized generation pushing that generation outwards over a grid. Every time we add renewable assets, batteries, be it on a household, a large building, maybe some demand response from an industrial user, that happens at a particular point on the grid, and it doesn’t really flow back into a centralized model. Distro aims to provide a marketplace for all of these new smart users, generators and storage providers for electricity to transact and ultimately balance. And that’s really what we’re trying to do by making everybody an energy trader.
Janjoost Jullens: Well, at BlockLab, as our name says, we do quite a lot on the blockchain part of this solution. We are a subsidiary of the Port of Rotterdam on that mission, and use blockchain where it’s needed. The thing with these decentralized markets is you actually see more and more parties investing in generation, investing in storage, and all these parties are new economic entities entering the power market. The blockchain is one of the most interesting ways to facilitate these kinds of markets where you need to manage identities of all these players involved and impose some market rules that cannot be muted or one sided, and you need to handle a lot of micro transactions in an automated way.
There are a lot of execution settlements and admin functions around such a local decentralized market that blockchain helps optimize. And in terms of future deployment, it’s one of the best ways, if not the best way, to have multiple marketplaces interact with each other in a transparent, very secure way.
JJ: So what happens? You are a prosuming party, as they call it. So you consume, but you also produce, maybe you have storage or other ways of performing flexibility on the markets. You step into our marketplace, meaning we need some interaction with your bank account because you need to pay for power or make money with it. And we need interaction with your smart meter that tells us how much you are consuming or supplying to the local markets. From a prosumer perspective, it’s as easy as that.
What then happens is we have an AI bot that does your trade for you, so it processes your weather data, your energy data, market data into a trading strategy, the trade happens in the marketplace that touches commodity market standards. So high-frequency, a lot of messaging, a lot of order types available. So your AI bot has reported our forward market at hand, where it can trade from arbitrage, from price discovery, so [it can] help you build an optimal market position there, and your neighbors do as well. So as a community, you meet in this marketplace, everybody has their own bot that performs on behalf of the user. We do not dictate who gets what, but we allow you to make optimal use of your assets, of your generation, storage, following, let’s say, the core rules of free markets.
JR: I think you’ve absolutely hit the nail on the head of where the technical challenge and perhaps the barrier to progress has been, and this is what we’re really excited to have overcome. Janjoost mentioned how we allow trades to happen locally in the formation of local price. This is using well-established marketplace norms. The competitive bidding process should, in the perfect market, find the optimum price for pricing resource.
We needed a really performant optimization engine all of these local actors, be they on a microgrid or in a community to come together and express using price where they have optionality to maybe delay their consumption or where they have a battery that could be buying on a sunny Sunday afternoon and selling back on a rainy Monday morning. So price discovery is really important, and high-frequency trading is key to facilitating that really efficient price discovery.
We think of the marketplace is kind of the central processing unit of optimizing these local microgrids. Blockchain technology, [while] highly robust and has lots of security and really positive attributes for managing identity out of the box — it’s a great technology, and it’s maturing, and it’s gaining speed all the time — is not to our knowledge quite up to high-frequency trading in this case. So marrying the benefits of distributed ledger technology and the high-frequency trading is the special sauce, we think, of the Distro platform.
JR: Broadly, distro makes money by providing better local prices for sellers of local generation. So rather than being a solar producer feeding into the grid on a fixed offtake tariff, and I’m making the numbers up here, but say that’s Euro 0.12/kWh, if you’re lucky. And then being a local consumer buying at, say, Euro 0.17/kWh. There’s a spread in the middle. And that spread is reflective in some cases of grid and transmission costs, but it’s also reflective of profit, intermediaries. So just connecting the peer-to-peer trade releases the value of that spread for local buyers and local sellers. It also provides local incentives for storage.
So we’ve achieved some savings in this pilot that we’ve done in the Port of Rotterdam. Janjoost can give us some more color on that. But we think that’s just the tip of the iceberg. There are places in any electricity consumption scenario, we think that there is some value, but there is real value for people who have on-site generation, maybe who are facing high grid connectivity costs and don’t have local incentives for storage providers where the business case is pretty compelling.
So the marketplace, because it’s software, can transact relatively high-frequency and relatively low cost, it’s quite asset light. And that provides, we think, a 25% better return on renewable Capex. That’s probably a low estimate, and we’re able to reduce electricity costs by kind of between 10% and 40% depending on the scenario. Those are the kind of hard dollar business case numbers that we think we can target. And the really beneficial win-win here is that by encouraging storage, it ensures that more local renewable generation is consumed on site. So for boards, infrastructure operators, top of mind is clearly renewable power consumption. And this is a mechanism for driving that up while saving cost.
JJ: The trial is continuing. Actually, these kinds of numbers are, of course, also the motivation behind doing this. So BlockLab is a software company, so we want to make a scalable software service globally. The Port of Rotterdam is a landlord that wants to be competitive, which sees energy-related investments touch that business case.
So one of the reasons to team up with S&P Global Platts was, can we come to business logic and a market design that helps us stay competitive in this energy transition? What we do in the trial, and it’s a small location, 30-40 tenants, solar, storage, everything in place, but mostly selected to prove what we have, so a good proof on our own turf, we saw good scores there around the numbers James was mentioning. But what’s more important now is that the Port of Rotterdam is working on this road map to us further deployments, and they see three angles reflected in the numbers James was mentioning.
One is grid investments, if they work on energy transition scenarios, as a lot of landlords will do, let’s say the lead principle is electrification in all scenarios, which will mean heavy grid investments if we do not mitigate. So yes, we are assessing new business cases based on grid balance. Can we save copper costs We have actually happened where we shown what peer-to-peer trading could do before our solution was working even before a solution was working, where we managed to lower grid investments with 25%, just by showing how optimization did happen, did save money. So that’s one angle.
The second angle is, of course, the power prices their tenants will have to pay. Those include grid fees but also simply paying for volumes. And there again, we’ve proven selling locally gives better prices. What [the port wants] is tenants investing in generation, better business cases for local generation, local storage.
And the third thing is related to this price, but is the return on assets. For instance, storage can play a role in balancing markets, but there’s a new revenue model as soon as you provide flex services to your neighbors or your partners within your microgrid as well. So it’s actually these kind of numbers and the business logic behind it that drove this business case that pushed the port to invest in a very early stage, and that is now leading the assessment and definition of first new deployments in the port.
JJ: Yes. You’re right there. And this is one of the projects that is now being assessed. So what the Port is doing now is actually two things, and I think you need to be 2 things. So one is prepare the right delivery organization and partnerships etc., to do this structurally. So that includes infrastructure providers, banking, etc. So to shift from, let’s say, start-up organization to a full delivery company. There is a team working on that now. And the other part is assessing the first few new projects to run this in. Indeed, the shore to power is on the short list, a quite serious opportunity. And what we’ve heard so far is that this is a topic for other ports as well. So we have high hopes there. It’s also just as new as our product is. So it will be, let’s say, aligning timelines to get that running. I know people are on it now. Yes.
JR: And I think we should say, yet, our shareholders are S&P Global and the Port of Rotterdam. And that’s the strategic interest from both of those parties, but what’s been really interesting this year is that we are being pushed by our stakeholders and our backers to move from project mode into company mode and to pursue growth ventures, both within the port and other ports, but also to explore how this technology in this platform can unlock some benefits for other locations, other entities.
So we’re spending a lot of time at the moment having really interesting conversations around the world — Australia, California, here in Europe — about how we can deploy both where there are physical microgrids, like big natural, islanded, landlord-type grid providers and also how we can make this work virtually across existing power networks, maybe even for consumers. So getting from our first project to our second, third and fourth deployments is the real focus now. And the sort of long-term goal is making everybody an energy trader. We think this is a really powerful technology. And the achievement this year that the team has made in making it work — making it work with real dollars and kilowatt hours — is probably the biggest first step I’ve seen made in quite some time with this technology, but we’ve got a pretty solid pipeline coming together.
So we’re pretty excited about where we go next. And so that will mean taking it from kind of a joint venture project, incorporating as a legal entity, formalizing relationships with our kind of existing backers and shareholders, raising funds and going into full growth mode, which is a really thrilling prospect.