Reforming to a Smart Outcome-based Power Grid
Abstract
This essay will investigate both the ideas of a smart contract and an outcome-based contract to be implemented within the construction industry. The problem of the industry nowadays is that it does not have a clear standard on the end-use of energy within a household and the conventional contracts only favour output. It is very difficult to evaluate the performance or measurements on energy efficiency, which then directly influences the engagement and accuracy of post-occupancy evaluation on energy use. The essay therefore explores how these two types of new contracts could be utilised along with the current technology of smart meters and devices to push forward a carbon negative community. It will examine how the new contractual processes could help change the post-occupancy evaluation sphere through the impact bond. And how establishing the metrics and standards through these contracts could help moderate the free energy market, and pioneers the idea of producing and selling energy as individuals through the community-driven initiative of our “Smart Co-op Grid” model.
Introduction
Smart Co-op Grid proposes a community-driven model that challenges the conventional energy provision network within a community-led housing scheme. The model takes a step further than a carbon zero project, rather, it aims to deliver a carbon negative economy in terms of community energy production and local engagement.
In fact, housing co-operatives are not uncommon in the UK nowadays. Housing co-ops are built upon shared decision making and mutual trust between shareholders. They work on common economic, social and cultural needs and aspirations through a jointly-owned and democratically controlled enterprise. However, energy is usually a separate component within the co-op equation. In the current industry, energy production is still based on large power plants, and energy is then distributed to individual households. The linear process inevitably leads to loss of load on the demand-side, and a lack of legibility and control on the end-users.
Smart Co-Op Grid would like to challenge the existing structure which neglects the importance of an integrated energy strategy within a residential project. We target to remodel the current conventions of energy distribution through a centralised energy provider. Rather, decentralising the network to smaller community smart microgrid networks, individual households could also engage as a ‘prosumer’ (provider+consumer). The smart grid networks could function as a local marketplace for energy, where surplus could be returned to the grid as a rebate or token for communal needs. These smart grids could promote a more efficient, resilient and sustainable urban community.
The ambition of the model is to utilise local production of renewable energy (mainly solar energy) as a pivot point for a carbon negative economy. It pushes forward a more inclusive sustainable residential development through the remunicipalisation of energy and introduction of metrics to energy provision. It emphasises on the start and end of the project, aiming to provide a more legible energy cycle to the end users. Focusing on the ‘prosumers’ rather than developers as clients in the process ties the linear stages of work together as a circular economy, with energy as a medium.
As a carbon negative economy and local energy production within residential communities are rather new standards to the industry, it is very important to establish new metrics to examine its potential and efficiency. By introducing new contractual relationships and smart agreements, the innovation could help enable the complexity of incentivising the local community within the energy economy. These smart contracts could also help obtain the energy performance of the projects, embracing the post-occupancy evaluation (POE), providing invaluable feedback to inform new systems.
How are current contracts constraining the industry’s potential?
Traditional approaches to contracts and procurement set up many obstacles for innovation of technologies and systems. Currently, contracts are based on outputs rather than performance. Recent years, architects are very passionate about sustainability, but due to the loophole in conventional contracting, the buildings tend to over-promise and underperform. Traditional contracts tend to divide the construction process into design and construction, as architects are appointed to the initial design stages, while contractors are then employed to commit to specifications decided before they were involved in the project. Innovative energy solutions as proposed within our development model could hardly be implemented under the conventional framework. The traditional contracts, which favour mostly efficiency and low costs go for a more ’One-size-fits-all’ approach. The outputs’ value are generally determined by the cost and risks, mostly dealt under the traditional contract upfront payment.
A project is then considered done when the building is completed and handed over to the end-users. There is no incentive for architects or contractors to take a step further and consider the impacts of the design. The satisfaction of the end users, nor the performance of the buildings are properly regulated under the contract. By evaluating the current situation, traditional contracting and procurement mindset have been a hurdle for technological changes to incorporate POE and improve building outcome, or to address energy efficiency, which is what our development model aims to change.
According to RIBA, only 19% of the architectural practices in the UK offer clients a POE service. 50% of the practices never measure the actual or anticipated operational energy through POE. The eight stages to building construction as stated in the RIBA Plan of Work 2020 also reiterates the limitations of the idea above. Building contract is concluded in stage 6. There are no standards to register what comes after the handover, and there is no structure to organise any feedback (if POE is properly done) or information exchange that comes in stage 7.
Addressing energy efficiency in buildings is crucial to reaching net zero targets. Buildings are responsible for 40% of the UK’s carbon emissions, and architects have a key role to play in addressing and reducing the large impact they have. As the RIBA Climate Challenge 2030 listed a series of targets for practices to reduce carbon emissions on operational energy, there is also no clear regulatory framework on how we are measuring energy and value of these buildings. As operational energy use comes after handover, how can the contractual elements be evolved to manage and register these spaces and address the climate goals?
We must acknowledge that the current contract and procurement framework are constraining the shifting industry. We must therefore consider some new constituents that could unlock the potential in helping us deliver the upcoming carbon negative and energy goals. The new contractual relationships should benefit from their programmability, transparency and public engagement.
Conventional Power grids
The limitations of the current industry do not solely lie within the contract and procurement framework. The same lies within the energy sector pipeline, and in parallel, the construction process is very much detached from energy use considerations.The current practice within the energy retail sector, is a linear, one-way process. From the power stations for electricity generation, and then transported through transmission lines to substation transformers for easy distribution. The fourth and final stage comes in the electricity retailers, who sell electricity to consumers. It is not till the last stage of end users where the construction and energy components join together.
Gas and coal generation accounted for around 43% of the electricity in the UK. Citizens Advice Bureau has addressed the impact of electricity leakages: About 2% of the electricity transferred overy the high voltage network is lost. A further 8% is lost over the regional distribution networks. And only the leakages already account for approximately 1.5% of the UK’s greenhouse gas emissions. They also increase consumer costs, as greater leakages would mean more electricity to be generated. The pipeline itself is not favourable for a carbon negative environment. What could be done to help enable the shift to a greener energy use and retail network? Can the construction and energy sector join hands on this matter?
The United Kingdom has over 70 energy suppliers currently. Alternative energy suppliers such as Octopus energy, Bulb, Shell Energy etc have taken up around 27% of the market share from the largest suppliers. For instance, the main drivers of customers switching to an alternative energy supplier has been lower price and better customer service. At the same time, shifting to stronger reliance on renewable energy sources imposes huge challenges onto the current grid systems, mostly due to the fact that the power generation and management from renewable energy sources are distributed and fluctuating. Traditional power grid system is becoming more vulnerable, a smart grid enables two-way flows concerning electricity and data which stabilises and capitalises the decentralised system. The linear retail relationship reveals the passiveness of the end users. In order to deliver a more meaningful outcome through the smart grid to transform the entire built environment, it is also essential to capitalise on the opportunities on improving public engagement on constructing a greener market.
Outcome-based contract (OBC)
The major problem with current contractual arrangements is how they are optimised for cost efficiency of the conventional construction process, and does not allow room for innovation on alternative energy solutions. The one-way pipeline does not take care of anything at the users’ experience level or satisfaction. In order to join the stages of work into a circular economy, and also to ascertain the importance of POE for construction, both outcome-based contract and smart contract are to be implemented.
Outcome-based and smart contracts are ultimately two different entities, but are applied to this scenario hand in hand in order to establish a set of new metrics for energy performance of a household.
In fact, government agencies have been the biggest users of outcome-based contracts nowadays, they are generally being utilised for providing public services such as healthcare, maintenance of transportation infrastructures, social welfare etc. Outcome-based contracts is a topical issue within the construction industry but not exactly a new idea. It is a form of contracting that mainly includes three characteristics:
- A clear framework of objectives and indicators to measure performance
- Collection of data on the performance indicators to assess the extent to which the services or programmes are successfully delivered
- Performance then leads to consequences such as rewards or performance adjustments
The contracting method allows explicit evaluations, data sharing and transparency to the building’s performance, which helps the outcome payers (end-users in the co-op case) and other designers learn from what worked, and inform future projects.
It is interesting to see that the energy sector is already applying OBC to date within the UK “Green Deal” scheme. The suppliers who joined the scheme help individual households install energy-saving improvements such as insulation, double glazing windows or renewable energy generation panels. Instead of direct payments for installations, the supplier will take a share of the savings in energy bills. And the performance of these improvements could be transferred to the next occupiers.
Smart contract
Applying outcome-based contract within building projects are exposed to two key challenges:
- Defining the desired outcomes — what type of energy usage is to be recorded and assessed
- Measuring performance — what infrastructure is required to meter energy
This is where smart contracts come into play. In general, outcome-based contracts require a third-party evaluator to assess the standards. This has been a burden to the industry as hiring another party means extra cost for the project.
Unlike contracts written and signed normally, a smart contract is an agreement between two devices. Implementation of the smart contract within the development model requires smart meter technology and also blockchain software with integrated smart contract function. By implementing the use of smart contracts for automating measurements and transactions, each party can benefit from its predictability, programmability, and transparency. By installing smart meters in the households, the usage could be logged and stored, which could then be retrieved for comparison and study. The blockchain software could also then access these data to carry out transactions automatically.
Case study: Brooklyn Microgrid (TransactiveGrid)
The “Brooklyn Microgrid” project is a pioneering venture to test how blockchain technology could be applied to sales of solar energy between neighbours directly. It is an ecosystem of connected end-user energy assets, where energy produced locally could be stored and transacted autonomously, which reduces costs and loss, creating a more efficient and sustainable community. Purchasing energy within the microgrid could help reduce greenhouse gas emissions and also support local growth. The end-users are able to decide where their energy is sourced. The ultimate goal is to transform the local community to a local energy marketplace, where even a single user could gain control over how they are marketing their surplus energy generated at their own household.
Enabling Smart Grid in the UK
The smart outcome-based contract ultimately remodels the current practice to a more decentralised energy transaction and supply system. Supply and demand are balanced by the smart contracts, and the system literally puts more power to the hands of the people. As a community-owned energy project, all parties are able to securely access the storage of ownership and transaction records.
The components of a blockchain-based energy system are actually based on smart devices that already exist on the market. Smart meters, which could effectively measure energy usage and directly transmit the data to record. Smart devices or smart homes that save energy by keeping track of which rooms you use and when you use them. The system keeps track of which space end-users are occupying, and through sensors and thermostats make sure the temperature is appropriate. And these user behaviours could also be controlled and recorded in your handheld devices smartphones and transmitted to the cloud.
By connecting these different smart devices within the smart contract, it could also lock in usage and behaviours digitally and automatically.
Impacts on post-occupancy
Through the reworked relationships and exchanges established by smart and outcome-based contracts, the legibility to the energy performance of the household or even the local community could also tie into the post-occupancy evaluation. As previously mentioned, as there were no clear standards to the energy efficiency or household energy usage, it was very difficult to assess whether the building is achieving the preset carbon goals. Conventional post-tracking systems do not actively store and sort the energy data information of each project. But by utilising smart outcome-based contracts, the development of the entire project aims to achieve specific, measurable performance standards and requirements. This new form of post-tracking could help the industry better understand each of these units even after the handover stage.
As smart meters for electricity, or even gas consumption and associated CO2 emissions within the buildings, the automated data and value exchange through the smart contractual framework aggregates the community through a smart communal power grid, and at the same time enables secure transactions. The data is accessible among all parties which ensures transparency and engagement ongoing.
The data provided by the building’s technology infrastructure is automated, thus creating a self-diagnostic network. These infrastructures can be used to measure the key objectives defined for specific contracts, but also ensures that the POE is an ongoing process after the handover — not something that is done in one go.
Moving forward
The co-owned energy project executed through smart outcome-based contracts is not limited to recording the energy consumption of a household in the cloud. As we take a step further, local generation of renewable energy through solar panels at individual residential units. Each end-user could also participate in the energy market as a provider with photovoltaic panels installed. These smart infrastructures help empower the peer-to-peer transactions within a microgrid, which in turn supports the growth and resilience of the community. The local community then earned their power to decide collectively how to apply the revenue generated, and how they could sell their surplus energy to the free energy market on the national grid. It further promotes the engagement of the public to energy projects. The local engagement helps create a circular economy within the community itself, rather than paying a lump sum to retailers outside. The energy retail market is no longer a one-way route, but is supported by both power plants and individual users.
Moreover, due to co-owned energy projects, citizens are actively involved in renewable energy generation through their own households. They are gaining power and control over their power source and what they consume and sell. Consequently, public acceptance of renewable energy production could be increased significantly too.
To conclude, It is definitely a valuable step to reform and remodel the rigid framework and mindset within the industry in order to deliver a more sustainable environment. The combination of smart and outcome-based approaches is a way to develop the potential of local renewable energy within a community development. The new set-up strengthens the community structure between neighbours through an energy exchange. The infrastructure could furthermore contribute to a more developed post-occupancy evaluation scheme dedicated to energy efficiency, which in turn could help inform and improve future buildings.
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