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Company Aims To Launch Blockchain-Based Retail Electric Service In Texas, At Wholesale Prices

September 21,2017



Grid+ (website) is aiming at launching a retail electric provider in Texas that would provide customers with access to wholesale energy prices via blockchain technology and prepayments

Grid+ earlier this year released a white paper on its business model (click here), and has provided more details, including the reveal of Texas as its initial target, in an interview with BlockTribune

Grid+ co-founder Karl Kreder tells BlockTribune that the company is targeting the second quarter of 2018 for the launch of its first retail energy provider. Kreder tells BlockTribune that its initial market will be Texas, citing "Austin" specifically.

Kreder set a target of 100,000 Texas customers by the end of 2019

Kreder told the BlockTribune that Grid+ will severely undercut existing retail prices in ERCOT, saying prevailing prices include a 100% retail markup

Kreder cited in the BlockTribune interview an average Texas residential rate of 11¢, calculating wholesale cost as 3¢ and TDU fees as another 3¢

"The rest of the cost is the retailer markup, which is around 100% over the cost of the electricity and distribution," Kreder told the BlockTribune

Of this markup, Kreder said about 25% goes to amortizing bad debts, 25% to administrative costs, and 50% to marketing.

In its whitepaper, Grid+ states that, "Grid+ expects to charge its customers for the price of energy they purchase in the wholesale market, the fees associated with its distribution, as well as a percent markup over these latter two costs."

Grid+ says in its whitepaper that it expects to charge 20% above the wholesale plus distribution cost, "implying a cost of $0.068/kWh, for the Texas market, compared to the current average retail cost of $0.115/kWh. This would provide a customer savings of ~38%."

Regarding its business model, Grid+ in the whitepaper states, "Grid+ revenue will be generated from markup on wholesale energy prices, transaction fees, interest on capital backing BOLT tokens, and sales of Smart Agents. The objective of Grid+ is to drive energy prices as low as possible and operate the energy business near-cost in the long-term (i.e. paying for expenses, but making little-to-no profit off of the energy fees charged)."

In its whitepaper (which is not specific to Texas), Grid+ envisions eliminating bad debt costs through charging deposits and using a prepay model. Based on 15+ years of Texas electric choice, it may be easier said than done

"Real-time payments coupled with the deposits will prevent the accumulation of bad debt in any meaningful quantity," the whitepaper states

"The mandatory use of deposits by customers results in the complete removal of bad debt expenses, which creates a competitive advantage over incumbent retailers. The deposit model creates a somewhat hidden virtuous cycle. Customers who are likely to default on payments will be unwilling to post a deposit and join the Grid+ platform. Thus, high credit risk customers are pushed onto incumbent retailers, thereby increasing Grid+’s competitive advantage over time, further facilitating the ability of Grid+ to build out its network," the white paper states

The white paper further discusses payment and deposits as follows, "In addition to foregoing centralized payment processing, user agency also allows Grid+ to eliminate costs related to risk. Rather than pooling risk as legacy utilities do, Grid+ will require customers to pay for their electricity in real-time via cryptocurrency stored on their Smart Agent. As the customer uses electricity their Smart Agent (an automated, always-on appliance) will make payments, via a payment channel, at each billing cycle in real-time (every 15 minutes or one hour, depending on the local ISO). In addition to adding currency to their Smart Agent (either ether or the Grid+ stable coin, BOLT), Grid+ will require customers make a refundable deposit that can be partially drawn-down if the Smart Agent fails to pay on time. The deposit serves two purposes. First, it prevents interruptions in service if connectivity is lost. Second, it provides a buffer if the Smart Agent runs out of funds. Grid+ customers will be notified as their deposit is consumed, and once it reaches some lower threshold, the customer will be notified of service termination. Customers will always be able to top-off deposits if their deposits get partially utilized. Real-time payments coupled with the deposits will prevent the accumulation of bad debt in any meaningful quantity."

However, under current residential Texas rules, prepaid service cannot include a "deposit". To the extent the term is used colloquially, and really means a set threshold for the initial pre-payment, Texas REPs cannot require a connection balance in excess of $75 (not including TDU fees) for a residential customer. Moreover, REPs may not set a disconnection balance of more than $10, meaning a customer may continue their account in good standing for a prepaid balance of as little as $11. While this would be sufficient to prevent against the cost of unpaid electricity usage during normal conditions when, if the balance is exhausted, disconnection may occur one day after the disconnection balance is reached, for prolonged periods of extreme heat or other weather events, which prohibit by rule disconnection for multiple days, the REP could face the accumulation of significant arrearages

Residential customers will be a target demographic of Grid+.

Per the whitepaper, Grid+'s model requires use of a "smart agent" device to facilitate the blockchain transactions. The device's manufacturing costs are expected to be about $50, which will generally be charged to the customer (some initial devices may be given away at start-up)

While the use of blockchain will facilitate pro-sumers who have distributed solar or storage, Grid+ stressed that its model and savings opportunity is not premised on customer adoption of such technologies, and that its savings are achievable solely through its wholesale pass-through model

While, in the short term, the whitepaper states that Grid+ plans to spend a relatively large amount on marketing to acquire its initial customer base, the company further says that, "Many reading this white paper can attest to the evangelistic effects of a tokenized economy."

"Grid+ imagines GRID token holder-evangelists will do a better job marketing the Grid+ platform than Grid+ can do on its own. Even those who are not GRID holders, but are Ethereum enthusiasts, will help push the platform because Grid+ uses the Ethereum rails from start to finish. Adoption of Grid+ by definition means adoption for public Ethereum. Grid+ foresees a grassroots viral marketing craze propelling Grid+ into mainstream media," the whitepaper states

An FAQ on Grid+'s website states customers will require WiFi to be a customer

The white paper (click here) further discusses technical aspects of the blockchain technology, as well as cost projections for market entry

Tags:
Texas   Innovation   Blockchain   Grid+  

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