Grid+ Valuation (Risk, Value, Usability)
Written October 3, 2018
Grid+ (gridplus.io) is currently a retail energy provider in Texas that has received approval from the Public Utility Commission of Texas (PUCT) for a retail energy provider (REP) certificate, allowing Grid+ to legally sell energy to residents of Texas. Unlike many states Texas has a deregulated energy market meaning customers compete to find the lowest energy price in their region by switching providers regularly. Similar to how you would switch phone carriers if another provider was offering substantially lower rates.
Important to know, "An energy retailer buys electricity in the wholesale markets, pays the distribution system operator a fee for getting the electricity to the customer, and then bills the customer for the service at a large markup over their cost of goods sold. Typically only about 50% of the cost of retail electricity is used to pay for the electrical energy itself. The other half is tied up in administrative burden, marketing, and risk management associated with bad debts"
Grid+ gives two sets of value proposition one for the short term and one for the long term. This is key to their development and something many energy blockchain projects miss. The least radical blockchain projects are likely to be the projects that succeed initially. Enhancing wholesale markets rather than replacing a centralized grid with peer-to-peer exchange are most likely to succeed and meaningfully impact system operators. The short term value proposition for Grid+ includes:
- Lowering variable cost
Billing and settlement are a manual process that involves calls to the bank, paper mail, and spreadsheets.
- Eliminating bad debt
From the Grid+ whitepaper, "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."
Placing themselves as a competitive retail provider in the short term and obtaining a loyal customer base that Grid+ expect to save ~30% on their yearly bill will allow them to pursue their long term value proposition, distributed storage and open markets. This will include enabling efficient markets, supporting P2P markets, and globalizing access to wholesale markets.
To save everyone on the details and benefits of the long term goals I will only focus on the short term but highly recommend reading the whitepaper which is linked above.
The Lattice1 Smart Agent
Perhaps the most interesting part of this projects is the Grid+ Lattice1. This smart device is critical to the success and mission of the company. The smart agent aims to allow a non-technical person the ability to use cryptocurrencies with automated systems, and also create hardware/software that allow said person to participate in the crypto ecosystem without the worry of losing their funds to human error or hackers.
The Lattice1 is designed to address two important feature that are necessary for working towards an alternative to the present monetary system, scalability and usability.
Currently, cryptocurrencies have many favorable attributes when compared to traditional monetary systems but these traditional systems are so much more favorable to the average person because of convenience and security. The Lattice1 will offer many of these comparable services including credit/debit cards, automatic recurring payments, digital payment apps, as well as offering many different account types.
The Grid+ team had this to say about their cards system, called smart cards:
One of the important features that is introduced by the Grid+ Lattice1 is the use of smart cards, which we refer to as Safe Cards, as a mechanism for key management and account backups. Safe Cards are much more favorable in their ability to durably store a secret when compared to paper backup phrases. Furthermore, the introduction of the card slot on the Grid+ Lattice1 allows a user to not only create card-based accounts but also allows them to create accounts using a number of agents, cards, and devices. A simple example of creating a multi-keyed account was proposed in the whitepaper known as 2-of-3 multi-signature blind key wallets. This will allow users to benefit from 2-of-3 multisignature security by buying a Lattice1 and downloading an app. Simple, out-of-the-box multisig. More interestingly, the card slot will also enable users to create wallets with an arbitrary number of Safe Cards, as well as create hierarchical wallet systems. For example, a user could create an offline account by creating an account which has a single key on one Safe Card, but is backed up by a 2-of-3 keys stored on 3 additional Safe Cards. The user then could store the three backup cards in physically disparate locations, say a safety deposit box, a relatives’ house, or a hole in the ground. The user will have access to their funds, but will also be able to recover the account if something happens to their Lattice1 or primary Safe Card.
Another benefit this agent will deliver is the ability to create pairings and permissions for other devices or counter-parties. This means giving another verified party the ability to draw from your account if certain parameters are met such as frequency and amount. An example would be a subscription service you pay for like Netflix would have a verified ethereum address that you allow to draw from the address associated with your Lattice1 once per month for $9.99 worth of Ether. If they make a request more than once per month or not for the correct price the the Lattice1 will not sign the transaction request. All this will be possible through the Grid+ MobileApp, which is the first app available on the device.
Grid+ is also opening up the ability to leverage the capabilities of the Lattice1 to third party application by releasing a software development kit (SDK). This will allow these apps to pair with the Lattice1 as well as request one time payments. This opens up so many possibilities to create applications that use programmatically executed and checked automatic payments without the need for a custodian. It also will allow new developers to enter the space without strong knowledge of any abstract crypto technicals. The SDK will allow developers to easily build transactions, get signatures, broadcast, and lookup status. As per CTO, Alex Miller, the SDK should be ready in mid September.
The Lattice1 will also allow for proof-of-stake (PoS) signing. After the implementation of Casper, users choosing to stake ethereum will need to ensure online connectivity with close to zero downtime or else risk a negative interest rate on deposits. Most stakers will choose to use AWS or Azure to ensure connectivity because they have nearly 100% uptime. However, storing private keys in the cloud will potentially put billions of dollars at risk of being stolen. By using the Lattice1 a user can run Casper on AWS or Azure and pass the unsigned transaction details to the Lattice1. The agent would then locally sign the transaction and ensure the private keys never leave the safeguards provided by the Grid+ smart agent.
Primary Risks for Grid+:
- Regulatory Issues
- Ethereum Scalability
With the biggest hurdle that faced Grid+ out of the way (obtaining a REP license) there are two main risks that must be taken into consideration. The first and the most unique to Grid+ are regulatory issues. According to a Grid+ blog post, one issue that has potential to impact the project is that the Substantive Rules Applicable to Electric Service Providers under the Texas Administrative Code has set detailed regulations for how a REP can bill and accept payments. The team is seeking additional explantation in the form of interoperation and waivers of these rules considering there is no mention of payment with cryptocurrencies, automated billing/payment, smart contracts or IoT devices, and billing/payment in real time. If officials outlaw any of the previously listed aspects of the Grid+ business model it will have a serious impact on the ability for the team to deliver on their value propositions.
Another regulatory issue the has come to the attention of the Grid+ team relates specifically to the Texas energy market. As per their blog post from 6/14/2018, "In August 2017 the Public Utility Commission of Texas (PUCT) and a consortium of the Texas TDSPs to determine the specifications and regulations that should apply to a new version of the TDSP’s smart metering system, dubbed “SMT 2.0.” This litigation resulted in a settlement agreement which the PUCT embodied in a final order on May 29, 2018"
In this final order the TDSP requested a waiver to no longer provision any further Home Area Network (HAN) devices, and they said they'll build something that is sufficient, in SMT 2.0, to replace the HAN provisioning. The HAN provision originally allowed commercial customers and third party retailers to access the data directly from the smart device. Polling a centralized system will be much more burdensome for the TDSPs, they will certainly rate limit how often a customer or REP can request data. If you are reading directly from a meter, you can hit it as often as you'd like (think once every second or so). If you request data for 5,000 of your customers every few seconds from their centralized system, it would fail. The Grid+ Smart Agent will need live data all day long, although this order will not be enacted until 2020 this is an ongoing concern that the Grid+ team must keep in mind. For updates on this order all official filings are recorded here.
Like all layer-2 cryptoassets the need for scalability is a constant problem. Grid+ is no different, they will be billing customers every 15 minutes which will require a transaction for each bill. With 5000 customers you can except at least 480,000 transaction a day. This would be a majority of all transactions currently executed on ethereum with daily averages being around 650,000 at the time of this article. With the PoW model currently used by ethereum only around 750,000 transactions could be completed per day on the main blockchain. Scaling problems are a big deal not just for Grid+ but for all dapps.
Grid+ has a unique token compared to many other projects in the crypto space. Their token (GRID) has a predetermined value equal to the wholesale cost of 500 kWh of electricity. If you purchase GRID and use Grid+ as your retail energy provider you will be able to redeem the token for 500 kWh of electricity at wholesale cost. Therefore the USD value of one token will be equal to the difference between wholesale energy and the markup on wholesale energy Grid+ charges.
Grid+ already promises to lower your energy bill after switching from your current provider. A typical US energy provider will markup wholesale price ~100% while Grid+ expects only a 30% markup. Using the GRID token will give you an additional 30% markup. Since Texas is the first state they are operating in I will use their energy prices as an example.
- Texans on average paid 10.98 cents per kWh according to electricitylocal.
- The U.S. Energy Information Administration reported the average wholesale rates in Texas were 4.9 cents per kWh in 2017.
- Without GRID: Texans using Grid+ as their electricity provider will pay approximately 6.37 cents per kWh (30% markup from wholesale).
- With GRID tokens: Customers of Grid+ will save an additional 1.47 cents per kWh making 1 GRID token worth $7.35 (500\.0147) at these market rates.*
Currently, GRID tokens are trading at only 26 cents which is far off from their all time high of $3.20. One reason is they are pretty hard to obtain in large quantities as they only appear on decentralized exchanges which to this point all have low liquidity. Idex and ForkDelta being the exchanges with the most volume.
Despite the difficulty in purchasing GRID tokens this investment is still much safer than many cryptocurrencies that may be easy to obtain on large exchanges. Its safety comes in the fact that no matter what you pay for a token it will always be worth the underlining value of 500 kWh of energy through Grid+.
One value the token will offer which I have not discussed yet is the ability to use GRID to discount the purchase of the Lattice1 which the team expects to retail at ~$300. The exact discount value has not been finalized yet but this is something to keep in mind as a price driver in the near future.
To summarize Grid+, it is a blockchain company focused on reducing the price of retail energy by providing direct access for consumers to purchase wholesale energy with the use of GRID token or by use of a 30% markup. Their hardware devices, The Lattice1, will be an internet connected hardware wallet allowing for the buying and selling of electricity along with the safe storing of cryptocurrencies.
If investing is something you are interested in the GRID token is your only option and it guarantees a value of 500 kWh and currently is worth $0.26 but with an estimated value of $7.35-$9.00. However as with investing in any startup company there is a large amount of risk associated with this investment.