Jeff Shumacher, Founder and CEO, BCG Digital Ventures, and Joe Takai, Partner and head of the Energy Practice Area, discuss the prevailing trends driving the global energy transition.

“How did you go bankrupt?”

“Two ways. Gradually and then suddenly.”

In this passage from The Sun Also Rises, Ernest Hemingway captures the unpredictable nature of disruptive innovation with striking prescience. Published in 1926, Hemingway’s novel coincided with another significant event; the birth of UK’s National Grid which laid the groundwork for the centralized framework still used today.

The disruptive technology of its time, electricity transformed daily life beyond recognition—gradually and then suddenly. Nearly a century later, we’re undergoing a similar leap forward, going beyond digital towards an interconnected world of smart everything. But the electrical grid underlying it all, once an enabler of innovation, has remained largely unchanged.

In today’s system, utilities provide a product that customers can neither live without nor purchase elsewhere. Imagine instead a system where customers can use their mobile phones to purchase energy directly from their neighbor generated via rooftop solar panels—a decentralized world.

This type of decentralized, peer-to-peer exchange is now possible with virtual energy trading platforms popping up all over the world like the Brooklyn Microgrid. The microgrid is a small-scale power grid that integrates advanced smart technologies and renewable power sources the central grid cannot. Reliable and resilient, microgrids can operate in conjunction with the main grid or disconnect from it during emergencies like extreme weather.

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Locally sourced ‘farm to table’ energy is representative of the larger shift towards a decentralized sharing economy that was once central to the web of relations within pre-industrial communities. Technology has given new life to this practice with the ‘Uberization’ of everything, putting the consumer in the driver’s seat to control their own consumption and forever redefining the meaning of ownership.

The stakes could not be higher. Rising temperatures, increased demand for energy and billions without access to modern electricity—we have our work cut out for us. If we want to turn the lights on for those still living without them, and keep our Alexas, Siris and Cortanas powered on to do it for the rest of us, we must overhaul the entire energy ecosystem.

Under extreme pressure, we’re closer to the smart grid of the future today than ever before. The power industry is quickly trying to adapt to a system where consumers produce and sell their own electricity, bypassing traditional utilities. In this way, microgrids place the locus of trust directly between peers. But unlike the pre-industrial world where neighbors actually knew each other, the same cannot be said for today.

How, then, do we enable trust—a vital part of any transaction? Enter blockchain, the digital ledger underlying Bitcoin that promises to transform the world as we know it. Enabling transactions that are transparent, immutable and irrefutable, blockchain technology is key to creating a distributed hybrid system made up of large power plants and microgrids.

Here’s how it works:

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The Path Forward

Microgrids represent one of many innovations causing major disruption in the energy sector. More broadly, the application of existing smart technologies and continued advancement in energy storage and batteries are vital to scaling renewables—currently on track to supply 34% by 2040—and core to the smart grid of the future. Recent shifts in U.S. Policy, troubling though they may be, will not likely be able to slow this momentum.

Though decentralized, the smart grid will look nothing like grid of the early 20th century; a competing patchwork of grids that numbered in the thousands, with wires so dense in some areas they obscured the sky. Instead, it will be virtual, smart, fast and flexible, transforming what is essentially the world’s biggest machine into an invisible force of energy.

But full implementation of emerging technologies will take time, and the grid’s evolution will not be universal. In developing countries like the U.S., existing regulatory framework and infrastructure can actually be an inhibitor to scaling innovations like microgrids. In areas of the developing world where it can be faster and cheaper to build virgin infrastructure, microgrids can be used to leapfrog directly into the Solar Age in much the same way they were able to skip ahead to mobile technology.

At the same time, the shift to renewables may also hurt some developing nations whose economies are centered around the production of fossil-fuels as well as lower-skilled workers whose jobs will soon become automated. We must find a way to integrate new systems into old—whether that be the emerging energy grid into the current framework, or the sharing economy into the existing economy—that is beneficial for everyone, not just a select few.

As technology continues to reshape the foundation of just about every structure we’ve come to know, it’s not enough for companies to take a firm stance within renewables. They must recognize market-specific drivers of change and develop an evolving portfolio of options to drive innovation.

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