Micro-Hedging Energy Bets

By Jeffrey Steele

A blockchain-powered platform in Texas will enable energy customers to hedge energy prices in smaller increments of time. (Image courtesy of Flickr Creative Commons user totalAldo)

Managing energy price risk is a perennial challenge for commercial property owners and managers, who have long been hamstrung by a limited pool of suppliers and inadequate tools for cost-effective purchases. But an new initiative under way in Texas could be part of the solution. What its sponsors call the world’s first micro energy hedging platform is under development and could enable customers to hedge purchases on a far more granular level.

Direct Energy Business and LO3 are leveraging LO3’s Exergy, a new business-to-business transactive energy network that could enable commercial firms across the Lone Star State cut costs and enhance efficiency.

The platform will let larger commercial and industrial companies automatically place orders for customized power hedges calibrated as minutely as the hour level. The orders will be matched with the most attractive offers from energy suppliers within a competitive system.

Building Blocks

Commercial property owners and managers have long managed electricity price risk either through fixed-price contracts with energy suppliers or commitments to long-term purchase agreements for solar and wind, noted Lawrence Orsini, CEO of Brooklyn, N.Y.-based LO3 Energy. “But energy should be treated like any other asset or cost that needs to be managed, and the ability to time market purchases and select from a mix of resources can yield large savings versus ‘set it and forget it’ approaches.”

The project will enable Direct Energy Business to simulate automated micro-hedge management as a first foray into general automation of energy transactions within Direct Energy Business, said Mike D’Aurizio, manager of ventures for Centrica Innovations,  Direct Energy’s parent company. “Per Direct Energy Business’ strategic vision, micro-hedges are an important next step in its offering, because it can enable the transacting of smaller hedge blocks, down to the resolution of a single hour block, rather than the larger standardized hedge blocks available in the market today,” D’Aurizio explained.

“The end-state vision is to create a marketplace for businesses to transact in their best interests, whether that’s with energy suppliers or distributed energy resources alike and do so with as little manual intervention or settlement as possible.”

Smart Meters Meet Blockchain

John Schultz, CEO of Direct Energy Business

The heart of the Exergy network is blockchain technology that was developed by LO3 Energy for New York City’s Brooklyn Microgrid (BMG) and enables energy transactions over a highly secure network.

The Texas program’s first phase will launch later this year. Direct Energy Business is now meeting with Texas customers to participate in that initial phase. Direct Energy Business customers signing on to the project will access the Exergy platform via LO3 Energy’s proprietary smart meters. The platform lets companies produce, store and share their energy usage securely. As a result, they will much more cost-effectively ensure their energy procurement meets their needs, and do so automatically.

Direct Energy Business helps companies lower energy costs with innovative products and services that allow them to manage price risk or reduce usage altogether, said John Schultz, president of Houston-based Direct Energy Business and Centrica.

“By working with companies like LO3 Energy, we can leverage new technologies that bring the future of energy to our customers,” said John Schultz, president of Houston-based Direct Energy Business and Centrica. The Exergy platform, he added, “will further integrate customers and suppliers and provide additional choice for their energy needs.”

The Texas project marks the first application of the Exergy platform to helping commercial power customers benefit from the short-term transactional opportunities of power hedging, reported Orsini. “Having a major entity like Direct Energy as a partner brings the potential to rapidly scale,” he said. “The future of energy is changing, and this project will put businesses in Texas on the map as the innovators who led that change.”