Why Decentralize Energy?
Energy is society's most fundamental resource. Every human civilization has been powered from some form of energy, from fire, to whale oil, to crude oil, to electricity.
Energy abundance is tightly correlated with human prosperity. Societies that invest in and harness energy resources have experienced significant advancements in technology, economic growth, and quality of life. More energy equals more productive societies.
The Centralized Energy System is Straining
We are moving from a fuel-driven world to an electricity-driven world, making the electron the world's most important commodity of the 21st century. But our power grids are increasingly strained due to an explosion in power demand. Skyrocketing demand for compute from artificial intelligence and cloud resources are leading to a boom in power demand from data centers. Reshoring our industrial base is creating new large sources of power demand. Electrification of massive industries like transportation, heating, and industrial manufacturing also amplify the boom in power demand. And self-driving robotaxi fleets and robot fleets will further increase power demand by multiples.
At the same time, the supply mix of electricity is rapidly evolving. In 2023, ~85% of all new electricity generation capacity was renewable. While this is positive for sustainability, it brings new challenges to the energy system. Unlike traditional fossil-fuel power plants, renewables are typically intermittent, meaning their energy output is irregular and tracks factors outside of human control like weather. This makes it significantly more difficult for grid operators to ensure that supply and demand of electricity remain in equilibrium 24/7.
The legacy grid's centralized infrastructure is also aging. The cost of delivering electricity has increased significantly, even as the cost of generating electricity has fallen. Utility spending on distribution was 65% higher in 2020 than 2010.
All of these factors add up to more expensive, less reliable power grids. The average U.S. citizen now spends 8 hours without electricity per year, nearly 2x since 2013. The result is an energy system facing increasing volatility, intermittency, and reliability issues. Without a change in how the system functions, increase energy prices and cascading grid failures will emerge as standard.
The Solution: Decentralization
Decentralizing our grid is key to solving these issues and ensuring our power grids operate reliably to fuel the next generation of progress. Distributed energy resources - like solar, storage, and intelligent loads - push energy generation and management to the edges of the system. Decentralizing our grid reduces total load on existing infrastructure, while providing the support necessary to integrate more renewable energy at scale. Specifically, decentralization:
1. Deploys Faster
Deploying distributed solar and storage on homes and buildings takes weeks from contract to commissioning. Deploying traditional, centralized power plants takes 3+ years.
Decentralized energy is a more scalable and efficient way to develop new energy capacity rapidly.
2. Increases Reliability
With the complexity of power grids increasing, we need to create massive new sources of energy flexibility to balance the grid in times of stress. If distributed energy resources are deployed intelligently and connected together via software, the grid can orchestrate them to perform the role of power plants.
3. Reduces Transmission Infrastructure Capex
To support all the coming electricity demand, we need to more than double the size of our transmission systems. This is expected to cost $600 billion in capital expenditures annually. Not only will these staggering costs increase power prices for consumers, but the likelihood of even being able to build new transmission infrastructure is questionable.
By generating, storing, and managing grid locally at the edge of the network, scaling distributed energy can avoid the cost of new transmission infrastructure. We no longer need to transport nearly the amount of electrons over long distance in a decentralized power grid.
4. Increases Energy Security
At an individual level, distributed energy ensures that individuals can generate and store their own electricity even when the larger grid experiences a power outage. Additionally, less dependence on fossil fuels avoids energy dependence on imported fuels.
5. Increases Sustainability
DERs are sustainable technologies because they do not typically use fuels; instead they consume electricity or generate electricity from renewable sources. Decentralizing the grid reduces the reliance on fossil fuel power plants, eliminating carbon emissions. It also avoids the negative climate externalities inherent to large transmission expansion.
What's Holding Back Decentralized Energy?
Distributed energy faces two major problems: exceptionally high customer acquisition costs, and inefficient financing.
Traditional government programs of large, percentage-based tax credits have incentivized inefficiency and bloat in the sector. These papered over inefficient customer acquisition and development costs, leading to a massive amount of "soft costs". Today, ~60% of the cost of a residential solar system is marketing and financing costs. The actual equipment and installation is less than 40% of the final cost. This bloat leaves consumers worse off.
Additionally, niche and opaque financing markets have constrained the growth of the market. Many financing companies have collapsed, not from poor asset quality, but from financial mismanagement. Additionally, financing products have failed to utilize aggregate network effects to drive more revenue and lower the cost of capital (via VPPs and grid services), preferring the simplicity of financing individual assets.
How DayFi Scales Decentralized Energy
DayFi is an open protocol where distributed energy is liquid and programmable. This scales access to capital, while improving returns by anchoring value on one programmable energy network for energy markets to utilize.
By embedding value, incentives, and rules transparently into the protocol, it enables its own network effects to fuel growth. Each new participant strengthens the system, lowering costs and increasing revenues. Expansion happens organically at the edges. This creates a flywheel where growth compounds naturally, giving decentralized energy a path to scale faster and cheaper.
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