The state of New York is working to rebuild its power grid as a distributed platform and to create incentives for the powerful utilities companies to work with upstart innovators.

An unanticipated side-effect of the effort is that the environment has proved a fertile stomping ground for LO3, a startup using the Ethereum blockchain to give people the ability to sell solar energy directly to one another.

While the state’s so-called "energy czar" Richard Kauffman said the government projects don’t intentionally foster an environment beneficial to blockchain tech, the inefficiencies of the legacy power grid are particularly ripe for disruption.

Kauffman, whose official title is chairman of energy and finance for New York State, told CoinDesk:

For providers of power and individuals alike, a two-way flow of electrons means they might soon be able to buy green power directly from local producers using solar panels on their roofs as well as a microgrid built atop the existing infrastructure.

Payments for the energy sector

This is where LO3 would like to see its joint project, Transactive Grid, enter the picture.

"What we’re developing is hopefully the secure, transactive layer that allows those transactions to happen across a blockchain," said Lawrence Orsini, the company's founder and chief executive.

Using the public-facing Ethereum blockchain, the joint operation with Brooklyn-based Consensys, is building an auditable, transparent means of transacting energy peer-to-peer. Another project of LO3, called Brooklyn Microgrid, is working to connect local neighborhoods into areas that can separate from the larger grid during times of duress.

The thinking is that through a combination of the microgrid concept and the Transactive Grid payment infrastructure, neighbors will be able to write smart contracts on the blockchain and choose where they want their energy to come from, what kind of energy they want to buy and even who they want to sell to or give it to.

Orsini told CoinDesk:

To lay the foundation for the new distributed grid, Kauffman, who was appointed by governor Cuomo in 2013, has launched Reforming the Energy Vision (REV) a suite of policies designed to make the state’s existing architecture more affordable, resilient and cleaner.

Electricity companies are being refashioned into what the state calls distributed system platform providers (DSPPs) and mandated to upgrade the legacy system to transform the power grid into a patchwork of Mircogrids powered by the people.

Formally kicked off in April 2014, REV’s origins go back to a series of recent storms that wiped out power across much of New York over the past years, including Hurricane Irene in 2011 and Hurricane Sandy in 2012, according to Kauffman.

The existing centralized grid around just a couple power companies ensured that if part of the grid went down it affected large swaths of the state that should not have otherwise lost power.

"Communities across the state wanted more control over their energy when they were rebuilding," said Kauffman. "These community grids really represent nodes in a distributed, hybrid system."

Last week, Transactive Grid hosted an event to mark the first transaction using its technology, which took place between two longtime friends in Brooklyn.

At the press event, retired US Environmental Protection Agency manager, Bob Sauchelli, used the Ethereum blockchain to buy 195 credits for renewable energy generated by solar panels on the roof of his long-time neighbor, Eric Frumin, an environmentalist and labor advocate.

Frumin told CoinDesk:

As part of the REV project, the state set aside $40m for potential partners interested in working with the utilities to decentralize the grid. Of 150 applicants, including LO3, 83 received as much as $100,000 to conduct their own feasibility studies.

While LO3 was not among the companies selected for this early phase, as an applicant, it is qualified for stage two of the competition in which up to 10 companies will be awarded as much as $1m each for their engineering design, and business plans.

The state of New York expects to publish its request for proposal for the next phase of the REV competition in the near future, with an expected due date for responses sometime later this fall. Winners of the third and final round will be awarded as much as $5m each to bring their projects to completion

Though Kauffman wouldn't comment specifically on LO3 or any of the other applicants, he had this to say about blockchain technology generally speaking:

Image via Michael del Castillo for CoinDesk