Point of View

Why Blockchain has a future in Energy

June 28, 2018

The energy industries are experiencing a period of unprecedented change caused by technological advancement, renewable energy sources completely changing how energy is generated and distributed, political agendas, and economic forces.

After a good century of relative stability in the energy industry, the last two decades have been turbulent. If we are reading the signs right, this is only the start of a much bigger change in the way the world produces and consumes energy, particularly electricity. The emergence of competitive distributed energy resources, solar and wind, is decentralizing energy generation. It introduces a host of new challenges for the industry and, eventually, all of us as energy consumers.

 

If blockchain proves to be reliable and scalable, this technology may ultimately accelerate the transition to what the energy industry calls a “distributed world” made up of both large and smaller power-generation systems for homes, businesses, and communities. The future market is set to be a two-way system made up of billions of interacting endpoints, from smart plugs, smart meters, solar PV systems, and battery storage to digital customer platforms. This drives tremendous interest across the energy and utility industries in what blockchain is and what it can mean in the energy context. The interest is translating into investments in proof of concepts, building of blockchain expertise and energy industry use case development.

 

The Four Ds—the drivers of the distributed world: decarbonization, decentralization, digitization, democratization

 

The big trends influencing the immense shifts in the energy world now and for decades to come are:

 

  • Decarbonization: the move away from fossil fuels as the primary source for generation of electricity and the primary fuel in transportation;
  • Decentralization: the shift to distributed energy resources, such as solar and wind, away from centralized power plants;
  • Digitization: the prevalence of digital technologies such as cloud, mobile, robotics, and sensors connected to the Internet of Things and the change and opportunities these brings to utility operations;
  • Democratization: the trend of electricity generation asset ownership dispersing from a few specialist organizations (utilities) to many private citizens (prosumers) owning solar arrays and producing renewable energy for themselves and others in their neighborhood.

 

Blockchain could have a seismic impact on decentralized energy transactions

 

The aim is to establish a fully decentralized energy system in which energy supply contracts are made directly between energy producers and energy consumers (without involving a third-party intermediary) and carried out automatically. In New York in April 2016, energy was decentrally generated and sold directly between neighbours via a blockchain system for the first time.

 

LO3 Energy, a New York based company, has collaborated with Siemens Digital Grid and Siemens’ start-up financier next47, in the Brooklyn Microgrid project. It aims to empower the residents of the Park Slope areas in Brooklyn to produce, consume, and purchase power within their community with a blockchain enabled transactive energy platform. LO3 is a pioneer in the movement toward a distributed energy supply system that draws on renewably generated sources for a more resilient, customer-driven economy. LO3 Energy’s ‘TransActive Grid’, which is the blockchain platform set up for the microgrid, timestamps each transaction as a chain of secure blocks, which means every energy transaction is documented. LO3 is now rapidly expanding with a series of other projects around the world. One is based in South Australia, where there is already a lot of distributed generation going on—and plenty of grid stability issues. Users can now experiment with LO3 to get access to electricity from solar-fueled batteries nearby when needed.

 

Peer-to-peer energy trading platforms could drive more choice and competition across the energy value chain

 

As the world moves away from using coal, gas, and petrol into more renewable forms of energy, blockchain will become one way to connect renewable technologies, devices, and grids to people and communities. Blockchain, which functions as a public ledger or record, can take inputs like the amount of energy produced from smart devices like solar panels, record it, assign a price, and then send it out to smart homes on the grid while recording incoming payments for energy purchased.

 

The emergence of variable electricity rates can optimize consumption

 

Presently, electricity rates in many markets are stipulated by centralized authorities. Blockchain technology has the potential to decentralize the market such that rates will no longer be fixed by these centralized bodies, but by the market itself, reacting to price signals. Electricity tariffs will begin to behave like tradable commodities that respond to demand and supply signals in a fully functioning distributed electricity market.

With this sort of business model, consumers will be presented with an array of choices when it comes to selecting electricity service providers. Consumers will be able to scan through blockchain listings to find the best deals for themselves.

 

Tokenization—using cryptocurrency in energy payments

 

Cryptocurrencies are the native currencies of the blockchain environment. By incorporating blockchains into the energy ecosystem, cryptocurrencies can be used to make energy payments. By “tokenizing” the grid, cryptocurrencies can then be used to facilitate different types of energy market transactions.

 

There are quite a number of sub-applications to this model. One is the tokenization of electricity by energy producers.

 

WePower, a Europe-based blockchain startup focusing on green energy trading, is one of the companies pursuing the energy token model. Energy producers will be able to sell electricity in the form of tokenized cryptocurrencies, which can be bought and traded like other tokens on exchanges.

 

Blockchain can help improve grid modernization and stability

 

Blockchain can be used to update and improve centralized legacy systems with a distributed hybrid system made up of both large power plants and microgrids powered by distributed energy resources such as solar power, wind, and hydro. Blockchain could serve as the backbone for Smart Grid management systems that automatically diagnose network emergencies and problems and reconfigure in response. Such a decentralized energy system would be capable of delivering efficient, reliable, and, in many cases, renewable energy.

 

In Europe, transmission system operator TenneT, with operations in Germany and the Netherlands, has launched the region’s first blockchain projects to test its use in managing the network in the two countries. Both are using IBM’s permissioned blockchain platform built on the Hyperledger framework.

 

In the Netherlands, green energy supplier Vandebron is investigating the use of customers’ electric vehicles (EVs) to make available flexibility to help TenneT balance the network at times of peak demand. The blockchain enables connected EVs to participate by recording their availability and their action in response to signals from TenneT. When the grids needs more electricity, EV charging is briefly stopped and the car owner is compensated for the interruption.

 

Blockchain can improve secure, traceable storage of ownership record

 

The possibility of storing all transaction data in a tamper-proof and decentralized way opens up great opportunities in the field of energy certification, the verification of renewable electricity and of emission allowances (emissions trading). The ownership history of each certificate could be recorded on the blockchain. It would provide a tamper-proof and transparent way of managing certificates for renewable power and emission allowances. Combining the Internet of Things with blockchain technology creates the opportunity to set up a blockchain-based register that records and regulates the ownership and current state (asset management) of assets such as smart meters, networks, and generation facilities (coal, nuclear and gas plants, solar panel arrays, wind turbine farms, hydropower facilities).

The Bottom Line: You should be on the leading edge of blockchain with energy, but don’t bet the farm just yet

 

Blockchain technology and smart contracts have the ability to play a significant role in energy trading and transactions. Peer-to-peer trading is already a reality. Blockchain can be the connecting tissue for energy trading in a world of decentralized, distributed energy resources and large-scale electricity storage, changing the dynamic of the energy market.

 

So, invest in experiments, expertise, use case development, proof of concepts, education, and thought leadership around blockchain. Explore its impact on energy trading, utility operations processes and platforms, and your utility operations capability stack. But don’t lose sight of the challenges large scale adoption of blockchain in the world of energy still have to overcome.

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