Could Blockchain Be The Next Big Thing for Energy Industry?
Updated: May 21, 2020
A blockchain is a secure, transparent and decentralized digital ledger designed for exchanging value/information in a peer-to-peer network. Blockchain technology has already disrupted finance industry in the recent years, by allowing virtual currencies like bitcoins to work efficiently without involving intermediaries or third parties. It has potential to provide additional efficiency and security in future, which could completely disrupt the finance industry. Blockchain is thought to play a pivotal role in transforming many industries but the one which excites me most is its utilization in energy industry, I strongly believe that some wider and more disruptive future awaits.
If you are keeping an eye on energy transition from fossil fuels to renewables, you could see that something very interesting is happening. It’s not only the way we produce energy is changing but also consumer habits are changing, consumers are becoming producers. If you are one of those people who have solar panels or small wind turbines over the rooftop of your home and generating more electricity than the consumption; more often that surplus energy brings little or no value at all to you due to inefficient and outdated centralized energy grids. As business logics are being changed energy utility companies are finding it tough to cope with rapidly changing business models. Blockchain technology has potential to solve this problem effectively and could unlock the full potential of decentralized micro energy grids by allowing producers to trade energy in a peer-to-peer network of energy producers and consumers without the need of intermediaries or energy utility companies.
When a traditional power plant generates a unit of electricity in today’s centralized grid system, a meter spits out data that gets logged in a spreadsheet which then goes through many needless steps and redundant data management system. Such a byzantine system could add up transaction costs, while leaving plenty of room for accounting errors that can range from honest mistakes to outright fraud. The lack of transparency also scares many people off entirely.
What if the meter could send the data directly to a blockchain instead? Most of these existing problems would vanish altogether. This decentralized database when integrated with certain network makes it possible to carry out decentralized value/information exchange between two or more users under specific conditions defined previously. This is what we call smart contracts or tokens which could be applied in energy utility. In this type of value/information exchange, the terms & conditions of the contract are first to be accepted by the users and the execution of the contract is then automatized. In a smart contract, rules are defined individually (quantity, price, quality) and thanks to blockchain technology, there is an autonomous matching among the participants of the network, for instance between distributed providers and prospective customers.
A smart grid network supported by blockchain technology would definitely ensure an efficient and trusted relationship between production and consumption of renewable energy. Participants could publicly track their energy usage and production efficiently, and sell any unused energy to other participants of the decentralized network. They would also have the ability to reduce their energy bills by making more informed purchasing decisions, avoiding consumption peaks or switching into a lower subscription. Smart meters and blockchain technology would ensure a simplified billing process (efficiency, transparency) and faster switching times. It’s also very much possible that blockchain could enable the development of an integrated trading system that would permit businesses to trade their option to use electricity during a given time frame. For example, a factory could sell five minutes of unused power during a down time to a different factory that needs the additional power. Trading grid flexibility in this way could provide large efficiency benefits for grid operators.
From theory to reality: the emblematic experimentation in Brooklyn
Transactive Grid, the project of the LO3 platform and ConsenSys, has become a famous example of the possible application of blockchain to energy with its pilot experiment in Brooklyn, NYC (for more details: www.brooklynmicrogrid.com). Five “producer” houses, equipped with solar panels, are selling their production to five “consumer” houses, on the other side of the street since April 2016. The objective of the experiment lies in the re-appropriation by citizens of their energy production, by the establishment of mini-grids, that is to say, mini autonomous energy communities. For this purpose, sensors record the history of the energy generation at a specific point, and immediately record it on blockchain Ethereum. Smart contracts (tokens) can then govern the rules of use of this energy, and of course the tariffs of producers.
Blockchain technology is a potential game changer for the energy market and its ecosystem. Moreover, barriers such as legal and regulatory requirements that blockchain projects must comply with are obstacles that still have to be overcome. The legal and regulatory frameworks still have to be designed to reflect the requirements of decentralized transaction models and provide protection to energy consumers and it’s also unclear how soon this nascent technology can be scalable. Despite of these challenges, there is a lot of excitement about blockchain in energy circles, industry is keen to harness full potential of blockchain by making peer-to-peer energy trading a reality. As blockchain getting mature with time, a world could be envisioned in which homes and buildings are equipped with real time sensors that automatically sell and buy power to and from the grid on the basis of real-time price signals.