Blockchain Tech and the Energy Industry: More Decentralization and Greater Efficiency

 

The association between blockchains and energy is usually a negative one. “The Bitcoin blockchain is so wasteful of electricity,” or so the argument goes, “that it would push global warming to dangerous levels if it were ever used on a massive scale.” Research published in the influential journal Nature backs up this warning. Yet, if we were to look beyond Bitcoin, it becomes apparent that blockchains in general are being increasingly put to good use by the energy industry.

From their use in energy trades to their incorporation in microgrids, distributed ledgers are making possible a range of new transactions and systems. By enabling micro-suppliers to receive quick and easy payments for contributing electricity to a network, they're increasing the decentralization of the energy industry, with consumers likely to see their bills become cheaper as a consequence of their entry.

And a similar effect will hopefully be the outcome of allowing energy giants to trade with each other using blockchains, since increases in efficiency and security can hopefully be passed on to consumers in the form of lower energy prices — although there's always the risk that energy companies will simply take bigger profits for themselves.
Picture 1

Microgrids

The most exciting use of blockchain in the energy industry — and the one that fits best with the whole ethos of decentralization — comes in the context of microgrids. Even before Bitcoin and blockchain, such grids have been distributed by definition, comprising smaller sources of energy generation (e.g., wind turbines, solar farms) that link together in localized networks in order to provide electricity that isn't dependent on centralized power plants and utility companies.

However, while the microgrid market has been forecasted by Navigant Consulting to grow to around $30 billion by 2030, projected growth has actually stalled in recent years, with Navigant's research director, Peter Asmus, telling Microgrid Knowledge in August that "the overall spend is declining" relative to predictions made in 2014. Fortunately, blockchain and distributed ledger technology will increasingly help to kickstart the sector's growth in the coming years, as it offers a number of advantages over alternative ways of delivering microgrids.

For one, the use of blockchain tech promises to increase interoperability between the numerous energy sources, suppliers and customers that make up microgrids. In particular, this is the aim being pursued by the Energy Web Foundation (EWF), an international nonprofit organization that, according to its director of marketing, Peter Bronski, is bringing blockchain tech to all areas of the energy industry.

"EWF is actually building a core blockchain — similar to but importantly distinct from Ethereum — specifically tailored to the energy sector and the industry's unique regulatory, operational, and market needs: the Energy Web Chain," he tells Cointelegraph.

"It'll come as no surprise, I suspect, that blockchain offers significant cybersecurity and decentralization benefits to the energy sector. Globally, the energy sector is amidst a fundamental transition from a centralized electricity grid with a relatively small number of very large power plants to a decentralized, low-carbon electricity grid with billions of connected devices such as rooftop solar panels, batteries, smart thermostats, electric vehicles, etc. Blockchain, and especially the Energy Web Chain, is very well suited to helping managing that future grid."

Already released in beta and expecting its genesis block in the second quarter of 2019, one of the advantages offered to microgrids by the Energy Web Chain is the ability to use smart contracts to efficiently monitor the production and distribution of (renewable) energy. "For example, whenever a large-scale renewable energy generator such as wind farm or solar farm generates a megawatt-hour of clean electricity, that can trigger the generation of a renewable energy certificate (REC)," Bronski explains. "The creation and ownership tracking of RECs is a great use case for blockchain technology."

It's a testament to the promise shown by EWF and its Energy Web Chain that a number of big corporations have already signed up to use and partner with the platform. In November, Siemens joined EWF as a member, while the foundation also counts the likes of Shell, E.On, Centrica, Engine and Iberdrola as affiliates. And as Stefan Jessenberger at Siemens Digital Grid explains to Cointelegraph, blockchain won’t simply enable greater security and efficiency, but also the possibility for changing how energy companies and producers operate:

"In our view, the blockchain technology might revolutionize the way DERs [distributed energy resources], grid operators and marketplaces will interact in a secure, efficient and transparent way while also enabling new business models. Especially in combination with artificial intelligence, advanced forecasting algorithms and the usage of geographical information of the assets, the technology offers promising capabilities in order to enable the autonomous trading of energy and flexibility, while incorporating the locational value of DER’s and loads.”

In addition to heightened efficiency and transparency, a key ingredient in the creation of new business models is blockchain’s ability to enable small producers of energy to be paid quickly for their contributions to grids.

For example, in September, Australian company Vicinity Centres announced that it would begin using a blockchain-based delivery platform for the small energy networks it runs in shopping malls throughout Australia. This platform has been built by Power Ledger, and it will enable Vicinity’s malls to sell energy to nearby residents and consumers. And to do this, the platform will make use of its native Sparkz token, an ERC-20 token which enables producers and customers to engage in “frictionless” trades with each other without having to rely on intermediaries.