Blockchain—the distributed ledger platform whose claim to fame is being the underlying architecture for bitcoin—has been at the center of a lot of hype lately. The platform is, in simple terms, a continuously growing list of records, known as blocks, that are linked and secured using cryptographic hashes. Information shared on the platform is immutable, making the system inherently secure.
The platform's applications across many sectors are endless. There's even a place for blockchain in the energy sector. Here's a look at how blockchain can play a key role in the transformation of the industry.
Grid Management Amid Increasing Decentralization
Last year, the World Energy Council said blockchain is "perceived by energy leaders globally to be an issue of both relatively high impact and uncertainty."
Blockchain can be daunting. But partnered with the right technology provider, it has many credible use cases within utilities.
Renewable energy is eating up market share and pushing the energy sector to ever-greater decentralization. This creates growing challenges for the grid. Effectively managing multidirectional energy flows and information from many different parties while avoiding overload and outages is an increasingly difficult concern. Digitization is the only practical solution.
Blockchain can help in producing and recording generation forecasts for different power producers, which then need to be shared within the grid to minimize fluctuations. This can include data flows from virtual power plants (VPPs), where power generation from decentralized energy sources is pooled together as one.
In a July 2017 PricewaterhouseCoopers report on the use cases of blockchain in the energy sector, blockchain was highlighted as a possible solution for automatically integrating this information and optimizing local grids.
The report states: "In the past, the organization and management of VPPs of different sizes was complex and costly. Blockchain technology has the potential to make this process more efficient. On a lower level the VPPs can—based on smart contracts—optimize themselves to a certain degree, and if the balance of the current optimization level is not sufficient, then optimization against the next higher level (e.g. distribution grid) can be done via blockchain very efficiently as well."
Efficiency Gains Across the Energy Network
Blockchain can securely and transparently support the integration of data from the edge of the grid to the cloud, so it can be collected, stored, and examined later for reconciliation purposes. Such a platform, with a tamper-proof audit trail of data, can be used by one chief organization or different third parties, which can share different parts of the platform with different people.
This creates transparency in a secure way and in many instances removes the need for intermediaries, whose main role is often to create trust in a chain of transactions or in exchanges of information.
Data like emission records, for example, could be digitized and securely recorded and validated on an ever-flowing blockchain platform. Similarly, as pointed out in an MIT blog, blockchain could be used to keep track of renewable-energy certificates.
This offers huge productivity and efficiency savings, as well as ridding organizations of unnecessary paper trails. In theory, never again would any two related sets of data need to be reconciled separately because it would all be listed and peer reviewed on the distributed blockchain ledger.
To reduce administrative burdens, a group of energy trading companies, including BP and Royal Dutch Shell, are developing a blockchain-based digital platform for energy commodities trading expected to start by the end of 2018, pending regulatory approvals.
"The platform aims to reduce administrative operational risks and costs of physical energy trading, and improve the reliability and efficiency of back-end trading operations..." the consortium said, as reported by Reuters.
In a system as complex as an electricity grid—with physical boundaries and network-specific rules—maintaining the balance between demand and supply is always going to be a challenge. To make matters more complicated, digitization, decarbonization, decentralization, and electronification are already disrupting the industry and will continue to do so.
The good news is that these disruptors are creating an opportunity for blockchain to become a potential backbone technology to manage secured data with integrity. The single-source-of-truth ledger that blockchain offers enables efficiency and productivity gains by eliminating any reconciliation, as well as facilitating transactions in a more efficient, economical, and intelligent way.
Connecting Consumers and Electricity Producers
The startup Hyperion Fund was formed to use blockchain technology to enable faster solar-plant development in emerging markets. Aimed at financing solar plants that have obtained power purchase agreements, the company wants to enable private individuals and investors to buy a stake in power plants globally, by accumulating and allocating funds to the construction of the solar farms.
Investors, both public and private, can buy tokens through an initial coin offering (ICO). The blockchain energy platform keeps a digital ledger of these transactions publicly visible for transparency.
"For the industry, this opens up an important new source of potential financing as an alternative to traditional debt or equity markets. For investors, this gives direct access—on transparent terms—to renewable generation capacity without middlemen," Noel Shannon, COO of Hyperion Fund, told Transform.
Individual investors can actually see the number of watts that each digital token they purchase represents, and the tariff that they will get for those watts.
Most believe that blockchain, like in other sectors, will become an indispensable tool for the energy industry, which is undergoing great changes and needs to find credible solutions for increased efficiency and money savings as it weathers disruption.
Of course, like any new technology, blockchain presents opportunities and challenges: It can improve transparency, energy trading, and power purchase agreements; assist data exchanges; and support new, independent energy trading platforms for decentralized energy. However, regulation and standardization of processes and data formats across the sector will be the biggest driver of opportunity. The speed at which blockchain's applications will move into mass production and unleash its full potential will depend on whether regulators embrace it, as well as the technology's development.