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Trading Neighbors: A New Study Will Look At Blockchain’s Potential To Power Local Energy Markets

Imagine: On a hot, sunny day, a popular neighborhood coffee shop is teeming with people, its air conditioner blasting to keep up. Just next door, an empty home with solar panels on the roof is drawing power from the sun without using it, as the owners have decamped on a two-week beach vacation.

Today’s energy infrastructure isolates the buildings from each other. But in the future, they could be doing business automatically, minute-by-minute, thanks to a technology called blockchain.

Blockchain is a buzzword that’s hard to pin down. It refers to a new way of exchanging data through a distributed ledger that autonomously and transparently keeps a chronological record of transactions. The most recognizable application so far has been for digital money such as bitcoin and ether.

In the renewable energy sector, where sources of power can be scattered across many miles, blockchain’s ability to track a blizzard of transactions could generate dramatic benefits. A system like this could bring much greater efficiency, more profit for solar and wind generators, and cheaper costs for end users — even at peak times such as in a packed coffeehouse.

“At its most basic, it is an open source code: Anyone can download it for free, run it, and use it to develop new tools for managing transactions online,” Don and Alex Tapscott write in their book “Blockchain Revolution.” “As such, it holds the potential for unleashing countless new applications and as-yet unrealized capabilities that have the potential to transform” markets and industries.

Even with such promise, few businesses outside the financial sector have explored blockchain. One company now looking for a real-world application is GE Power, the GE unit that makes equipment and software for power plants and the electrical grid, among other things. It’s collaborating with the German energy agency known as dena (Deutsche Energie-Agentur) on a study looking at how blockchain could make the energy industry more efficient.

The research is taking place in Germany, which derives more than a quarter of its electricity needs from renewable sources. Solar panels, many of which are installed on houses, account for about 6 percent of the total.

“The difference is that the location of money is largely irrelevant in an electronic world,” says Steve Martin, chief digital officer for GE Power, while the location of a kilowatt could fundamentally alter its price. A utility could, essentially, buy a customer’s excess energy in one market, sell it elsewhere for more, and earn that customer a profit.

The German government’s strong push for renewables over the last two decades has led to a highly distributed electricity system. Wind farms are sprinkled across the country and its coasts, and solar panels blanket many roofs. No wonder 80 percent of German energy executives think blockchain will be a game changer for energy markets, according to a 2016 dena survey.

The technology could also help solve some of the challenges that have popped up as the energy system has changed. Government subsidies for renewable energy, particularly solar power, have been falling, as have wholesale electricity prices. But energy costs for households are still rising. Grid operators must invest more money in transmission and distribution lines and other technology that stabilizes electricity levels from the notoriously intermittent wind and sun.

Part of the problem is that Germans with solar panels earn a fixed rate when they sell excess energy back to the grid. That raises overall costs. But what if they could get a price determined by demand — a market-based price?

The new dena study will explore that scenario. So-called peer-to-peer energy trading is one of the most exciting opportunities for blockchain in the industry, says Steven Martin, chief digital officer for GE Power, because of the growth of individuals selling excess solar and wind energy.

“During the day, you now have some markets where, between wind and solar, you’re getting 40 percent or more of energy available,” Martin says.

Electricity has traditionally been delivered to consumers in a single direction in three stages: transmission over high-voltage wires stretching from power plants to cities, distribution from neighborhood transformer substations to homes and businesses, and finally consumption.

“A substation was designed to take very high-voltage transmission lines and distribute that out to lots of end points,” Martin says. “Not to take energy from the end points, aggregate it and put it back into high-voltage transmissions.”

But hardware such as transformers could be augmented with blockchain technology. Consider how new digital streaming devices, such as Apple TV or Google’s Chromecast, have turned traditional television sets into virtual computers — simply by plugging into a port that’s been on the backs of TVs for nearly 15 years. Something similar could work with substations, if blockchain-based software can specify local supply-and-demand needs and match them to local electricity production, Martin adds.

Another possible use case: National utilities could rent on-premises batteries installed by homeowners and businesses to store the electricity those homes produce from their own solar panels, and send that electricity to the market when demand is high and the price is right. It’s similar to the way banks use customer deposits for loans and other investments.

“The difference is that the location of money is largely irrelevant in an electronic world,” Martin says, while the location of a kilowatt could fundamentally alter its price. A utility could, essentially, buy a customer’s excess energy in one market, sell it elsewhere for more, and earn that customer a profit.

Why can’t traditional software make this all happen now, when it already powers financial markets that rely on transactions happening within milliseconds? Energy markets are more complex, depending on weather and physical infrastructure. Also, many aspects of financial markets still experience a time lag affecting when investors get a guarantee of receipt, Martin says.

To build new markets for asset-management or peer-to-peer trading of electricity, you need transactions to be carried out and verified in real time.

“Blockchain operates in near-real time,” Martin says. “It assumes we move immediately and permanently.”

The new blockchain study with Germany’s dena will involve universities, technology companies, grid operators and utility companies, exploring a variety of use cases. They will consider technical and economic viability as well as regulatory barriers that would need to be removed for a successful implementation of blockchain applications. Dena will publish the results next spring.

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