How Blockchain Technology is Changing the Energy Market

Even as other industries across the globe are being swept up by waves of disruptive technology, the energy sector in the U.S. has been slow to embrace change. The introduction of blockchain technology, however, promises to radically transform the energy market as we know it.

Blockchain technology is a shared, encrypted ledger that is maintained by a network of computers. These processors simply verify the transaction of data between users. Each user can also access the ledger without any sort of regulating authority, making for a seamless transfer of data between peers or users.

Applying this concept to the energy market could solve some of the energy industry’s biggest issues, especially when it comes to renewables. So, what are some of the biggest opportunities for blockchain technology in the energy sector? We’ve put together a brief synopsis of what blockchain advocates across the industry have to say:

Renewable Energy Certificates

In a recent interview with GreenBiz, Jon Creyts, founder and managing director of Clean Edge, Inc., said that blockchain technology has the ability to address near- and long-term issues within the sector. In the near-term, Creyts indicated that this technology will have the chance to solve “trust and integrity issues in markets managed by accounting intermediaries.” His example of this revolves around the way the “certificates of origin” market works.

Currently, when a renewable power plant generates a unit of electricity, a meter reads that data and provides it to an end user, typically in the form of a spreadsheet. That sheet is then sent to a registry provider where the data is manually entered and a certificate is created. After the renewable energy certificate (REC) is created, brokers then set deals between buyers and sellers of these RECs, and a third and final party verifies that the certificates have been purchased.

This convoluted process is time-consuming, costly, and leaves a huge margin for error. Enter:  Blockchain technology. “These shortcomings can be remedied by a centralized blockchain ledger that incorporates creation, ownership transfer, and retirement into a single, robust data system that is cheap to manage, easily accessible, and cyber-secure,” says Creyts.

Peer-to-Peer Energy Transactions

A long-term issue in the energy market that blockchain technology could solve is automation in peer-to-peer energy trading and dispatch. By automating this process, many experts believe there is potential to democratize modern energy grids and open them up to new players.

The energy sector is made up of a collection of massive, centralized power plants that transfer power over transmission and distribution lines. However, in recent years there has been a small boom in Distributed Energy Grids (DERs) and independent renewable energy sources, such as solar panels, that connect to the larger grid. These sources help convert energy consumers into actual energy producers who are then able to sell any excess power back into the grid.

The blockchain play is two-fold here. According to Creyts, “Using smart contracts, blockchain will be able to clear physical and financial markets at the same time, automating dispatch of load, generation, and storage from both ends of the grid.” Not only can this technology assist in the actual dispatch, generation, and storage of energy, it can help independent producers receive payment faster, potentially in the form of cryptocurrency.

In an article with Technology Review, Jemma Green, co-founder and chair of Power Ledger, indicated that the owners of these DERs or independent renewable energy sources are struggling to maximize their value because the system is so inefficient. Often, it takes 60 to 80 days for these independent producers to get paid for their excess power. “With a blockchain-based system”, Green says, “producers can get paid immediately, so they need less capital to start and run a generating business.”

With a more fluid exchange, these systems can act as microgrids and can flourish in neighborhoods and multifamily housing units. Power Ledger, for example, has already produced a product that can turn an apartment building into a microgrid based on a shared system of solar panels and battery storage.  

A U.S.-based startup, LO3 Energy, has successfully set up a neighborhood microgrid in Brooklyn. The Brooklyn Microgrid is a miniature utility grid that connects people who have solar panels on their roofs with neighbors who want to buy locally generated renewable energy. Proof that, with the right technology, residential areas can benefit from this peer-to-peer energy transfer system.

Pushing Blockchain Mainstream

The technology, however, is already running into some road blocks on its way to becoming a turning point for the industry. One of the main issues is the industry’s unwillingness to change. Creyts asserts that blockchain technology is “advancing at the speed of software development, not infrastructure deployment.”

Market strategies and security fears are factors as well. The traditional system doesn’t yet know how to deal with local trading, says Green. “How much should you pay for using a discrete part of the network?” she asks. Blockchain also faces concerns from the industry about data security thanks to increases in cyber intrusions over the past few years. Creyts, however, argues that blockchain contains some of the most secure algorithms protecting data and that any data system has the potential for corruption.

“We are trying to combat both by having robust handshake protocols, automated cross-checks, and by adopting an open-source development process where programmers are incentivized to deliberately try to break the system before it ever goes live publicly. Through such approaches, a blockchain enabled network will be considerably more secure than the state-of-the-art systems controlling today’s grid,” says Creyts.

While there are many limitations blockchain must face before reaching its full disruptive potential, there is clear evidence that this technology has the power to change how we consume and exchange energy. And if the pace of progress is anywhere close to that of Bitcoin, the implementation of blockchain technology in the energy sector could happen sooner than we think.

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Related Resources:

• Inside the ID Verification Battle for Cryptocurrency
• Data Leaks Can Happen, Just Ask HBO
• Beyond the Bill: Refining Energy Management with Interval Data

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