Blockchain & the future of energy

Many people have heard its name, but few understand it. Nevertheless, this does not prevent the blockchain from being used every day by millions of people in the near future. Indeed, after having conquered the financial industry, the new decentralized technology could completely reshape the energy sector which hasn’t moved for the past hundred years and dismantle current energy giants while doing so.

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Current issues with the energy sector

The main challenges of the energy sector are the environment and costs. Currently, between 8 and 15% of energy produced at power stations is lost before it reaches our homes. Not only does this result in unnecessary CO2 emissions, but these losses are payed for by consumers’ bills. In addition, areas where households own solar panels aggravate energy issues. Indeed, if too much energy is produced by these solar panels, it can lead to excess pumping of energy — an ‘over voltage’. In turn, this may impair infrastructures and equipment in addition to creating safety concerns.

Since the implementation of the first power station in 1882, not much has changed in the energy industry. Rather, it has been moving in one direction while keeping the same economic model: power stations deliver energy to consumers through retailers which charge extra money for it, sometimes even doubling prices. However, as climate concerns grow and technologies improve, everyday consumers could completely disrupt this.

Removing intermediaries

The blockchain is a decentralized technology allowing transactions to occur in a transparent manner. Therefore, just like Venmo allows consumers to send money without the need of a bank, the blockchain could allow consumers and producers to trade within each other, thus making current energy retailers disappear. In areas where this have been tried, such as Texas, energy bills have on average decreased by 38%. While it may seem difficult or unrealistic to buy directly from the grid when you need it, new technologies will enable this. Indeed, companies are developing internet-enabled hardware devices which automatically order energy when it is needed. According to Guy Halford-Thompson, co-founder and ex-CEO of Interbit, “Having demonstrated the reductions in risk and cost savings that are achievable we now have an opportunity to deliver the first successful blockchain based application to the energy market”. Furthermore, the blockchain start-up Grid+ has created a system where energy is bought when it is at the lowest price and sells it back to the grid when prices increase. This would revolutionize the market as there would now be multiple rates rather than the single utility-set. In addition, consumers can constantly switch producers in less than minutes, furthering the ability of consumers to buy at the lowest prices.

Moving from consumers & producers to prosumers.

Using the blockchain in our energy industry could significantly reshape it in the sense that consumers and producers would disappear to be replaced by prosumers. This refers to the peer-to-peer model, where each households could sell on the market any excess energy they hold, a trend would be even more encouraged by the rising number of houses which own solar panels, and especially with Elon Musk’s newest solar roof. Not only would this become a new source of revenue, it would also allow to reduce energy waste. Indeed, in the current system selling back energy to the grid does not create a lot of revenue for consumers due to the presence of middlemen and inefficiencies in the process. Now, the excess energy can be sold to neighbours through the blockchain.

More transparency for environmental regulations and concerns

Another great opportunity of using blockchain for the environment is increased transparency by allowing to easily track the provenance of energy sources. Not only can this ensure the accuracy of renewable energy certificates, which are used for their trading, but it permits consumers to see where the electricity they are buying comes from, and thus to choose to only buy from green sources, or to know the exact percentage share of renewable energy that they consume thanks to the use of granular data, which represents the smallest and most precise piece of data that can be obtained. In addition, using blockchain could also be an innovative way of better implementing the resolutions of the Paris Agreement. Indeed, this technology could track each country’s emissions and ensure they do not cross certain limits. Therefore, no data may be hidden to other countries as they will all be linked to world accounts.

Thus, Jesse Morris, the principal of the Rocky Mountain Institute (an American research centre on the environment), pointed out that “If you look at those systems, they’re basically screaming at the top of their lungs for a blockchain-based solution ». He also added that “You have different power plants that are generating energy and that energy creates certificates, they’re assigned attributes and they’re exchanged. The existing system has a lot of problems, [such as] certificates being double spent, not everyone can access the marketplace, [and] there are lots of small regulatory challenges between all of them.”

Greater safety for the energy industry

Using micro-grids also represents a backup plan in case of an emergency where power stations would shut down. Indeed, if the main grid is damaged by, say, a natural disaster such as a flood, an earthquake, or a hurricane, microgrids can temporarily replace the central grid until it is repaired.

Challenges of the blockchain

While the blockchain promises cost reductions, the high volume of data that will accumulate after years of being in place will create high demand for speed and security which, in turn, means increasing costs. Furthermore, increased consumers and producers, and possibly prosumers, will create the need for more flexible systems. However, scaling the blockchain could also become a serious ‘political task’, according to Ewald Hess, CEO of Grid Singularity. Indeed, rather than the technology itself it is the details in its regulation, implementation, and industry standardization which can significantly complexify the issue. In addition, the structure of the blockchain allows users to be anonymous, which can lead to safety concerns. Indeed, combined with the use of cryptocurrencies such as bitcoin, the blockchain can be used for the purpose of illegal transactions.

Conclusion

After conquering many sectors, the blockchain could transform the energy industry. Not only would it reduce both financial and environmental costs, it could completely remove intermediaries and replace them by “prosumers”. Nevertheless, the complexity of its implementation leaves us with other political and technological challenges to solve for this idea to come to reality.

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