The future of Energy Markets in Smart Cities with Distributed Ledger Technology

As some of you know, we are working on a Smart Energy Project at Blockbird Labs. In this post we are unveiling a little more information about it. This is how we envision the future of energy production and consumption in smart sustainable cities.

Imagine a city with small community energy networks, composed entirely of clean and local energy. These small networks — or microgrids — basically allow an open peer-to-peer marketplace where residents and local businesses of a given community may choose to buy and/or sell energy to/from their neighbours. That would be cool, right?

Let’s see how that would work.

Firstly, part of the community would naturally need to install and connect solar panels and smart meters in their homes or buildings. Some people are already doing this for own consumption, however they are not able yet to sell the produced energy to their neighbours.

As we envision it, in the near future, energy produced by the solar panels (or other renewable sources) can either be consumed, or alternatively, sold to other community members who prefer to buy clean and locally generated energy.

For this vision to unfold, a peer-to-peer marketplace needs to be built on a platform based on distributed ledger technology. This is to automate and streamline the whole process of buying and selling energy.

Then an intuitive application — or user interface — that interacts directly with the distributed ledger protocol needs to be developed. The protocol is powered by data from the smart meters installed in homes and buildings, which act as oracles with the ability to inform the digital world (the protocol) of real-world events such as power consumption or production in a particular facility.

The app shall allow users to buy and sell energy in a intuitive and secure way. Energy producers can determine the amount of energy and the price at which they are willing to sell, just like consumers can define the amount of energy they want to buy and how much they are willing to pay.

Given the complexity of how the entire process would work, we believe that the most efficient and logical method to gradually realize this vision is the development of pilot projects in given neighbourhoods.

These pilots should involve the initial development of microgrids contemplating one local business/institution (for example a School) and a small group of Residents, as illustrated in the diagram below.

Residents produce solar energy (Producers) and consume energy (Consumers). They are therefore considered Prosumers. The School is only an energy consumer (Consumer). This ensures that the pilots represent, on a small scale, the microgrids and peer-to-peer marketplaces to be developed in the future, where the participants shall also be Prosumers and Consumers.

Likewise, the “Entity-Residents” use-case represents one of the main opportunities in the current scenario of individual solar energy production. The solar panels installed in the houses produce energy during the day. As a general rule, it is during this period that people are away from home and consume less electricity, thus there is an excess of solar energy produced. (see image below)

This surplus energy will surely be useful to the School, which has its peak energy consumption precisely during this time. The same may apply in the case of other institutions or local businesses that operate primarily during daytime period.

Currently (in Portugal at least), the surplus energy produced by Prosumers, is either (1) returned directly to the grid without any monetary compensation, or (2) resold to the energy company at a pre-defined fixed (and low) price through the signature of a resale contract agreement.

Such situation, in addition to being unfair, hampers and delays the adoption and propagation of clean and renewable energy in the cities, since the investment made in the installation of solar panels takes a long period to recover.

Furthermore, it prevents access to clean and renewable energy from other members of the community, who may have a preference for this type of energy, but who may not have the financial capacity to make the necessary investment.

It should be noted that the surplus energy produced can still be stored in batteries for later consumption, for example during night time. However these batteries are excessively expensive, which makes the investment in solar energy even greater and consequently less attractive, reserved only to those with high purchasing power.

As mentioned, this is just a first glimpse into our vision for energy production and consumption in sustainable smart cities. There are a lot of burdens to overcome for such scenario to become reality, specially in the technological and legislative spectrum. In the future, as our Project evolves, we will be explaining how such problems can be addressed.