Top 5 energy blockchain use cases
Our electricity grid is one of the most complex technological innovations of the 20th century. Figuring out how to use blockchains most effectively might end up being one of the biggest technological innovations of the 21st century. So what better way to really give yourself a headache than try and combine the two? That’s exactly what over 150 companies (according to the November 2018 report from SolarPlaza — up from 90 in January of the same year) are trying to do.
In the last year, it’s been exciting to see a lot of the research move towards commercial pilots around the world, from New York to Thailand and London, as energy blockchain start-ups get stuck in working with regulators and utilities. However, given the noise and hype that still surrounds a lot of blockchain projects, it can be hard to figure out what’s actually going on. So I had a go. These are the top 5 use cases I found:
1) Coordination of distributed energy resources (DERs)
The exponential growth in distributed generation, electric vehicles, and energy storage offers huge potential for decarbonizing the grid, but also introduces significant co-ordination and load balancing challenges. This growth is happening quickly; Deloitte projected that, by 2030, variable solar and wind generation will contribute over 20% of our energy in 21 US states, up from just one in 2015. As a result, many of these resources are not yet being used to their full potential, particularly when it comes to ancillary grid services such as load following and energy imbalance. The introduction of blockchain-based virtual power plants, microgrids, and asset registration platforms are seeking to solve these problems through bringing transparency to all levels of the network. This transparency additionally enables more accurate calculations of the marginal value of DERs based on location and grid constraints, to inform future investment decisions.
Example players: Electron, OmegaGrid, PowerLedger, LO3, WePower
2) Green credit trading
Green credits have been introduced around the world to incentivize the generation and consumption of environmentally sustainable energy by imposing a ‘price’ or ‘discount’ for these attributes. Examples include Renewables Obligation Certificates in the UK and Low Carbon Fuel Standard credits in California. With multiple parties inputting data who have incentives not to trust each other, where it’s also important to be able to track the history of transactions and avoid double counting, several players are making moves to solve these challenges using blockchain.
Example players: PowerLedger, Volt Markets, Greeneum, Energy Web Foundation
3) Wholesale energy trading
Wholesale energy markets see a high throughput of high value transactions; where the order of incoming transactions and confirmations must be retained. The platform access and transaction fees currently charged by many of the centralized exchanges are the target of several blockchain companies in this space. In addition, increasing the speed of transaction confirmations is expected to significantly reduce issues of reconciliation and therefore reduce the risk carried by the exchange. Some of the more ambitious business models are also looking at bringing individual consumers into wholesale markets and bypassing retailers, using a blockchain-based trading bot that is responsible for meeting your household energy needs.
Example players: VAKT, Ponton, LO3, Grid+
4) Renewables development financing
Financing of large energy infrastructure projects, such as the development of a new solar farm, is a complicated and often slow, drawn-out process. Blockchain accelerates the financing process and mitigates risk through automation and simplification of contractual compliance, which can be exceptionally complex in an industry whose contracts are riddled with covenants. Additionally, access to finance is particularly difficult in developing economies, where the financial system may be less transparent and projects often carry higher risk. Blockchain can enable the selling of future energy generation as tokens today to raise capital for investment, or fractional ownership of solar panels which distributes the financial burden across a number of parties.
Example players: Banyan Infrastructure, M-PAYG, Sun Exchange, WePower
5) Automated financial settlement
Ensuring that energy customers pay the right amount at the right time consumes considerable resources for utilities around the world. This settlement process often takes several weeks and counterparties carry significant credit risk. Automated and near-instantaneous payments can be made possible using blockchains, to speed up the process and reduce risk.
Example players: BTL Group, Causam Exchange, Verv, Grid+
Conclusion
As you can see from this list, the opportunities for blockchain to improve our energy sector are both broad and significant (and in my personal nerdy opinion, super exciting!). Precise estimates vary, but a report by Zion Market Research predicts that the energy blockchain market will reach $12bn by 2024.
I’m particularly excited about the sheer magnitude and breadth of impact that could come from improved DER management, and also recognize that some of the others, like carbon credit trading, might be easier to implement at large scale. However none of these are a simple path to take; the crucial dependencies on energy market regulation and different market structures in each jurisdiction means that implementing these business models requires bucket loads of innovative thinking and determination, but I’ll save that for another blog…!
Thanks to Joyce Yao, Medha Kothari, Bosun Adebaki and Justine Humenansky for their inputs and advice on this article.
