Can Blockchain help reduce energy poverty in Rural India? (3/3)

#3 How can Blockchain be applied in the (rural) energy sector?

This is the second article in a series of three, being: #1 Problem Definition, #2 What is Blockchain, #3 Blockchain as a solution for the (rural) energy industry. Anyone interested in the combination of rural electrification with Blockchain technology I invite to get in contact with me through yvo@energybazaar.org.

My former articles have shown difficulties of the current rural energy sector in India and a short description on what Blockchain technology is. In this article we will tie the knots and raise the discussion on wether Blockchain can help overcome the electricity poverty in India.

The first question is: ‘How does the electricity market work now and does Blockchain change these operations?’ Now the activities of utilities literally consist of sending around excel files with data on transported and traded energy. There is one single database owned by the utility, which needs to update this data constantly with input from its energy suppliers and customers. In our traditional energy grids, with static central generators such as coal plants, this is largely manageable, since energy use can be scheduled and the required energy can be accordingly generated. The time consuming task of getting input from all stakeholders is therefore a concern, but no drama. Still, the system is vulnerable to (human) errors. The image shows a typical flow diagram of information and currency exchanges that the energy market has. For a more detailed description, see Sey Fabode’s article, where this image was taken from.

People, Spreadsheets, Money and Electricity. Errors waiting to happen!! Source: Sey Fabode / Credit: See picture

However, a problem that will show itself in the near future, is the widespread inclusion on variating energy sources, such as wind and solar. For example, due to the appearance of an unforeseen cloud or a drop in wind speed, the energy supply suddenly goes down. This is something that can never be scheduled in by weather forecasting. The problem is that our current grid operations do not allow for dynamic activities on the grid to be happening in real time, because of the way that information and currency flows have to be managed by the utility and its stakeholders. Furthermore the imbalance of energy in the grid can be harmful and needs to be levelled with voltage and frequency controls, but therefore the control system needs information too.

‘Everyone’s life becomes easier…’

Blockchain has opportunities to improve efficiency in the balancing of the grid, disaster management, dynamic pricing and accountancy. In a Blockchain environment, every stakeholder works from the same ledger, can write its inputs in real time and as Fabode says: ‘Everyone’s life becomes easier…’ Utilities, customers and independent generators would be able to set in place dynamic smart contracts, contracts that can vary according to specific conditions, such as differences in demand and supply of energy, creating a dynamic pricing system.

For example a biomass plant owned by a farmer in rural India could start delivering the backup power to the grid as soon as the central grid fails, for a price that may vary dynamically according to the rest of available energy in the system. If the blackout is during the day, many solar panels would also be able to cover the load, however, at night, the biomass plant operator has a better leverage to sell his energy for a higher price. The market dynamics of supply and demand could all be automatically contracted within a smart contract blockchain environment. The next image shows how this would be compared to the former situation.

Source: Sey Fabode / Credit: See picture

So now we have seen the impact of blockchain on the electricity system, but will this really allow more people to be connected to the grid in India and taken out of energy poverty? Would this also allow for financial inclusion and wealth creation?

Currently the instalment of microgrids for the very poor have somewhat staggered in the country, because of increasing difficulties in keeping the projects commercially viable, despite of plummeting solar energy prices. Some reasons for this are energy theft and billing issues, where often payments are still being done by going door to door due to lack of people with a bank account. However an important problem is also the probability of the central grid extending to the area. Microgrid operators would lose their investment, because the often state-owned and subsidised distribution company (DISCOM/utility) simply installs a connection with cheaper electricity. In response to this, the Government of India has included an option in the latest policies that the DISCOM should come to an agreement with the microgrid operator. It has to take over its assets for the current booking value, while giving the option of setting up a Purchase Power Agreement (PPA).

Blockchain could completely democratise the energy trading system

This PPA would allow the transfer of energy between the parties according to preset prices. However, the agreement is static and must be renegotiated with every change in the topology of the system. Furthermore it doesn’t allow for dynamic pricing, what could come to a serious benefit of the biomass plant farmer. So this is exactly where Blockchain comes in. It will facilitate a more dynamic and flexible agreement between the DISCOM and the microgrid operator. Blockchain in combination with smart meters allows the microgrid operator or DISCOM to do electronic billing, which is now mostly done by visiting villagers and physically checking the meters. Surpluses or shortage can then automatically be traded between the DISCOM and microgrid operators, creating an energy trading platform. Furthermore it could even empower independent electricity generators, like rooftop solar owners, to become the owner of the electricity that they produce, by providing the platform to freely share this with others, instead of letting letting the microgrid operator do the trading. Blockchain could completely democratise the energy trading system.

This is not the only benefit, since the operations of DISCOMs that would apply such a system internally would also become much more efficient. This would be another step in the right direction of making them healthy sustainable organisations, which article 1 showed is not the case now. Another large benefit would be for the governmental entities that want to monitor parties such as DISCOMs and microgrid operators, decreasing the chance of corruption. With a distributed shared ledger, the transactions are much more transparent and easily collectable for accountancy and monitoring purposes. All these benefits together can make the operations that are currently required for rural electrification significantly more efficient and therefore more reachable for rural customers that live on a scarce budget. On the other hand it will mean a benefit for the Government, which means a strong incentive from their side to apply such as system. The image below shows a larger view of the possible applications in grid networks.

Credit: Bloomberg New Energy Finance
The whole range of the possibilities that Blockchain technology possesses could become more reachable if all energy expenses were done through a digital currency platform, allowing smart cities to emerge.

While creating this smart energy system of the future through Blockchain, the energy network could also pose as an ‘anchor for a smart city’, as Shalabh Srivastava, Principal Director Accenture India, said recently at the India Smart Grid Week 2017. The whole range of the possibilities that Blockchain technology possesses, as seen in article 2, could become more reachable if all energy expenses were done through a digital currency platform, allowing smart cities to emerge. Since rural households spend between 5 -20% of their income on energy, this would mean a paradigm shift in the way they do transactions. Think about Blockchain based insurance contracts, between solar panels owners or microfinance possibilities for loans to create businesses.

There are, of course, also other sides to the story. One of the possible setbacks could be that there needs to be a large roll out of expensive smart meters connected to the Internet of Things, which will be the topic of a future article. Smart meters are currently still expensive and the upfront costs are too large for the rural villagers. It is still a question if this upfront costs is worth it for the DISCOM or microgrid operators and must therefore be researched. Also the infrastructure to make them communicate is mostly not present in rural areas. Furthermore, as with every product, you cannot simply expect people to accept your ‘solution to everything’. The use of the product and its incorporated values must be aligned to how the users look at it, otherwise it will never catch on. An idea would be to make complicated technologies as Blockchain the least visible as possible. However, how would you persuade a solar panel owner that he can freely trade energy with his neighbours? How do we even know he wants to trade energy with them?

It is clear that from a technological point of view, many problems can be eradicated by Blockchain. However this doesn’t immediately solve the social problems that lie in the way of electrification. Still, Blockchain can also allow more social based solutions to work, by building digital secure environments where communities can do transactions among each other as is being done in New York. All together the potential for the technology is used, but it cannot be adopted if there is a widespread consensus among policymakers, regulators, technology leaders and other stakeholders that need to collectively adopt the Blockchain environment, before it can reach its full potential.

Anyone reading this who is interested in blockchain based solutions for the poor, I invite to join the discussion and further increase the knowledge on what is possible for this technology in solving the humanitarian problems we are facing today. Get in touch with me if you want to know more, if anything is unclear or if there is some perspective that I have missed in my descriptions above or former articles. Yvo Hunink — yvo@ruralspark.com

I want to thank my editors Rob de Jeu, Vincent Hunink, Camille Hunink, Marina Graciolli de Paiva, David de Vries and Bart Keulen for their contribution in making this a more readable piece of text and understandable for a larger public.

I also want to thank the TU Delft Global Initiative and Rural Spark for making the visit to India happen. Check out their channels for more projects on development connected to Delft University of Technology and bottom up energy solutions for India.