How Blockchain will Re-write the Energy Sector
Blockchain has the highest potential to disrupt the energy sector and re-write the energy sector story. In fact, Price Waterhouse Coopers 20th CEO survey revealed that 70% of CEOs interviewed consider the speed at which technological change is happening as a huge concern. Top of the list of such technologies was blockchain which is the most significant digital disruption expected in the next five years. Well, there is no need to be afraid of such technologies; you can already acquaint yourself with blockchain and start thinking of how to apply it to your situation in the energy sector. After all, there are already some who have dived into the deep waters of blockchain and the energy sector.
According to Ernest and Young,
“A new ecosystem of energy blockchain start-ups is emerging, and venture capital, so far, has raised over US$1b to scale business models of the future. Aside from some early demonstrations, the applicability of an energy blockchain is largely theoretical. The ability to support a globally connected network of energy transfer, where smart devices will be able to securely send and receive data while autonomously reacting to market signals, is a reality some believe is still 5–10 years away. Smart meter rollout programs are in their infancy, huge investment is needed to digitize the grid, and global battery storage totals in the megawatts rather than gigawatts.”
Here are some of the ways blockchain is already making headway in the energy sector.
Use cases for blockchain technology in the energy sector
Whereas there are already many international companies which are developing blockchain applications for the energy sector, they are yet to move beyond the pilot or even concept stage. There was one particular trial that ran in April 2016 which saw energy that was generated decentrally sold directly from one neighbor to another through blockchain for the first time. The principal aim for the use of blockchain in the energy sector is to provide a direct link between energy suppliers and energy users. The blockchain is set to revolutionize the energy sector through two critical approaches among others. The first is much similar to blockchain’s application in the finance sector. It leverages blockchain’s functionality with the intent of providing secure and distributed record of transaction data that is accessible to all participants. This includes documentation of ownership, metering, and billing of consumption. And the second approach is like discussed above; to develop a decentralized energy supply and transaction system.
Decentralized energy supply and transaction system
Blockchain application in the finance sector gives us a snap view of how blockchain could impact the energy sector. The blockchain is capable of a decentralized energy supply system. The blockchain is capable of simplifying the current energy system structure by enabling a direct link between producers and consumers. The only requirement for realizing this simpler way of operation would be to adjust the way the networks are controlled so that they work in tandem with the new system.
With more advancement in green technology, many energy users are now producing solar energy. “prosumers.” They not only use energy but dispose of power in the form of small-scale wind turbines (CHP plants) and the solar energy. Blockchain could empower such ‘prosumers’ to sell the energy that they have generated directly to their neighbors. Blockchain with smart contracts can initiate and transmit transactions in a secure manner. All transactions between parties are done in a peer-to-peer network.
Blockchains will enable energy networks to be controlled by smart contracts
One of the revolutionary technologies in blockchain is smart contracts. Smart contracts are self-executing sets of rules and regulations in a contract. Blockchain’s smart contracts communicate to the system when to initiate particular transactions depending on the predefined laws that are designed to ensure that all energy and storage flows are automatically controlled and that the supply and demand forces are balanced. For instance, in the event that more energy is generated than what’s needed, smart contracts will ensure the excess energy is delivered into storage units automatically. And when there is a shortage, smart contracts will ensure that the energy held in storage is released automatically to meet the deficient amount of energy. Through smart contracts, blockchain can directly and automatically control the network flows as well as energy storage. In the same manner, blockchain through smart contracts can be used to balance activities and Virtual power plants.
A great example is S&P Global Platt that has deployed blockchain to track its U.A.E Oil inventories.
Blockchain will enable for the keeping of decentralized and secure records of energy flows and business activities
With smart contracts allowing for automatic flows of energy and initiation of transactions, records thereof could be recorded in a tamperproof manner on the blockchain. The automated system control, as well as the use of distributed ledgers securely recording all transactions and documenting all activities, will impact directly and positively on the network and its storage operations.
Secure storage of ownership records
Blockchain has a future potential of providing secure storage of ownership documents. The blockchain is a more secure way of documenting ownership, and other related transactions since the records are tamperproof and transparent. Being tamperproof, transparent and decentralized, blockchain opens up a whole world of opportunities for energy certification. Here are two applications for consideration. The first is emission trading; verification of renewable electricity as well as emission allowances. The history of ownership for every certificate could be stored in the blockchain. Since records stored on the blockchain remain tamperproof and transparent, blockchain would provide a safer and faster way of managing certificates for renewable power and emission allowances. The second application is related to the internet of things (IoT). The energy sector could benefit from blockchain through having a blockchain based register that records and regulates the current state of assets as well as their ownership (asset management). Such assets include smart meters, networks and generation facilities like solar systems.
Proof of ownership is at the very center of fraud cases; blockchain with its distributed ledger would help completely eliminate fraudulent activities in the energy sector.
Decentralized energy supply and transaction system
This could be possible where individual blockchain applications are combined. The energy that is generated in generational facilities that are distributed would be supplied to end users through smaller networks. Smart meters would, in turn, measure the amounts of energy produced and that which is consumed. Smart contracts would not only facilitate the flow of energy but also manage energy trading transactions and cryptocurrency payments through the blockchain. The use of blockchain to decentralize energy supply and transaction systems ensures the elimination of third parties in the energy sector hence reducing the cost for the end consumers. There will no longer be any need for such intermediaries like energy companies, banks or traders. Instead, with the above system blockchain based smart contract applications would enable direct relationships between producers and consumers. The consumer would be able to manage their electricity supply contracts as well as consumption data.
Direct peer-to-peer trading to enhance the smooth operation of the power grid
One of the key objectives of power grid management is to enhance the smooth operation of the power grid. This is especially so given the rise in intermittent renewable power generation; there is every need to achieve stability on the local, national and continental levels. This could be possible through direct peer-to-peer trading together with aggregation to virtual power plants that are built on the blockchain.
The Bottom Line
There is no denying that the blockchain technology is still a relatively infant concept but if the experience gained with blockchains in the financial industry is applied to the energy context, the technology appears capable of enabling a decentralized energy supply system. It may be possible to radically simplify today’s multi-tiered system, in which power producers, transmission system operators, distribution system operators and suppliers transact on various levels, by directly linking producers with consumers, provided we manage to adjust the way the networks are controlled so as to reflect the new requirements.
Players in the industry with examples of blockchain projects in the energy sector
