Solving the Paradox of Renewables — Blockchain’s Energy Story
Build Block[chain]s of a Greener Planet
Imagine walking down a crowded street, when suddenly a meteoroid falls from the sky. As the meteor crashes down, hundreds witness the impact event. In seconds, a polygraph is strapped on to every person who witnessed the episode, obligating them to recount exactly what they saw. Everyone precisely tells the same story, leaving no doubt that the event occurred. This is the fundamental principle behind the blockchain — a distributed ledger of digital events, where trust by consensus is the new compliance.
Blockchain derives its uniqueness from the mechanism it adopts to protect and validate these records, enabling it to act as the underlying layer behind the cryptocurrency Bitcoin. Supported by computers and algorithms, the system can only be updated when a majority of the participants are in consensus. Unlike traditional centralized systems, blockchain does not rely on a single data center — the system’s distributed nature makes it much more resistant to failure and cyber-attacks.
From being heralded as a technological Jesus during cryptomania, to weathering the crypto crash in 2018, the blockchain era has seen its fair share of ups and downs. Today, we see the hype and skepticism around Blockchain rationalize, with widespread discussions of its potential impact across public and private sectors taking place. By penetrating new markets like the unbanked and cutting out massive costs, blockchain has a significant opportunity to revolutionize the financial services industry. Besides shaking up the economic power grid, the technology holds great promise to rewire another crucial sector — the energy industry.
The Myth of Grid Parity
Developments in solar and wind generation are powering the energy sector towards a more secure, sustainable, and inclusive future. Unprecedented public pressure, triggered by rising air pollution levels and increasing concerns about climate change led to the 2015 Paris Agreement - fostering the transition we see today. Renewable energy costs have dramatically declined between 2010 and 2018, with the global Levelized Cost of Electricity (LCOE) from onshore wind and photovoltaic (PV) solar plants dropping by 34% and 77%, respectively.
Take Germany, for instance. Energiewende, the energy transformation project carried out by Europe’s industrial powerhouse has resulted in ground-mounted solar power plants and onshore wind power LCOE values plummeting as low as €3.71ct/kWh and €3.99ct/kWh respectively. Improvements in efficiency, coupled with falling component prices (PV modules, turbines, inverters, etc.) and preferential feed-in tariffs targeting the use of renewables have attributed to historical LCOE declines in wind and utility-scale solar PV.
With renewable generation costs below or if not comparable to that of existing conventional sources, energy observers can be excused for assuming that renewables have achieved grid parity. However, these stats reflect only one side of the story. Despite renewables supplying the largest proportion of electricity generation in Germany today, an average German household shells out €88 per month for electricity — a 2.6% year-on-year increase! Be it Essen, Texas or South Australia, renewables are causing price spikes in many parts of the world.
What explains this paradox of falling renewable costs and rising electricity prices? The LCOE metric only measures generation costs and does not consider the transformation costs incurred to integrate intermittent renewables into the over-arching electricity system. A power system that is increasingly dependent on fluctuating distributed energy sources translates to higher grid fees in the form of re-dispatch and maintenance costs needed to keep the system running. Further, policies fuelling the renewables wave drive up electricity retail prices, proving to be an expensive means of achieving greenhouse gas reductions.
In Germany, grid fees (7.31ct/kWh) and the EEG renewables surcharge (6.41ct/kWh) account for just over 45.5% of an average household’s electricity bill. These fees, supplemented by a bevy of taxes, duties, and levies reflect the full cost of delivering electricity to its point of use. Interestingly, energy-intensive companies — organizations engaging in ‘take-make-waste’ activities are exempt from paying the EEG surcharge, with these costs instead passed on to households and smaller companies.
“The energy system continues to socialize the costs and privatize the gains.” - Jean Michel Glachant
I don’t intend to render a verdict on this ruling, but transitioning to a system with a high share of renewables requires strategies that integrate the latter into power systems at the lowest possible cost. Clean energy is a sine qua non condition for sustainable development. In an age of low-cost renewable power generation, blockchain technology enables efficient management of distributed energy resources. As efforts to scale up renewables catch speed, we look at three ways in which distributed ledger technology amplifies the energy transformation process.
1. From Consumers to Prosumers: Peer-to-Peer Energy Trading
P2P energy trading represents one of the most promising applications of blockchain technology in the utility industry. Today, we see the deep penetration of distributed renewables driving up the costs of delivered energy for everyone else. There are households generating more power than they need, while areas lacking energy access pay a fortune for power. Blockchain technology potentially solves the ‘energy poverty’ problem by bringing these two systems together.
Relatively low transaction costs associated with blockchain allows smaller energy producers or ‘prosumers’ to trade electricity without the interference of a central authority. By coordinating real-time data from microgrids, smart contracts allocate costs in a far more rigorous, transparent and reasonable manner. Local marketplaces can disrupt the structure of energy markets by providing RES producers with additional revenue streams, potentially reducing energy costs for consumers.
For over a century, the electricity grid has been a top-down business with utilities and big power generators sending electricity to customers. As the cost of energy storage falls, there is a greater incentive for consumers to self-supply, store and disappear from the grid completely. Emerging microgrids (when connected to the main grid) can avoid distribution or transmission network congestion by increasing grid flexibility, thereby accommodating a higher share of renewables.
“Energy rightly applied and directed will accomplish anything.” - Nellie Bly
Accelerating the transition to a Decentralised, Distributed and Decarbonized energy system requires utilities to closely associate with a ‘4th D’: Democratization. As we turn our homes into revenue-generating assets, mountains of data would be made available for networks to provide services on them. A paradigm shift from energy-as-a-commodity to energy-as-a-consumer experience can create entirely new markets, presenting an exciting opportunity for early adopters to differentiate themselves from competitors.
In collaboration with large energy companies and startups, Energy Web Foundation (EWF) is developing a scalable, open-source blockchain platform designed specifically for the energy sector’s market needs. One of its partners, the Elia Group, is running a pilot project on the Energy Web Chain that focusses on the settlement of flexibility between prosumers and the demand-response market. Power Ledger in collaboration with Energie Steiermark is making its blockchain-backed energy trading platform available to ten households across the Austrian state of Graz, enabling prosumers to sell excess renewable energy to their neighbors.
2. Driving the Green Wave: Renewable Energy Certificates
Renewable Energy Certificates (RECs) are tradable units that carry the environmental attributes of a unit of renewable energy from the underlying electricity. With nearly two-thirds (63%) of Fortune 100 companies adopting or retaining green energy targets, RECs are a means to prove that they utilize renewable energy for their daily business.
Europe sees over 700 million such certificates being issued and traded on an annual basis, with their price determined by a supply and demand market. Rather than basing renewable energy credits on forecasted energy production, blockchain technology makes use of real-time data to base such credits in a more dynamic manner, avoiding costly estimates. IDEO CoLab, for example, partnered with NASDAQ’s Linq platform and Filament’s blockchain and sensor capabilities to autonomously issue RECs from smart solar panels to producers.
With growing demand, comes growing awareness. Today, RECs are electronically tracked in opaque, centralized databases, accessible only to large energy producers and utilities. FlexiDAO aims to make RECs more transparent for consumers by using blockchain to automate cumbersome end-to-end processes such as certificate disclosure and ownership tracking. Further, their software enables daily matching of generation and consumption for large-scale industrial consumers.
We are also seeing this trend play out on a broader scale. Singapore-based utility provider SP Group, collaborated with the International REC Standard (IREC) to develop the world’s first blockchain-powered REC platform. The immutability of distributed ledger technology ensures security, integrity, and traceability of each transaction, allowing local and international organizations to seamlessly trade RECs. The platform offers consumers an end-to-end one-stop-shop for RECs, driving greater integration of renewable energy sources into the electricity grid.
3. Powering the Vehicles of Tomorrow: EV Charging
With global electric vehicle (EV) sales soaring across the world, Blockchain promises to address the “lack of range” challenge by autonomously providing publicly available charging infrastructure. As more drivers transition to EV, blockchain technology incentivizes adopters to make their private charging stations available for public use. Smart wallets enable drivers and charging station operators to seamlessly and securely transact with each other.
Share&Charge is an open charging network curator aiming to globally integrate charging poles and electric cars into the energy system of the future. Their one-stop solution connects EVs with public and private charging stations using blockchain technology, surpassing hurdles associated with grid overload and multiple operators. Blockchain can drive EV adoption by improving security, By bringing transparency and interoperability to electric mobility, blockchain holds the potential to build a seamless, smart and shared charging infrastructure.
The Road Ahead
There is no limit to the amount of energy at our disposal, yet we lack the knowledge necessary to harness and convert it to our needs. IRENA estimates that the share of renewables in global electricity generation will “need to grow from 10% today to 60% by 2050” if we are to meet climate objectives outlined in the Paris Agreement. As we transition towards intermittent distributed energy resources such as wind and solar, innovative solutions such as blockchain, machine learning, and predictive analytics can provide the necessary flexibility to power systems.
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