Blockchain, Disruption, Climate and Renewable Energy
Disclaimer: My opinion is not legal or financial advice. This in no way should be considered financial or legal advice, and my views are my views alone. They do not represent the views of any parties named in this article, nothing written here should be construed as investment advice either, and with that out of the way…
Disclosure: I do not have a contract with any of the third parties named in this article nor do I own any shares in them, with the exception that I am the founder of Earthbanc and have developed the Liquid Token software featured by the Asian Development Bank.
Renewable energy leveraged $256 USD billion investment year to date (2017), and its increasing year on year at about the same rates as Moores Law. Meanwhile, global warming is increasing exponentially as coal and oil are burnt, peatlands in Indonesia and now Greenland burn, and the soil and forests of the world is degraded releasing massive amounts of methane, nitrogen oxide and carbon dioxide into the atmosphere. Oceans are turning acidic and farm run-off is killing the reefs and fisheries of the world, releasing huge amounts of carbon. Amongst all this it might be easy to be pessimistic, until you look at whats happening in the world of blockchain and the renewable energy economy.
Blockchains being used by energy market startups as a public ledger that is stored on potentially millions of computers around the world forming a secure record of information, transactions and flows of value. The security features it offers are made possible through its consensus protocol that makes it very difficult for any part of the ledger to be tampered with, and therefore is called an immutable store of information, enabling transactions and now even sharing renewable power between power producers and users. This means energy could be traded between neighbours, energy farms, large energy users, Government agencies and more. Blockchain enables the storage of information globally, not in one centralized location and for renewable energy that means sharing energy as information packets across the internet and smart grids.
Whilst there have been criticisms of the carbon emissions of proof of work (PoW) blockchains such as Bitcoin and Ethereum, much leaner and more efficient layer 2 protocols are emerging that reduce carbon emissions to negligible. P2P energy sharing via blockchain protocols is part of this market driven megatrend to reduce carbon emissions, and it is only just getting started for generators, consumers and market operators to make the system more resilient, efficient and cost effective.
There are many blockchain startups that seek to solve the challenge of supply and demand imbalances in power grids, whilst empowering individuals and organisation to share power with anyone in the grid network for an improved price point, and avoiding retailer price gouging. The platforms that make optimal use of energy generation through effective matching of energy producers, consumers and prosumers will ultimately find the best adoption. Better investment and finance platforms are also emerging, that use blockchain to enable climate finance to flow into renewable energy projects globally, such as Earthbanc at https://earthbanc.io
Think about this scenario — you plug your Tesla motor vehicle into the charger, which is powered by solar panels on your rooftop. The energy stored in your electric vehicle and in your PowerWall battery, is available for your own usage in your home and in your car. What else can you use that energy for and what if you produce more energy than you consume? Many sell their real time energy generation or stored electricity to energy retailers, at usually poor price points. This provides a disincentive for home owners to sell to retailers, and encourages home owners and businesses to buy battery systems as a way to harness home energy generated, and hedge against blackouts and high peak power prices. This lowers overall energy costs for households and businesses, but with distributed ledger contracts, the savings could be even better, and more importantly it contributes to a more resilient, agile and responsive smart grid.
Tesla and organisations like CSIRO VirtualPowerStation have features that enable houses, cars and business that share a common energy information network, to form a virtual power station by aggregating energy generation and storage (Tesla PowerWalls and PowerPacks) or other battery brands, and sell the aggregated energy on the spot electricity market at higher prices than would otherwise be received by individual households or businesses. Better prices for energy producers offers a compelling reason to get on a power marketplace type of platform. This aggregation feature offers a viable business model particularly for large energy users such as manufacturers to invest in large energy storage batteries, that can transfer energy over the blockchain and grid to any other manufacturing and data hub that requires instant on demand energy in case of peak power prices going up rapidly or the chance of a blackout. The cost savings are considerable, and many manufacturers and data hubs will be pushing for platforms that enable better price discovery, to gain legislative approval in a move that frees up markets to deliver more efficient use of energy resources and save energy users money.
Some households and businesses were lucky enough to be early adopters who got into the solar panel market when Governments offered feed in tariffs (FiTs) via energy retailers sometimes at up to 55 centre per kilowatt hour (kWh). If your in the majority without a FiT and you are instead being paid a ridiculous 8 cents / kWh or similar for your solar power generated, you probably feel indignant, quite rightly. Paying your retailer up to 30 cents / kWh or more in peak periods, and then paying astronomical costs when back up power from gas peaking plants are switched on, cannot be recouped by selling at 8 cents / kWh. This losing energy equation has many households and businesses struggling with energy debt, lowered purchasing power, all of which eats into household and business income and ability to maintain resilience and thrive.
Blockchain energy markets could offer the opportunity to take the power back from expensive retailers, and sell your renewable energy for a price that is consistent with market demand, potentially even equal to what you are paying to retailers at peak price rates.
Taking the power back from price gouging market makers is a compelling business use case for both energy generators and energy consumers. Blockchain based power markets might be coming to your neighbourhood or business district sooner than you think. Startups such as WePower, Brooklyn P2P Energy and now Energy Web Chain, have already partnered with utilities and energy retailers, who are trying to solve their supply and demand problems with innovative solutions. Power black outs have become more common with global warming and increased intensity of storms knocking down power lines, which in South Australia recently led to a deal with Tesla to install 100 megawatts (MW) of battery packs to avoid storm driven blackouts.
Energy retailers can be bankrupted by interruptions of service that contravene their retail licence, particularly when caught short of energy forward contracts to ensure supply capability. That sort of risk is increasingly being priced into insurance issued to energy retailers and grid network operators, and passed onto consumers. Energy retailers that have been slow or resistant in allowing more renewables into the network or selling in the marketplace, are likely to use open marketplaces whose business is not predicated on being a gas peaker plants, allowing energy retailers to hedge more effectively against power outages and inability to supply in extreme weather events. Utilising power marketplaces offers a new pathway for energy retailers to ensure reliable supply to customers, and therefore keep insurance premiums at more acceptable rates.
Global warming is reducing global GDP by approximately 1% annually and increasing each year, whilst carbon dioxide exceeds 350ppm in the atmosphere and resultant intensity of storms batter our collective infrastructure and lessens our economic resilience. We are globally now above 400ppm carbon dioxide, and rising. Repurposing wasted or suboptimal energy is essential if the world is to meet its climate goals of reducing pollution.
Blockchain based power marketplaces started several years ago as a solution to balancing supply and demand with publicly traded energy packets over the blockchain and power grid. The innovation doesn’t stop there though. To enable a more efficient and environmentally renewable blockchain storage and computation function, the Energy Web Chain was developed as a fork of Ethereum with some upgrades, to run a blockchain dedicated to energy markets. This enables the computation and storage requirements to be much less than Ethereum and the Bitcoin blockchain for example, which is estimated to use extensive energy resources. Enabling computations and transactions to be carried out across the global network of transaction processors — known as ‘miners’ is not always needed, if the intended purpose is not censorship resistance and actors running nodes are known and trusted counterparties, or within a singular organisation that operates globally.
Mining is historically extractive and the bitcoin blockchain is no different, if your not running the computer processors with renewable energy. More bitcoin miners are moving to renewable energy and taking advantage of the troughs in market demand. Energy Web Chain solves this problem by incorporating renewable energy into it’s operations and computation nodes that process transactions. Transaction processors who come onto the Energy Web Chain will be using an energy efficient blockchain, which is an evolutionary leap in the ecological sustainability of blockchain.
EW Origin is an Energy Web Platform that helps grow renewable energy markets and increase efficiency of carbon trading with SDKs that simplify and enhance the issuance, ownership tracking, and buying/selling of renewable energy certificates (RECs), guarantees of origin (GOs), and related green attribute products.
Enabling better tracking and tracing of RECs and GOs will provide better data driven insights for capital markets and policy makers to optimise decision making processes. Globally there is innovative thinking that is enabling markets and consumers to move away from the traditional dichotomy of producer-consumer, which is a binary arrangement for decision making that mostly enforces arbitrary capital allocation without nuance to regional differences in production and consumption.
Blockchain baased energy markets can help close the energy waste loop for energy generators such as wind farms whom are required to dump energy into the ground during the night due to a lack of energy demand from consumers. It can also help solve the wasted energy problem of suboptimal distribution that doesn’t have smart grid integration. Distributed power ledgers offer a software and decentralized technology solution to inefficient allocation of energy resource that can mimic what a hardware driven smart grid offers. There is a phenomenal amount of wasted energy in nations across the world, that if harnessed, stored and re-purposed could exponentially increase distribution and usage efficiency by potentially a factor of 4 or more.
Energy production in 2014 globally was 547,53 petajoules, in USA 115,244 petajoules whilst Asia generated 265,722 petajoules of energy. Imagine not having to build any new coal, gas or nuclear power plants and instead focus on increasing efficiency of allocation, storage and transmission. Decentralized trading platforms that enable peer to peer transactions will reshape how energy assets are constructed, managed and operated. AI enhanced algorithms that enhance decision support systems will analyse bottlenecks in supply and demand and make recommendations for allocation of rooftop solar, wind farms, solar farms, home battery packs and integration of electric vehicle batteries into a decentralized smart grid powered by Energy Web type of blockchains.
We might be able to save 100,000 petajoules of energy by 2025 (estimate), if these types of blockchains and open marketplaces were adopted by the large economies of the world and combined with widely adopted energy storage at homes and grid scale, all of which avoid the construction of new gas, coal and diesel generators. The amount of energy that would be saved or new generation capacity avoided might be equivalent to taking 201,332,500 homes in USA and Europe off the grid. That reduction in energy use through supply/demand matching efficiency, increased grid storage and avoiding new power generation assets in gas, coal and diesel energy is equivalent to 10 Gigatons of carbon dioxide emissions avoided. This might be achievable using distributed ledgers to efficiently transact energy packets and presents a significant case for scaling up blockchain based marketplaces. More research and modeling is required to understand the full positive impact on energy distribution efficiency when in combination with other measures. This brief article is a step in that direction of predicting possible scenarios in which distributed ledgers and renewable energy can assist with bringing down the global energy emissions.
This is why blockchain advocates including myself talk about its revolutionary power, to repurpose idle assets, or in this case wasted energy, create more value and less pollution. Financially its rewarding for energy generators, consumers and grid owners because people are using the grid just as much, and potentially more through the use of distributed power ledgers. All of which leads us to the pointy end of the problem — energy retailers. Energy retailers who like a command and control economy, where lobbyists can enforce industry will upon the market, keeping their shareholders happy, may be a bit miffed by this technological development.
The interesting part of the blockchain based power markets story is that tech giants who are also energy retailers for their own data hubs and manufacturing facilities such as Tesla and Apple and in time perhaps Amazon and Facebook, are partnering with forward thinking retailers to offer virtual power stations with PowerWall storage to their customers. It makes sense that tech giants with their own distributed power needs at large data and manufacturing hubs across USA, China and Europe will be able to seamlessly manage their own power requirements with software and technology platforms.
If we could stare into a crystal ball with a futurist hat on and envision what a tech sector would look like if it adopted blockchain based open power markets, it starts to look like a distributed investment and energy ecosystem that looks like Tesla’s model of creating an entire tech ecosystem to solve certain problems for it’s customers, and helps solve problems for energy retailers and distributors for demand side management. The market for demand side management in USA has jumped from $200 million to $750 in just the last year. When Apple announced it was becoming an energy retailer to manage the complexities of it’s renewable energy generation assets that power its vast data hubs, the market started noticing the ground was shifting in energy generation, demand side management and the closing loops on a wasteful energy economy that doesnt serve the core needs of it’s customers, including Apple.
What if tech platforms such as Tesla, Google, Facebook or Amazon democratized investment and allowed their users to invest in their data processing centers and data storage hubs, and as part of that process allowed platform customers to trade their own PowerWall energy on demand to fulfill the needs of the data processing and storage hubs enabling their users to be prosumers? If that was possible, its not too outlandish to think there may one day be a buy and sell button in Tesla, Apple of Facbook apps to sell and buy power and data processing. The landscape starts to look like a vision that many in the blockchain tech community believe will reshape the the economy from the ground up and the top down.
The new economy will be distributed and prosumers will be a part of that shift to a more efficient economic model that incorporates environmental and social benefits into its design. The blockchain tech ecosystem is evolving fast and apps that offer better options, may well disrupt business models that rely on legacy technologies. Decentralized investment and energy protocols are just some of the market segments emerging on blockchain with disruptive capabilities. Liquid Token is software that I built, that enables tokenisation of equity, debt and investments on a variety of blockchains, where private issuers can issue their own contracts and manage their investors, powered by the software. Liquid Technology was featured in the Asian Development Bank’s Report titled -
Blockchain and tokenized securities, the potential for green finance:
Fossil fuel power companies have been fighting to protect their turf, at the expense of renewable energy entrants and P2P energy sharing. But blockchain based open markets could enable power generators and grid operators to make better decisions and also empowers energy retailers to hedge against bankruptcy in the event of power outage and disruption of service that contravenes their retailer licence, particularly if they have not purchased forward energy contracts to cover shorts in their supply. Innovation has a way of generating resistance but ultimately it’s the early adopters who adapt and survive and the laggards of industry who don’t make it. The power of collaboration is overcoming the power of controlled competition with peer to peer transactions, expect to see people continue to vote with their dollars, smartphones and networks that enable smart energy management and sharing at the home, enterprise and even Government and inter-Government level.
Systemic problems require systemic solutions, so what is the next system? The next system harnesses the power of collective intelligence of the markets, communities, industry and Government in a virtuous cycle. The next system regenerates civilizational capability to transact in smart ways that eliminate waste and pollution, reward prosumers (producer-consumers), match supply and demand through better distribution, and democratize the power of production and consumption within nature’s hard limits. Blockchains and ecologically sustainable blockchains will be part of the next system.
