Blockchain: Revolutionising the energy sector

Digitization of the energy sector has been steadily growing at a great pace. Blockchain technology brings forth an era for changes in the energy industry. Blockchain has a special kind of data management system to recognise and track changes within the system, reports it to the participating nodes present in the network. Here, changes are validated by participants present at nodes, if found correct add that piece of information into the existing blocks in the database. This trackability, transparency and security keep the ledger network safe through encryption.

Blockchain holds great potential in enhancing the energy sector, by optimising the processes involved that will be highly effective in decentralising the processes involved in the same.

Is blockchain complex?

Blockchain is basically a series of data blocks with information stored in it. Every piece of information that is stored in these data blocks are immutable and completely accessible to participating members. Any information added to the ledger is acceptable only if other participating members validates the information.

This technology thereby brings two important aspects making it adaptable. Firstly, it gives complete ownership rights to the person who inputs data. Secondly, it drives anonymity wherein participating members need not reveal their identity to make any changes in the transactions.

Evolution of blockchain

The Bitcoin blockchain is the world’s first blockchain since 2009. The network is open source and has been utilized accordingly in respective blockchains that are considered as first-generation blockchains. The transactions within are intended for an exchange of financial assets wherein any individual or organization under a pseudonym (wallet number, similar to bank account number) could take any role in the system without prior verification.

With the second blockchain generation, basically determined by Ethereum and intelligence applications, automation was brought into the blockchain space. This permits data, “self-executing contracts” (smart contracts) and complete programs (decentralized applications, dApps) used with blockchain. Hence, with the introduction of Ethereum transaction within the blockchain is no longer limited to financial assets. Rather, any information can be displayed and transferred, such as image rights, shares, certificates or even electricity deliveries. The most recent improvements are moving further from the principle of blockchain, in which thousands of transactions are bundled and verified together.

Energy: A Vital Sector

Energy as a sector emerged back in the early 1800s. At that point in history, nearly all the world’s energy was extracted from traditional bio substances (essentially burning organic matter such as wood, animal dung, etc.). The world (predominantly in the UK) was using a very small amount of coal. Coal contributed around two percent of the total energy production. Mankind’s expansion into oil did not begin until the start of the 1870s. After nearly decades, we ventured into natural gas and hydroelectricity. By 1920s, coal consumption had increased exponentially, accounting for almost half of the global energy supply. The other half remained biomass since oil, gas and hydroelectricity still remained small.

By the mid-1900s, the energy mix had diversified to a great extent and coal overtook traditional biofuels, oil was up to more than 20 percent. By 1960 the world had moved to the next big thing in the energy sector — nuclear energy. Finally, Today’s renewables (modern biofuels, wind, and solar) started appearing in the 1980–90s. After the turn of the millennium, energy sources such as geothermal and marine technologies have been invented but the production and use of such technologies remain tiny even after a decade and a half of scientific research.

The above mainly denotes the change in energy sources, and we clearly see that there has been a new technology every couple of decades. This brings us to a critical question. When was the last time that we saw a big disruption in energy distribution? To answer this question, we need to move back almost a century in a time when the introduction of AC current forced establishments to change the way the electricity grid worked. The world now consumes more than 150,000 terawatt-hours (TWh) which is 20-fold increase since 1930 but our ways have not changed since.

The energy sector needs great disruption and blockchain might be able to give solutions to many optimization scenarios. Blockchain solutions could also be used to deal with electric power systems which increase in complexity every day. 2017 was the year when start-up companies raised almost $350 million to apply blockchain technology to the energy sector, some start-ups focused on enhancing the existing markets for trading electricity while others focused on creating new ones.

Application of blockchain in Energy Sector

Carbon emission

Carbon emissions: The Energy Web Foundation’s Origin application uses a blockchain to measure and track electricity generation down to the kilowatt-hour (KWh) and record traits such as the carbon emissions associated with power generation. Doing so could enable a more accurate calculation of carbon offset credits, which give us a way to trade credits for carbon emissions to maintain balance amongst business owners and end-users of low-carbon electricity.

Electric power

Power: Applications to electric power is its use to record and trade traits of sustainability. Examples of such traits imply whether a unit of electricity is the renewable and checking amount of emissions resulting from its production. Current systems used to track such traits are centrally managed, complicated, and prone to corruption and errors. Moreover, the compartmentalization of platforms prevents seamless trading of traits across all the regions. A decentralized blockchain network would enable transparent, reliable, frictionless tracking and trading of these traits to accelerate clean energy deployment and reduce carbon emissions.

Electric vehicle

Electric vehicles: The line between the power and transportation sector is thinning day by day as a result of the rising popularity of electric vehicles (EV). Such vehicles still face major barriers in customer adoption — in particular, a lack of public charging infrastructure in developing countries such as India. Blockchain technology could enable private owners of physical charging infrastructure to seamlessly sell vehicle charging services to EV owners, to improve the adoption of EVs around the world. Take the example of the Californian company eMotorWerks and start-up MotionWerk, they have collaborated on a pilot project in California (USA) to create a marketplace for smooth EV charging. This initiative enables households that currently own chargers, to rent them to electric vehicle owners for a nominal fee, just like a homeowner renting his room to a guest via Airbnb platform. A blockchain network can decrease transaction costs by enabling EVs to charge using underutilized chargers that are already installed in residential buildings or businesses, which could eliminate one of the largest barriers to EV adoption.

Start-ups predict that a distributed blockchain network can facilitate many small transactions of fractional units of electricity more swiftly and with a lot of transparency than traditional networks. In recent times firms have struggled to keep the costs of building and maintaining charging infrastructure down as well as the costs of processing every charging transaction. Moreover, blockchain-enabled smart contracts could automatically start transactions when pre-requisite conditions are met — for example, customers could offer to charge their batteries using the excess electricity from the grid when the compensation offered for providing charging services exceeds their pre-determined price.

Power plant

Grid transactions: The owners of the large power plants sell bulk quantities of power to smaller utilities and retailers that then further sell the power to end-users. Blockchain would improve the control of decentralized frameworks and microgrids. Enel (an Italian multinational energy company) is starting an Enerchain project which uses blockchains to enhance the existing wholesale system of electricity markets. In current markets, a centralized entity runs a proprietary software to process each electricity transaction which is time-consuming and costs a lot of money. If these grid markets processed transactions on a blockchain network, the results could be different. Transactions could be processed quickly, and the cost of proprietary software could be saved. Besides, every transaction data would be transparently available for all market participants.

More importantly, these wholesale grid markets could broaden their pool of participants because a decentralized network can handle a multitude of smaller transactions that would overwhelm a traditional centralized system. The benefits of such a system could be immense as small businesses and even households could start selling their excess distributed generation into the open grid market and prices would be dynamic that reflect the grid’s needs at every moment.

As the electric power sector is highly regulated, especially in the Asia-Pacific, policymakers will have to play an important role in determining how much of blockchain’s potential can be realized. To regulate blockchain-enabled power sector, policymakers must first invest in understanding it to the fullest. Next, they must play a role in the development of technical standards which is acceptable to all parties. Finally, policymakers should enable blockchain ventures to set up small-scale demo projects so that all the pros and cons can be seen before large scale implementation phase.

If blockchain projects in the energy sector can be scaled up, then governments might be in a better position to regulate carbon emissions. Jurisdictions around the world that have enacted carbon pricing policies in its traditional form have struggled to accurately track and record emissions. In the future, governments might use distributed ledgers to record and trade the carbon emitted from producing, transporting, and using energy.

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