Blockchain Technology: Disrupting the Renewable Energy Landscape

The Global electricity market is estimated to worth about 2 Trillion US dollars and primarily monopolized by a few big corporations. These monopolies and oligopolies lack transparency and competitions which affects prices and consumer trust. The impact of being more and more people are generating their own Solar and Wind energy.

Blockchain could be a game-changer in the energy sector, primarily in renewable energy. The technology has the full potential to leverage the policy, regulatory and technological requirements of the renewables-based energy system.

Status Quo of Renewable Energy

Over a period of time, renewable energies have achieved important milestones in their development and usage. For example, the installation of solar panels at a wider scale has led to a four-fold increase in renewable energy adoption.

Renewable energy has experienced a massive uptrend in recent years with increased electricity production through wind and solar. However, renewable energy (including hydroelectric) is still lacking behind in terms of power generation accounting for only 4% of the global energy production.

According to the World Energy Outlook 2016 report, from 2006 to 2015 renewable energy experienced an annual growth rate of 7.73% mainly due to solar installation capacity. The increased traction and liberalization in the electricity market have broken the market structures and created a competitive market. However, small prosumers are still unable to participate in a market directly but have to go through the licensed electricity dealer in order to participate in the market. This results in significant inefficiency and co-ordination problems.

Blockchain prospects in Renewable Energy

The electricity generation on the smart grid allows for prosumers to produce electricity, consume a little bit of energy and then sell the remaining to other people. Blockchain is helping move this forward by allowing all transactions to be securely stored on a distributed ledger and executed with smart contracts.

While exchanging data and information on a traditional platform, there are often no standardized protocols which can be streamlined through the Blockchain technology. Apart from the Fintech area, Blockchain allows new approaches in renewable energy too and can contribute to the digitization and automation of the Electricity sector.

The growing use of renewable energy installations, such as solar panels, can create stress on electricity grids that were designed with large and centralised power plants. By allowing peer-to-peer energy trading and incentivising local consumption at the time of production, blockchain could stabilise the power grid, aiding this decentralisation.

Let’s have a look at the use cases which can have relevance and help energy sectors in many ways.

1) Asset management: Due to the immutability nature of blockchain, the entire life cycle of assets can be traced to the blockchain. Any incidents such as failures or repair work, can be recorded on the blockchain for better traceability thus resulting in eliminating the problem in asymmetric information between buyer and seller in many areas.

2) Energy Trading: As an often-considered application of blockchain in the energy sector is Energy trading. Blockchain technology allows trade between prosumers, suppliers and consumers without a central intermediary. Electricity trading can be seen as a prospect for the electric vehicle, since blockchain can potentially help to extend charging facilities for electric vehicles to every household on the grid.

3) Grid operation: With the introduction of the Internet of Things (IoT) along with the blockchain, the smart-grid operation is streamlined as the connection of different power plants via a blockchain can make the use of independent power plants more efficient. Blockchain can provide a robust link between energy producers and consumers directing their behaviour based on energy price signals and state of the grid.

4) Renewable Energy Certificate (REC) trading: Similar to energy trading, the trade of emission certificates can be organized in a distributed manner with the help of blockchain. An alternative REC can be purchased from parties with low emission (CO2) rate and used for the verifiable coverage of electricity consumption to the -main threshold level of carbon. The inherent features of blockchain i.e. distributed ledger can give quick a scan of availability allowing parties to exchange certificates.

5) Tokenization of assets: Infrastructure assets can be represented, managed, and traded on a blockchain using digital tokens. In general, tokenization is based on the ERC-20 or ERC-223 token standard via the Ethereum blockchain. The smart grid operators can create new tokens via a smart contract and link these tokens to a system for transactions.

Conclusion

The turnaround of renewable energy changes the requirements for power grids and energy sector market. However, the liberalization of the power grids, which was supposed to break the monopoly, has halted due to a challenging scenario. As mentioned, various use cases of blockchain bring with a variety of solutions and can result in deep changes if established on a large scale. These use cases include peer-to-peer electricity trading, since the intermediaries (the energy utilities) would no longer be needed, as entire neighbourhoods could reliably supply electricity or trade it with each other. Additionally, another use case in asset management has the potential to change the business landscape and established processes significantly.

Hence, it is essentials for government, investors and electricity utility to study the possibilities of blockchains today. What does it mean if solar farms or electricity storage units are managed on a blockchain? What productivity gains are possible? After the in-house consumption, can electricity be traded directly via blockchain? In the near future, investment opportunities with a new, blockchain-based model in electricity are going to be the next big thing if implemented properly.

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