Blockchain also facilitates distributed energy generation by allowing consumers to buy and sell their own energy. Historically, national energy systems relied on large, centralised power plants to produce electricity and send it over transmission networks to households or industrial and commercial customers. But new clean-energy technologies such as wind and solar, energy storage and smart grids, along with digital tools such as the internet of things, artificial intelligence and machine learning, are allowing a greater number of smaller producers to generate and transmit electricity.
The growing complexity of power management requires new solutions, of which blockchain is one. One way it does this is through “smart contracts”, which allow real-time pricing and make the grid more flexible. They automatically execute the terms specified in a contract on a blockchain as long as certain conditions have been met, increasing efficiency and reducing transaction costs.
Blockchain also enables consumers to sell excess power to the grid at wholesale rather than retail prices, and to sell to buyers in their local communities.
“Blockchain shines a light on energy demand and supply, and helps to match it up better,” says Mark van Rijmenam, a blockchain strategist. “It enables peer-to-peer trading by taking away the need for intermediaries and cutting costs.” This same characteristic also means that it could be used to link carbon-trading schemes from different countries.
Increased digitalisation and interconnection have led to greater concerns over security risks such as hacking and cybercrime.
Blockchain, due to its distributed nature, can make networks much more secure, if implemented correctly. In co-ordination with burgeoning technologies such as AI, blockchain can help secure networks and grids, the International Renewable Energy Agency (Irena) points out, because it is managed by a distributed group of peers, rather than by a central server or authority.
“This technology is enabling a new world of decentralised communication and co-ordination, by building the infrastructure to allow peers to safely and quickly connect with each other without a centralised intermediary,” Irena says in a report on blockchain and renewable energy. Cryptography ensures security and data integrity, while privacy remains intact, it adds.
The potential of the technology has led to a surge in the number of companies looking to become involved in the sector, with Irena reporting that between the start of 2017 and September 2018, more than 50 start-ups were launched that are working specifically on blockchain applications in energy, raising more than $320 million.
“Today, there are more than 70 demonstration projects deployed or planned around the world, such as LO3’s Brooklyn Microgrid project, where customers can choose to power their homes from a range of renewable energy sources, and people with their own solar panels can sell surplus electricity to their neighbours,” the agency says.
“The Energy Web Foundation (EWF) is building an open-source, blockchain-based digital infrastructure for the energy sector with a growing portfolio of cutting-edge pilots. Innogy, a subsidiary of German power giant RWE, is using EWF’s Energy Web Blockchain to authenticate users and manage billing at electric car-charging stations.”
However, the technology remains in its very early stages and there is a long way to go before we will know whether its potential will be realised. “If harnessed in the right way, blockchain has significant potential to enable a move to cleaner and more resource-preserving decentralised solutions, unlock natural capital and empower communities,” PwC says.
“However, if history has taught us anything, it is that such transformative changes will not happen automatically. They will require deliberate collaboration between diverse stakeholders ranging from technology industries through to environmental policymakers, underpinned by new platforms.”
Barriers that still need to be overcome include a lack of user trust and adoption, security risks, legal and regulatory challenges, challenges in scaling up the technology in a way that makes it able to operate on multiple systems, and blockchain energy consumption.
There is already a lot of progress being made in this area, with blockchains such as Ethereum using a “proof of stake” protocol that uses about 12-14 times less energy than bitcoin transactions.
Others are developing “proof of importance” protocols, which are simpler and more accessible, while next-generation computers will help by offering higher computing power for less energy usage. “There are many ways to construct and operate blockchain networks, and the mining process is not always necessary for private key networks,” PwC says. “Consensus can be achieved in a much more energy-lean way. ‘Proof of authority’ networks, for example, only allow authorised authorities to validate networks. When authorities don’t have to compete for access, as in crypto-mining, there is less energy consumption throughout the network as a whole.”
Even so, established stakeholders will be slow to accept what is a revolutionary technology, says Marke. “Bureaucracies around the world have been working with centralised systems for the past century. It will take some time for them to change to a decentralised model.
“Another issue is that blockchain is an invisible infrastructure, so psychologically the value is not very tangible to the general public until there are some promising use cases out there that demonstrate the potential.”
Nonetheless, in a world where the energy system will be subject to the triple forces of decarbonisation, decentralisation and digitalisation, blockchain is a technology that is likely to come into its own before too long.
Mike Scott is a former Financial Times journalist who is now a freelance writer specializing in business and sustainability. He has written for The Guardian, the Daily Telegraph, The Times, Forbes, Fortune and Bloomberg.
Main photo credit: Nexleaf Analytics