How Blockchain Tech Will Create a Distributed Future for the Energy Sector
April 2016 saw a flurry of media attention around the first ever blockchain-managed energy transaction in Brooklyn, NY. In this groundbreaking milestone, the owner of a roof solar panel sold a few kilowatt-hours of excess energy to a neighbor utilizing an Ethereum blockchain smart contract. Fueling this development via the Brooklyn microgrid was the startup company LO3 Energy.
Today power and utility companies all over the world are now exploring various ways to implement blockchain technology. Doing so could upend existing models of how energy and utility markets function. Applied on a broader scale, it could be the spark that transforms these legacy industries.
So what sort of problems is blockchain technology expected to address in this space? For starters, the technology is seen as a means of overcoming some of the entry barriers that restrict the delivery of electricity to more customers. Here the blockchain infrastructure could foster a more open and transparent mechanism for codifying transactions in the energy realm involving both generation and consumption.
Second, blockchain technology can provide companies in these industries with a more efficient way to record and process data, potentially leading to a more synchronized global distribution of energy. Customers would also be afforded a more streamlined and accurate experience in terms of managing their bills and access to the activity taking place on their accounts.
Third, the archaic and costly function of meter reading could effectively be eliminated while at the same time boosting the accuracy of bills.
Finally, blockchain integration can provide a more effective system for assessing energy sources and determining how that affects the pricing passed on to the consumer. Better technology tools provide more accurate energy utilization and service data, ultimately leading to better outcomes for the end customer.
The broader implications of this would include increased industry competition leading to lower prices, streamlined energy distribution, reduced energy waste and better relationships between utility companies and their customers.
For a deeper perspective on blockchain technology’s emerging impact on the power, utilities and energy markets, Bitcoin Magazine turned to Thierry Mortier, Global Leader of Technology and Innovation for Power and Utilities at Ernst & Young (EY).
Mortier says that the power sector is in the midst of shifting from a centralized model to a more distributed model. He believes that in the future new digital peer-to-peer platforms will emerge to eliminate the middleman and seamlessly connect energy producers directly with the end power user.
“Blockchain technology will help facilitate this process by allowing transactions to be recorded between two parties efficiently and in a verifiable and permanent way. It can also be programmed to trigger transactions automatically. The technology promises to radically speed up transactions and cut costs by establishing trust and the transfer of value without the involvement of traditional intermediaries.”
Mortier goes on to note that, aside from some early demonstrations, the applicability of an energy blockchain is still largely theoretical. He points to how blockchain enthusiasts are drawn in by the growing complex web of transactions, the need to balance the geographical mismatch between supply and demand, and significant security and trust concerns given the proliferation of Internet of Things (IoT) connected devices.
Says Mortier: “Over 200 blockchain use cases have been identified already. Most pilots are still in early stages across the energy value chain, primarily in the area of peer-to-peer energy trading. EY is working with companies in the power and utilities sector to develop use cases and prototypes.”
In addition to the aforementioned April 2016 development, where residents in Brooklyn, New York, successfully traded renewable energy using a smart contract on the public Ethereum blockchain platform, he says that in Australia, several pilots are under way, allowing residents in Perth and South Western Australia to buy, sell or swap excess solar energy with anyone connected to the Western Power network.
Furthermore, he says that Germany, with Berlin as the global hub of the technology, has a strong presence, as does the U.K., building on the early investment of the financial services sector in the technology. “Blockchain maturity seems to be driven by company ambition rather than any national advantage at this stage,” says Mortier.
He is especially excited about the emergence of pre-programmed “smart contracts” that can trigger transactions automatically.
“These smart contracts, for example, can be set to allow prosumers to feed surplus energy into the grid through a blockchain-enabled meter. The flow of electricity is automatically coded into the blockchain, and algorithms match buyers and sellers in real time based on preferences. Smart contracts then execute when electricity is delivered, triggering payment from buyer to seller. Removing financial transactions and the execution of contractual commitments from central control brings a whole new level of decentralization and transparency that the industry has never had before.”
Mortier also touts the rapidly growing prominence of energy trading, an area he says appears to be moving toward a commercial solution more quickly than many of the others.
In conclusion, Mortier says that there has been significant interest in tracking and tracing resource types (green gas, for example) and in the peer-to-peer, prosumer-led trading. But, outside of Bitcoin applications, he laments that there is a lack of proven use cases, with difficulties involving security, scalability and frequency of transactions as factors that need to be overcome.
“In three to five years’ time, it is quite possible that blockchain [technology] will radically change the way parts of the power industry operate. To get there, blockchain [technology] must overcome competition from existing solutions and prove its attractiveness to users. Only if its applications have tangible, monetary or timely advantages will blockchain [technology] be able convince enough participants to ditch their legacy systems for this new platform.”