More Than Just Bitcoin and Finance. Application of the Blockchain in the Energy Sector.
Blockchain in Energy Sector
There is a single word that has been stirring extreme emotions in world of technology and finance since last year. Of course, we are talking about blockchain. For some, it is a promise of a revolution comparable to the Internet, for others just a meaningless buzzword. One thing is for sure – the applications of this technology are numerous, and the most popular one, bitcoin, is merely the tip of the iceberg. However, to fully understand the potential of blockchain it is necessary to understand its underlying mechanisms. Unfortunately, explaining the inner workings of blockchain is not an easy task. If you have yet to find an explanation that makes the basic mechanics of distributed ledgers a bit easier to digest, take a look at this article: Blockchain – what is it and how does it change the modern economy?
With the fundamentals of blockchain explained, we can focus on its applications. The greatest potential of this technology lies it its versatility. Since recently, blockchain was almost synonymous with the technical aspect of cryptocurrencies. The reasons were quite obvious – there were hardly any applications in areas other than finance. Fortunately, there is a growing number of innovative ideas in other sectors as well – including the energy sector. Let’s take a closer look at the possible implementations of blockchain in energy sector and the current state of development of this technology in commercial energy solutions.
Decentralization and Prosumer Systems
Currently, many companies are developing blockchain in energy sector. And not just tech startups – commodity market giants such as Exxon Mobil are also launching their first projects using this technology. All of these systems have one primary goal – to create a direct link between energy suppliers and consumers, to ensure the highest level of transaction security, and to reduce the mismatch between supply and demand.
In most countries, the energy system – the entirety of equipment and mechanisms working together during the acquisition, processing, transmission and use of energy – is centralized. However, there is a growing trend where some individual customers are also energy producers – for example by generating energy with photovoltaic panels. Such individual prosumers (consumers who are producers at the same time) face a number of problems in situations on a local level where they wish to send the excess energy produced by their home installations to other people, such as their neighbours. These issues arise precisely from grid centralization and absence of adequate regulations.
Blockchain in energy sector enables us to solve this problem, since it is, by its nature, an ideal solution for distributed systems. Blockchain technology makes it possible to conclude energy sales transactions directly, within a few seconds and without a central intermediary, which would be required otherwise. This direct sale without any middlemen lowers the cost of energy to the benefit of the customers. Moreover, all transactions between the respective parties are entered into directly through a peer-to-peer network, without the need for intermediaries such as the regulator. Therefore, blockchain technology paves the way for a decentralized energy supply system that is cheaper and much more efficient than the conventional alternative. It is very likely that blockchain will directly connect suppliers with energy consumers and simplify the current system, where each party in the energy sector operates at a different level.
Smart Contracts and Matching Demand with Supply
The application of blockchain in energy sector is not only linked with decentralization. This technology can help us verify transactions, sign digital contracts, manage digital content, or even make payments with cryptocurrencies. However, the innovation that is believed to have the most powerful impact on the energy sector are Smart Contracts. They enable us to create platforms where algorithms notify the system as to which transactions should be initiated at a given moment. These systems are based on the previously defined rules intended to provide automatic control of all energy flows. This preserves balance between supply and demand. Smart Contracts can guarantee that the appropriate amount of energy will be automatically delivered to the customer or stored within a defined period of time. Why is it so important? The main problem in the energy sector – especially in renewable energy – is energy storage and matching demand with supply. Overproduction of energy often involves losses and inability to properly establish connection between the units that generate energy and those that demand it. Blockchain – and Smart Contracts in particular – largely eliminate the problem of production mismatches, enabling generation and transmission of energy where it is needed and when it is needed.
Case Studies – blockchain in energy sector
Having explained the potential applications of blockchain in energy sector, we should examine the actual projects being implemented. Although most of the initiatives shown are still in early stages of development, the trend is clearly visible – more and more companies invest in blockchain and seek practical opportunities for capitalizing its potential.
The decentralized energy sales model developed by the German energy company E.ON, which involves sales via a peer-to-peer network created by Ponton, is an interesting example of using blockchain technology in the energy sector. This German energy corporation is one of the first in Europe to invest in distributed systems. In May, it started the Enerchain initiative whose aim is to lay the foundations for decentralized energy trading in Europe. Matthew Timms, E.ON’s CDO says: “Enerchain is a good example of open, multi-sectoral cooperation. We believe in the huge potential that blockchain gives to the new system in the energy industry and to our customers.
E.ON is not the only European company that has started to implement decentralized energy trading. The Dutch company Vattenfall is taking similar steps. Last year, it launched a project that is expected to develop the tools needed for smaller energy producers to share energy with other market players.
The German company Innogy is working on the application of blockchain in billing electric vehicle charging. The project, carried out in collaboration with a startup company called Slock.it, assumes that every vehicle will have built-in software enabling remote billing of charging sessions with the use of cryptocurrencies.
In Europe, TenneT, a leading electricity transmission system operator, concerned about the limitations of conventional energy sources, decided to invest in new ways of producing and supplying energy to prepare for the future increase in demand. TenneT joined forces with Sonnen in Germany and Vandebron in the Netherlands to create a blockchain network using Hyperledger Fabric by the Linux Foundation to integrate flexible bandwidth provided by electric cars and household batteries to the power grid.
Vandebron is a well-known renewable energy supplier in the Netherlands with a lot of experience in electric transport. In partnership with TenneT, the customers of Vandebron will provide TenneT with access to their electric car batteries to balance the grid, without detriment to the availability of car batteries. Blockchain enables all cars to take part in this by recording their availability and acting in response to the signal from TenneT.
Europe is not the only place where investing in blockchain is gaining popularity. In Japan, the TEPCO corporation invested 3 million euro in a German startup called Conjoule, which is developing an energy trading platform based on the blockchain. Conjoule intends to launch a commercial version of its system next year, initially limited to Germany and the Netherlands.
On the other hand, in the United States, a blockchain-based system for settling energy sales and purchases is developed for example by Tesla. Another American company, LO3 Energy, has started working on a system where energy settlements will be kept in cryptocurrencies. Furthermore, the same company is implementing a pilot system in one of New York’s districts to demonstrate the potential of distributed energy sales among neighbors. For this purpose, photovoltaic systems were installed on the roofs of several buildings accepted into the program and connected into a common network operated with the use of blockchain.
The benefits of blockchain and distributed energy are also gaining popularity in Australia. An Australian company called Power Ledger is developing a platform using blockchain whose aim is to facilitate energy trading between customers and distributed producers. Given the favorable weather, renewable energy in Australia has the potential to become the main source of energy on the national scale. The number of energy producers operating domestic photovoltaic installations in Australia has reached over 1,5 million. The mechanisms deployed by Power Ledger are based on compensating energy producers in cryptocurrencies. The Australian company obtains funds for its operations by selling its own cryptocurrency under the so-called Initial Coin Offering (ICO), raising tens of millions of dollars. Power Ledger cooperates with local energy suppliers in Australia and New Zealand and its portfolio is expected to include the billing of electric vehicle charging.