Blockchain or distributed ledger technology has gained significant interest from firms across the energy sector. The sheer range of organizations investing in blockchain energy is staggering – from energy supply firms and technology developers to financial institutions, national governments and the academic community. The coming together of blockchain and energy is unmistakably one of the most spectacular technology innovations in recent times.
A typical application area for blockchain in the energy sector is trading and crediting. Interested parties leverage blockchain technology to facilitate energy transactions on a distributed or wholesale level, creating a virtual grid. Consumers can trade among their own devices and resources, with their neighbors, and with the grid. The entire process could be automated through smart contracts. In this write-up, we shall explore a number of use cases related to the applications of blockchain in energy.
First, let’s have a look at some of the key benefits derived from the use of blockchain in the energy sector.
Key Benefits of Blockchain in Energy
While the advantages of blockchain are plenty, what is most relevant for the energy sector is the reduced transaction cost. Some of the potential benefits of the application of blockchain in the energy sector include:
- A reduced cost of utility bills and/or lower transaction costs in the market for gas or electricity, lowering the need for working capital.
- New opportunities for communication among energy devices such as water heaters, electric vehicles, batteries, solar PV installations, and so on with the grid operator (smart grids).
- Cost reduction due to more information for utilities and grid operators for the integration of volatile renewable energy capacity into the grid.
- Access to affordable energy for the underserved communities through local and decentralized renewables grids.
Let’s discuss some of the disrupting use cases of blockchain energy.
Use Cases of Blockchain in Energy Sector
Peer-to-peer Energy Trading
The application of blockchain in peer-to-peer energy trading is perhaps one of the most disruptive and exciting use cases around blockchain energy. It brings together a number of facets such as finance, community resilience building, and renewable energy expansion.
Operating within a close-knit geographic group or community, renewable energy asset owners (for example, individuals or groups with solar panels) can trade their surplus electricity with neighbors. In this section, we will discuss some of these successful blockchain-based peer-to-peer energy trading platforms.
- The Brooklyn Microgrid:
The Brooklyn Microgrid is a blockchain-based energy project by LO3 Energy, which connects people to trade electricity directly with their neighbors, bypassing large energy utility companies.
So how does this micro-grid work? Speaking at a broad level, residents with solar panels sell their environmental credit to residents without solar panels through a mobile app. Buyers and sellers can negotiate the price of electricity directly, thereby eliminating intermediaries. The entire setup is facilitated by the blockchain, Transactivegrid, which allows the smart meters to communicate with one another reliably.
- ME SOLShare:
ME SOLShare, a blockchain startup in Bangladesh, is connecting homes with solar panels together through a community micro-grid. The firm provides a bi-directional DC electricity meter called SOLBox, which provides an individual with access to community trading. All SOLBoxes in the network interact with each other using their built-in wireless internet connection.
A blockchain-based smart contract links the amount of electricity generated from a smart meter connected to solar panels with a digital wallet of members in the grid and banks that issue the loans. Banks complete accounting at the end of the day. It has not only played a role in improving the livelihood of the participants but also helps in prolonging the productive hours of users, whether for work or education.
The proliferation of blockchain has accelerated the peer-to-peer energy trading with the potential to become a mainstream concept in the decentralized renewable energy sector, offering immense benefits to underserved individuals and communities around the world.
Application of Blockchain for Wholesale Trading Through Regional Mini-grids
Enerchain 1.0 from PONTON, which went live in May 2019, offers their services to energy traders who need trading data via platforms, and data communication processes. Project Enerchain is the first-ever blockchain-based wholesale energy trade in the world.
The block time for transactions on Enerchain is 1 second, which is fast as compared to traditional platforms such as Bitcoin and Ethereum whose block times are 10 minutes and 10 to 20 seconds, respectively. For starters, the block time of a blockchain network is as the average time taken by the hash power of the network to generate a new block of transaction. In other words, it is the time taken to mine a block.
The Enerchain infrastructure can not only be used for energy wholesale but also to create new decentralized markets for other commodities like coal and oil, or even other industrial products. At the time of POC (Proof of Concept), more than 40 leading European utilities supported Enerchain.
Blockchain Application for Streamlining Access to Renewable Energy
Energy Web Foundation (EWF), a non-profit set up by the Rocky Mountain Institute and Grid Singularity, has launched an Ethereum-based platform for energy, named Tobalaba. Their first app, Origin, aims to simplify and enhance the certificate of origin markets for renewables.
At present, Origin is sort of a marketplace where all smart meters on solar PV within the grid can communicate. Also, it provides a common dashboard for tracking energy consumption. It does so by recording the provenance of renewable electricity generated, with details of source type, time, and location, along with the carbon footprint.
In other words, Origin is a digital renewable energy platform that:
- Enables direct and transparent renewable energy procurement
- Facilitates participation from different types of energy assets
- Fosters the development of new renewable energy projects.
Blockchain Technology in Financing Energy Access
In many regions of Africa, communities are not connected to the respective national grids. Most of these groups depend on solar panel projects that often remain unfunded. Blockchain-based crowd-financing initiatives could close this funding gap.
Individuals around the world can remotely purchase the photovoltaic cells used within the solar panels on African homes. The solar panels are constructed only when a sufficient number of solar cells are pre-purchased. Following the implementation of the solar grid, households can pay rent in crypto-currency to the actual owners of the solar cells.
The Sun Exchange is a blockchain-based solar energy finance platform in Africa that operates on a similar model. It enables anyone in the world to purchase solar panels in Africa and then earn revenue from them.
In this model, investors usually buy solar cells and lease them to schools, hospitals, factories, businesses and end-users in other developing nations. The Sun Exchange marketplace arranges the monthly lease rent
Renewable energy cryptocurrencies aim to motivate solar prosumers (a person who consumes and produces a product) by rewarding them. It is similar to how bitcoin encourages miners to commit processing power to the network by incentivizing them with bitcoins for each block of transactions mined. The following are some of the cryptocurrencies developed to encourage renewable energy:
SolarCoin, an MIT startup, pays individuals with an alternative digital currency for generating solar energy. At present, it pays one coin for one megawatt-hour of solar electricity. Currently, active in 32 countries, SolarCoin aims to incentivize 97,500 TWhs of global solar energy production in the course of the next 40 years.
Danish startup, M-PAYG, is on a mission to significantly improve access to renewable energy for poor people in developing countries by digitizing access to energy. The M-PAYG infrastructure involves a prepaid solar energy solution that provides individuals and households with access to solar energy through small-scale mobile money installments. Transactions in the M-PAYG network are made through cryptocurrencies and payment contracts are executed on the blockchain.
Coinfy provides a blockchain-based payment processing and trading platform, which facilitates transactions across national and geographic borders. Because blockchain payments incur minimal transaction charges, energy trading between off-the-grid solar companies and people lacking access to energy sources has become a possibility in developing countries.
KWHCoin is a blockchain-based community, ecosystem and cryptocurrency based on units of clean, renewable energy. In this trading system, physical units of kWh energy are aggregated from multiple sources of origin, including smart meters, sensor readings and green button data. This measurable output is tokenized on the blockchain to create KWH tokens.
In other words, export energy is converted to KWH tokens and transferred to users’ digital wallets on the peer-to-peer energy trading application—The Grid. The Grid makes it possible for anybody in the world to buy or sell renewable energy resources. In the long run, KWHCoin will help the underserved gain energy independence.
By lowering the cost of energy transactions, the platform will allow renewable energy to expand and bring newfound power to the remotest corners of the world.
Pre-payment for Energy Using Mobile
ImpactPPA is a promising blockchain-based technology platform that seeks to disrupt the global energy marketplace by allowing energy consumers to “Pre-Pay” for electricity from their mobile device. ImpactPPA leverages blockchain to offer a payment rail for developers, investors, governments, service providers, utility companies and others who belong to a trusted and transparent platform.
At present, the firm has deployed utility-scale or micro-grids in over 35 countries, generating, storing and delivering power. Power goes to a smart meter connected to the blockchain. Electricity consumers interact with their smart meter and purchase power from a mobile device.
In one of their recent projects, ImpactPPA is working with the Minister of Small and Medium Enterprises in India to rejuvenate the Indian textile industry called Harit Khadi. Harit Khadi, when fully deployed, will employ over 50,000,000 women in the cotton processing industry. ImpactPPA is set to provide renewable energy generation and blockchain technology for the project.
Although significant advances have been made with regards to the use of blockchain in the energy sector, several challenges stand in the way of blockchain energy becoming mainstream anytime soon. Energy regulations, which include specific guidelines on who can be a retailer and who cannot be, can pose serious challenges to decentralized cross-border platforms. Regulatory changes need to be initiated to ensure the participation of prosumers within a legal framework.
In the absence of regulation, investors might be reluctant to pump in the required funds to set up and operationalize a blockchain energy platform. Furthermore, cryptocurrencies are not yet accepted globally, which tends to stifle the rapid adoption of change.
Notwithstanding the challenges, the general trends are optimistic as the benefits surpass the bottlenecks by a great margin. The application of blockchain in energy will lead to greater visibility, increased operating efficiencies, and a more streamlined regulatory reporting. It will eventually make energy systems more active, decentralized, and complex with multiple participants and actors.
This will call for more localized distributed control and management techniques. Eventually, blockchain energy will create more resilient neighborhoods and provide a more fit for purpose trading infrastructure as well as reduce grid congestions.
In case, you are looking to understand blockchain implications in the energy sector in more detail, schedule a free consultation with our team of blockchain experts who can guide you through the blockchain implementation in a specific use case.
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