What is the value of blockchain to the energy sector?

Blockchain is finding application in transactive energy and other energy sector use cases.
Published: Thu 02 Mar 2017

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Conceptually the future power system is quite straightforward, with the growth of distributed generation at homes and businesses, the emergence of new players such as prosumers and new ways for them to interact with the system, aided and abetted by a new generation of service providers.

What is less clear, however, is how the complexity of power flows will be registered and how the payments due to the respective parties will be recorded and made.

Could blockchain, a decentralised ledger and payment system, originally developed for bitcoin, provide the backbone for this distributed ‘transactive energy’ world?

A growing number of people, even the more cynical who have seen buzzwords such as ‘smart grids’, ‘disruptive technologies’ and ‘paradigm shifts’ come and go, believe it can.

Indeed, Engerati’s analysis points to three key impact areas for blockchain, of which ‘transactive energy’ is one and the others ‘network resilience’ and ‘maximising internet of things (IoT) investments’. These are discussed in Engerati’s recent webinar 'What the blockchain? The impact of transactive energy, network resilience & IOT'.

Transactive energy opportunity

According to webinar speaker Stuart Ravens, Principal Research Analyst at Navigant Research, transactive energy is “the nuts and bolts” that will make the future energy system – or what Navigant styles the ‘Energy Cloud’ – work.

“We expect the transactive energy provider to become the main point of contact for the consumer,” he says, adding that while there is a snowballing of activity, with growing numbers of utility pilots, what the transactive energy market will ultimately look like is very much open.

He reminds that utilities need to look at the ‘duck curve’ – i.e. the loss of revenue that will occur when solar PV generates during the day, much larger than the nighttime demand – to get a feel for the impact of distributed generation on their business.

And it is this that should force them to shift from supplier to service provider, with the transactive energy opportunity also offering plenty of scope for differentiation.

“If suppliers do nothing, they could be shut out of the market for the vast majority of consumers, which is a huge risk,” he comments.

Blockchain the enabler

So where does blockchain fit in this model? It’s the “enabling technology,” says Engerati Chief Analyst Carol Stimmel in the webinar.

“It’s actually very simple,” she says, highlighting three essential characteristics for its suitability in moving away from centralised banking through the use of digital currencies. These are the elimination of the need for a centralised ‘trusted’ third party to validate transactions, the near-real-time and secure method for transferring value, and that nodes are not owned, managed or controlled by a single authority.

The key value of blockchain to the energy sector is that it offers ‘a ledger of things’ in a world of services and IoT-enabled services delivered on a digital delivery network, with multiple benefits.

For example, in the transactive energy use case, these include total transparency in energy markets, optimisation of the prosumer market, enablement of new forms of energy contracts and improved measurement and verification.

But blockchain is not the be all and end all for the sector, Stimmel notes. “The future of the utility is much more than just deploying blockchain. Big data and analytics also form the platform on which future services will be delivered.”

The blockchain microgrid

What does a blockchain model look like in practice? Scott Kessler, Director Business Development at LO3 Energy, outlines in the webinar his company’s experience pioneering a peer-to-peer energy marketplace through the Brooklyn Microgrid in New York.

“By building a local energy market, we are able to ensure that all the benefits accrue within the community, which is what the local residents want,” says Kessler, making the case for a location-based value for electricity alongside its time-based value.

“For example, if you are producing electricity in [Brooklyn’s] Gowanas neighbourhood, where there is a lot of development and congestion is increasing, it might have a higher value than electricity generated far out in the Coney Island area.”

LO3 Energy’s technology, named Transactive Grid, is a hardware and software solution and comprises a smart meter connected to a blockchain on which the tokens record energy.

“Information that can go on to the blockchain includes the amount of energy being generated, time, location, source, whether the home has switchable devices, etc. And as more and more people join the market it builds up community microgrids, both virtual and real.”

A blockchain platform for energy trading

Another startup in the sector participating in the webinar is the Austrian company Grid Singularity, which is focused on developing blockchain software and platforms for the energy sector in partnership with Rocky Mountain Institute.

Grid Singularity is working on a public open platform for the energy sector, or what effectively will be the next generation Ethereum platform for the sector.

“For us, energy isn’t just electricity but includes gas, heating and water,” says co-founder Erwin Smole.

“Our approach is bottom up starting at the level of the household and with the Turing Complete Energy Market Agent, which will be open source, we can connect distributed resources and appliances within the household for trading internally, i.e. optimising their energy use. At the next level, the data is shared within the community and above that behind the transformer for trading across the distribution network.”

Smole notes that at this stage the focus is on the physical requirements, resilience and the economic interest of the individual, i.e. a customer first approach, rather than on local regulatory requirements.

“The Agent is focused primarily on the distribution network but is equally applicable to the transmission network, which also suffers congestion.”

Value of blockchain to energy sector - questions

The webinar clearly highlights the huge potential for blockchain in the energy sector. But as the moderated Q&A concluding the webinar indicates, a large number of questions still need to be resolved for the technology to fly. These include issues such as transaction costs, the currency that transactions will be based on, who will fund such platforms, and what are some of the key requirements to ensure security, etc.

With the pace of development, answers to many of these questions should emerge within the coming year as the demonstration projects scale up, alongside growing customer demands for energy services.

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