Electricity is, for the most part, a worldwide utility easily reachable by consumers. But when it comes to the energy industry as a whole, conditions sway into strict regulation, monopolies, or even total chaos. Producing electricity itself is only half the story - making use of existing grids, matching supply and demand, and reducing greenhouse emissions while producing it is a complex task.
The energy industry is key to bringing growth and stability to a community. As much as 2.8 billion people lack access to electricity or have only partial access, according to data from the International Energy Agency (IEA). The markets with limited or no access to electricity are concentrated in three main regions - South America, the Indian subcontinent, and Africa.
While the number of people without electricity is concerning, it seems to be decreasing rapidly. In the past two decades, hundreds of millions of people received easier access to electricity. This trend also coincides with the growth of electricity from renewable sources, which face specific challenges in joining the grid and establishing records and market prices. The IEA also predicts that renewable energy will grow in importance:
“Renewables will have the fastest growth in the electricity sector, providing almost 30% of power demand in 2023, up from 24% in 2017. During this period, renewables are forecast to meet more than 70% of global electricity generation growth, led by solar PV and followed by wind, hydropower, and bioenergy.”
Just like other developments in the energy market, changes are mostly locked within the borders of nation-states, especially where favorable rules and regulations facilitate a renewable energy market. Renewables are largely unpredictable energy sources. For this reason, the process of integrating renewables into the grid is rather data-intensive, posing both a challenge and an opportunity to discover innovative solutions for accounting, recording, predicting, and seamlessly joining in renewables for a more eco-friendly energy mix.
Anyway, we shouldn’t overlook regional exceptions with a well-established share of the energy mix in South America and pockets of successful renewable energy integration in Africa, one of the growing markets for alternative energy sources. But it doesn’t come without its own problems - there are regions within Africa where renewables are easily accessible but it is extremely difficult to raise the investment required to build the infrastructure and put the technology in place.
How can blockchain help?
As discussed above, producing electricity, matching supply and demand, as well as creating some predictability is key to bringing reliable electric power to a wider population.
Some form of data-based solution is inevitable in distributing electricity and creating a secondary market for grid inclusion. Luckily, there is already a keen interest in discovering those solutions. A recent report by Ernst & Young reveals some of the challenges and opportunities in consolidating distributed energy production through a blockchain-based approach.
In the most common instance, as the grid adds more small-scale renewable sources, the data for buying and selling will increase exponentially. On the smallest scale, the task of sifting through data would include cases where a single household buys or sells photovoltaic electricity from another household. Since photovoltaics are a growth sector, Ernst & Young predicts that the data administration of electricity costs may soon exceed the cost of electricity itself, making a solution rather urgent.
Those exchanges will need a reliable record and fast accounting, taking up millions of instances.
“As these tipping points approach, challenges will increase and revenues will be stretched. Empowered prosumers will require flexible monitoring and control systems that are relevant to their individual levels of engagement. Transaction complexities and risks will rise as the number of participants in the distributed energy systems increases,” states Ernst & Young.
The first use of blockchain to solve these issues lies in its capabilities for record-keeping, peer-to-peer connections, and the generation of tokens. Using blockchain, the record of energy exchange can be immediate, using the unique keys of the grid participants. A payment event can also happen immediately, and the record of the transaction can be locked into an immutable block. In regard to blockchain interaction and payment, events can happen at almost the same time, saving the need to match data.
Each transaction will be unforgeable due to the fact that the use of complex encryption that removes the need to trust a regulator or a human entity. Each transaction will be traceable and searchable, as blockchains are not entirely anonymous and can be de-anonymized for the sake of energy tracking. In theory, the connections within a blockchain-powered network will map the actual grid and the connections between producers and consumers - or “prosumers” as they have been called, since they are on both sides of the energy equation.
Projects harnessing blockchain for electricity markets
Since blockchains have mechanisms to avoid double-counting energy and can trigger automatic events in order to maintain the pace of the energy grid, projects have already started exploring solutions.
One of those projects, Power Ledger, has the explicit mission to create connections between consumers to buy and sell electricity. Their project facilitates a marketplace but also pushes toward additional investment in photovoltaics. Through the practice of asset tokenization, Power Ledger allows for the partial purchase of renewable source assets - thus, allowing anyone to participate directly in the purchase and installation of more green-energy households. This improves the energy mix and also brings electricity to previously unreachable areas.
WePower offers a similar approach by stressing the importance of directly accessing green energy markets. Depending on the country, green energy may be added to the general mix, commanding state-established prices. Platforms manage to offer more efficient pricing and a direct link to green energy. WePower offers on-chain immediate accounting, as well as an auction mechanism to create a more efficient price discovery. WePower also presents Power Purchase Agreements, which are simpler automatic contracts. This would allow small businesses or households to achieve better electricity pricing, without the need for complex contracts with power suppliers.
Gridplus is yet another blockchain grid coordinator for the US market, specializing in small-scale lots, potentially connecting domestic producers to place their surplus at competitive prices.
The practice of trading electricity is well-established in developed countries. In the United Kingdom, as much as 30 alternative energy companies are already selling electricity, and offer sales contracts employing conventional mixes of power generation, 100% renewables, or cocktails of both. Anyway, it’s not as easy as taking a solution from a well-established market and use it for emerging markets like Africa. While for many markets, there is already a trading infrastructure in place that works well enough, simply adding the blockchain to it can be seen as just a gimmick that doesn’t solve the underlying problem of efficiency. A purely utility token will do little to help build actual production in places where there is none.
However, blockchain can very well be used to issue a security token through which the company ensures there will be investment, returns, and efficiency, in fostering the development of new power generation. Blockchain security tokens will be very effective to provide the finance to harness mixtures of fuels and technologies (including renewables) tailored to societal needs for electricity in individual developing markets.
Minimizing greenhouse emissions
Each blockchain project has a specialized profile when it comes to energy. The typical sources of green energy are from wind turbines and photovoltaics as you can see in projects like SunExchange or SolarCoin. Hydropower plants have been matched up with blockchain in the Iberdrola project. And even waste productions are exploited by TerraGreen.
One project is different from all these solutions: Gigajoule. First, the company has a real-life business with generation based on utilizing “flared”, or wasted natural gas, on floating power plants. Secondly, it uses a security token to allow individual investors to participate directly into their business.
Renewable electricity generation is mostly variable and cannot be relied upon to provide power at all times. The power generation solution offered by Gigajoule is particularly well-suited as a back-up to, and to be integrated with, renewable power, being able to generate electricity at any time, on-demand, and to start up at short notice. The power plant design they are proposing is based on high-efficiency technology, using natural gas which would otherwise be wasted, and can maintain high efficiency (and therefore low greenhouse emissions) over wide ranges of the load. Gigajoule can thus very well follow load variations from renewables.
Unlike the blockchain projects that only aim to issue a token and rely on third-party energy producers, Gigajoule works practically to provide cheap energy and decrease greenhouse gases. The firm utilizes technologies from Rolls Royce and Siemens to utilize the most efficient and modern gas turbines and engines, on top of which smart hardware is carefully tracking production.
Gigajoule’s primary market is Nigeria. As mentioned earlier, Africa is a market with the potential for a varied, green energy mix. The company brings gas-based production to the mix. Nigeria was selected as the primary market due to its growing population, as well as an abundance of natural gas, which is, however, burnt wastefully and underutilized. At the same time, the country promises to be the largest economy in Africa, generating massive amounts of power to meet the demand for the coming decades. A project like Gigajoule would help Nigeria through its creeping unemployment crisis through educational and employment programs for those in need.
For that reason, Gigajoule has decided to use a blockchain-secured asset - a security token that will aim to raise the funds for sustained future development. Through the token sale, the company is inviting much-needed private investment to Africa.
A security token is much more than a digital asset for accounting. It’s a powerful tool to raise international capital, where internal funding is lacking. A security token is also attractive for offering a share of the project’s earnings. In the case of Gigajoule, the returns could reach 15% on an annualized basis. Thus, it has harnessed the blockchain in the most efficient way, building a crypto-protected security token in order to develop an entire electricity generating system, from funding to the actual hardware and execution, as well as long term operation and maintenance.
From an investor's standpoint, the Gigajoule security token (GIGJ) can translate in long term and consistent returns when the first power is produced and the first profits are realised. The business already completed five years of research and bankable study work to confirm the technical and economic viability of their projects. The research so far was made for the first three projects in Nigeria which concluded that, with the projected annual power generation of 3,8 billion kWh and within the tariff framework federally prescribed, the annual sales could reach $360 million per project. Counting out the annual variable and fixed costs based upon the latest commercial prices for natural gas, amortisation of the capital cost, and depreciation, leaves them with an annual pre-tax profit of $74 million. Out of which GIGJ token holders can expect to share in distributable income around $10 million over 20 years for each developed project.
Based on these calculations, for the long term goal, the expected returns for the investors should be multiplied by three plus the additional projects that will be implemented in other African countries, SE Asia, South America, and many of the first world countries where the lack of electricity producers is an issue. Gigajoule has the intention to add a new project each year, continuously growing the profit return for the investment up to $34.67 for each dollar invested after 30 years and 10 successful projects implemented.
As it does indeed sound promising, Gigajoule’s task of building offshore gas turbine platforms will take time – power generating equipment can take 18 months to manufacture and Gigajoule may, therefore, need approaching two years for their power plants to enter service and earn revenue.
Africa shows great potential in harnessing its renewable or surplus energy. However, due to the fragmentation of the market, large-scale investment is uneven. Government spending is also limited, leading to the need for startups and entrepreneurs to invest in some of the more promising economies.
Regions that offer a robust or growing share of renewables and green energy are extending an invitation to startups to improve the efficiency of their valuable resources.
(Disclaimer: The author is not associated with any of the projects mentioned.)