Let’s unravel how blockchain technology has the potential to disrupt the $1.3 trillion global energy market!
The modern lifestyle we live today would not be possible without energy and, as a matter of fact, the demand for more energy is escalating at a rapid pace. The burden of this rising demand lies on the shoulders of centralized and monolithic power producers. The current value chain of the energy industry has not undergone many changes since about a century or more. On the other hand, the way the world works has entirely transformed since then.
Clearly, there is a need to think from the first principles.
Putting on the blockchain hat
The fundamental features of blockchain are described below. These features will guide us to think from the first principles.
- Efficient P2P transaction platform: Blockchain technology enables peer-to-peer communication using decentralized storage to record all transactional data. The communication can be autonomously governed by smart contracts. Any conflicts occurring in the network would be solved by swarming i.e. by using a consensus algorithm.
- Self-auditable records: Inherently, the blockchain does not require any explicit auditor. All data is recorded in a chronological fashion on the blockchain which makes the blockchain auto-accountable.
- Fast processes, great flexibility, low costs: Blockchain has the potential to eliminate counterparties which cuts down costs and speeds up processes significantly.
These above-mentioned features help in creating a conducive environment for blockchain to be used in the energy industry. As a result, a wide variety of use cases can be orchestrated to fit varying needs.
Assessment of the current system
The global energy market is presently full of monopolies and oligopolies with strict entry barriers. As a result, there is no visibility into the internal processes and no healthy competition in the market. These factors affect prices and trust directly. Blockchain technology can create opportunities for prosumers (consumers who are also producers). These prosumers would not only be able to consume and produce energy but also sell and buy energy in a P2P fashion with a high degree of autonomy.
Presently, the value chain of the energy industry is multi-tiered. It consists of energy producers, transmission infrastructure operators, distribution infrastructure operators, and suppliers who are linked with end-consumers. All of these parties communicate with each other thereby convoluting the system. Blockchain has the ability to radically simplify this value chain by eliminating the middlemen and directly linking consumers with producers.
This multi-tiered energy infrastructure is no longer reliable or efficient since the power grids are still working on old-school technology. In times of catastrophe, the first thing to go down is the power and since everything is dependent upon power, the entire infrastructure of the area collapses like a domino. In this day and age, most of the work is done manually on a grid; from rerouting power to computing amount of power generated. Futurists envisage resilient and efficient models like ‘smart grids’ which would have smart sensors and software installed on the grid. Other components required to complete the ecosystem are smart meters, smart devices like electric vehicles (EV), smartphone apps. Renewable sources of energy can be connected with this smart grid easily to generate clean fuel. This grid revolution would completely transform the way we consume energy.
Another problem that plagues the energy sector is that of cyber attacks. Since the energy sector plays a critical role in the functioning of a modern economy, it becomes an attractive target for cyber attacks. These attacks may result in blackouts, economic and financial disruptions, or may even lead to loss of life. Since blockchain tech touts itself to be unhackable due to decentralized storage of records, it is safe to assume that energy-related data would remain safe and sound.
The aim is to shift from a centralized value chain to a fully decentralized energy value chain where contracts are carried out autonomously and are bound directly between consumers and producers. This would give rise to a shared economy and a new business model that no longer require any controlling authorities.
Use Cases and The Future
A wide variety of applications can be crafted on top of the blockchain. Let’s explore these applications one by one.
1. Open market for buying and selling electricity
Today, anyone can produce energy by installing solar panels. Blockchain enables these producers to sell excessive energy produced to their neighbours, friends, or family. This would result into emergence of an open market where an individual with a solar panel can participate in a community-driven market. This is an opportunity for the prosumers to either sell their excessive energy to their neighbours or feed it in the smart grid or store it for later use. These decisions can be governed by smart contracts running on top of any blockchain platform.
2. Recording ownership and a current state of electricity
Till date, the most robust accounting system created is the blockchain system. In the energy sector, electrons are assets and management of these assets can be done on the blockchain.
3. Certification of renewable energy
Presently, renewable energy has to get a certificate before actually be used. This process of getting certified can sometimes take weeks. This time can be cut short to a few minutes if blockchain technology is put into practice.
4. Provenance of electricity
Today, it is hard to say where the electricity is coming from since electrons in the wire look alike regardless of their origin. Using blockchain technology, origin of electricity can be easily tracked. To do this in quickly, blockchain provides with fast swarming algorithms.
5. Metering and billing electricity consumption
Smart meters can be installed to manage electricity consumption end-to-end. The price of electricity fluctuates throughout the day. It is expensive at peak hours and cheap at, say midnight. One can schedule their smart washing machine to run during midnight to save on utility bill. With added functionality, one can even pay for the utility bill in cryptocurrency. Apart from this, an immutable and a comprehensive archive of electricity billing data can be generated over a period of time.
6. Electric mobility
Electric vehicles (EV) will become common only if EVs can access charging stations everywhere. EVs can be equipped with crypto wallets which will enable EVs to communicate with charging station (M2M communication) autonomously using smart contracts.
A look around the world…
Recently in Toronto a consortium was formed, including Insolar blockchain platform, Toronto and Region conservation authority, York University and Hero Engineering to test blockchain for smart energy systems. The objective of this partnership is to integrate the Insolar platform within a city-wide fleet of electric vehicles and charging stations that support vehicle (EV) to grid charging (V2G), which will be one the first blockchain-based V2G blockchain pilots in the world.
Electric Vehicle getting charged. Source: https://pexels.com/
Insolar blockchain platform will become the backbone technology enabling seamless interaction and smart contracts fulfillment within the transactive energy system running in Toronto. Insolar platform has been already tested showing capacity of 19,000 transactions per second. Recently Insolar, the company behind the platform, has been ranked by the Startup Energy Transition rating among the Top-100 high tech startups contributing to the energy sector. All of the above-mentioned use cases can leverage the open source nature, of the Insolar blockchain platform to unlock the future.
Ultimately, it is in the hands of the community to spearhead the adoption of blockchain in the energy sector.
The success of blockchain in transforming global energy market is contingent upon R&D in the blockchain space, R&D in other technologies like artificial intelligence, and technical and legislative regulations. Apart from these, the applications should be quick, easy to use with great user experience. In the blockchain space, user experience is directly dependent on swarming.
Such a culture where good behaviour is incentivised may indirectly affect socio-economic stimulus of that area. More job avenues would emerge in the field of management and operations. Blockchain has the capability to mitigate corruption which may be prevalent in the legacy multi-tiered value chain. Most importantly, blockchain is empowering people to transact on their own terms with a high degree of autonomy.