Trading Energy: Will Blockchain disrupt the energy industry?

By Ledgerback, in collaboration with Joshua Sagisi

How the Brooklyn Microgrid is attempting to localize the energy industry by combining blockchain and microgrid technology

The energy industry is an industry that can reap many benefits from blockchain technology.

In the energy industry, blockchain has many applications such as carbon emissions accounting, peer-to-peer (P2P) energy trading (synonymous with local energy trading), incentivizing renewable energy production (e.g., Solarcoin), and improving “smart” meters [3][4][5] .

For this piece, we shall discuss P2P energy trading, the two major technologies that can make it possible, blockchain and microgrids, and the Brooklyn Microgrid, a P2P energy trading microgrid project in Brooklyn, New York.

P2P Energy Trading

P2P energy trading is just as the name entails, the trading of energy from one person or entity (producer) to another person or entity (consumer), without the use of an intermediary.

Renewable Energy Production/Consumption

In the majority of the United States, energy consumers have very few options for energy generation other than the public utility chosen by the state to provide energy to residents.

However, with the rise of photovoltaic (PV) solar panels (hereinafter “solar panels”) in the last 50 years, and solar energy costs rapidly becoming cheaper in the past 10 years, everyday consumers finally have the opportunity to become energy producers themselves by affixing solar panels to their homes (hereinafter “homeowners”) (residential solar roofs may also be referred to as a distributed energy resource) [10].

In so doing, these homeowners have had the chance to capitalize on net-metering policies (which unfortunately have been hit hard by the public utilities).

Net-metering policies allow homeowners to earn net-metering credits whenever they produce more energy than they consume in a month, which can then be counted against the next monthly bill [2]. Generally, the excess energy is sent back to the public utility, and the public utility credits the homeowner [2][6].

net-metering credits = energy produced minus energy consumed.

In addition to net-metering credits, homeowners may also acquire Renewable Energy Credits (RECs), the legal proof a person has the right to the non-power attributes to renewable electricity generation, and are obtained when one megawatt per hour (MWh) of power is generated from a renewable energy source and delivered to the electricity grid [1].

Depending on the agreement between the homeowner and the public utility, the homeowner may also have to sell their RECs to the public utility [7].

Public Utility Monopolies

But, why is it that energy-producing homeowners can only provide their renewable energy to the public utility, instead of other homeowners who do not have solar panels but still want to consume renewable energy?

Why can’t homeowners sell their renewable energy directly to other consumers?

The major reason why homeowners cannot sell to each other is that states have provided a legal monopoly over furnishing energy to consumers to the public utility [8][9].

The general reasoning behind states providing legal protection for public utilities is that the energy industry is one that leads to natural monopolies, such that large infrastructure and capital costs make it nearly impossible for any company to enter the market, and even then, to sufficiently provide energy to consumers [8][9].

This may have been true 100 years ago, but is not necessarily true today given the advancements in renewable energy and battery technology [8][9].

Demand for P2P Energy Trading

There are many consumers who would like to have the ability to produce and consume (“prosum[e/ption]”) renewable energy, but unfortunately cannot afford it [11].

Rather than requiring consumers to set up a solar roof, or purchasing a mixed energy plan from their public utlity that includes renewable energy (though, you must be wary of the utility taking the RECs), consumers should have the option to purchase renewable energy from their solar-powered neighbors [11] [12].

The current system unfortunately requires the public utility to play the role of middleman, i.e., third party intermediary, between prosumers and consumers who want renewable energy [8][9][11][12].

There is little to no reason why (except for legal monopolies) P2P energy trading could not work in the United States if it can be implemented in other countries such as Australia, where the City of Fremantle is trialing Power Ledger’s P2P energy trading network [13].

To make a P2P energy trading network work, a blockchain is necessary, but can become even more powerful when combined with a microgrid.

Blockchain and Microgrids

Blockchain

First up is our favorite topic, blockchain.

Blockchain is an immutable and irreversible digital public ledger which allows a distributed network of computers to verify the authenticity of transactions without the need for a central authority [14].

When applied in the energy context, blockchain can provide a secure, transparent and decentralized ledger of all energy-production and -consumption data and transactions thereof. In addition, blockchain can automate P2P energy trading through smart-contracts.

Smart-contracts (do not confuse with legal contracts) are self-executing programs, stored on a blockchain, that facilitate the exchange of value (can be anything) between parties based on agreed-upon terms [15].

Smart-contracts can automate energy trading by providing an automated marketplace where consumers can bid amongst each other to purchase renewable energy [15][16].

Microgrid

Second up, the microgrid.

The traditional grid connects “homes, businesses and other buildings to central power sources … [b]ut this interconnectedness means that when part of the grid needs to be repaired, everyone is affected” [18].

A microgrid is “a group of interconnected loads and distributed energy resources within clearly defined electrical boundaries [acting] as a single controllable entity with respect to the grid. A microgrid can connect and disconnect from the grid [enabling it] to operate [with the grid] or island-mode [on its own]” [17].

A microgrid is a “local energy grid with control capability, which means it can disconnect from the traditional grid and operate autonomously” [17][18].

The distinction between a mcirogrid and the traditional grid is that a microgrid is an autonomous entity that is connected to the traditional grid, but may disconnect and “operate autonomously” [17][18]. You can also think of a microgrid like a cat, and the traditional grid as a human. Cats can depend on humans for food and shelter, but cats do not need to depend on humans for survival.

A community may choose to use a microgrid for various reasons including:

• backup “in case of emergencies”;
• cutting costs;
• connecting “to a local resource that is too small or unreliable for traditional grid use”;
• becoming “energy independent”; and
• they are “more environmentally friendly” [17][18].

The Brooklyn Microgrid

Brooklyn Microgrid Logomark.^^^

The Brooklyn Microgrid (BMG) is a benefit corporation under New York Law, owned by LO3 Energy, and started in 2015 with the goal of creating self-sustaining microgrids [18].

Exergy Infographic.^^^

BMG plans to implement a virtual, local energy trading marketplace, powered by Exergy, a blockchain platform specifically developed for energy transactions [18].

BMG’s approach to P2P energy trading can provide certain benefits to the Brooklyn community.

First, BMG consumers will have greater choice over their energy providers, and prosumers will gain access to a bigger consumer base [16][19].

Second, BMG will make Brooklyn more sustainable by incentivizing local homeowners and businesses to install rooftop solar, thereby reducing the amount of greenhouse gas emissions in the area [16][19].

Third, BMG will make Brookly more energy resilient as the microgrid can operate autonomously from the traditional grid, especially in the event of a weather incident such as Hurricane Sandy [17][18][20].

Fourth, the use of Exergy’s blockchain will streamline transactions and provide transparency to grow the local energy marketplace [16][19].

BGM promotes decentralization because no longer are members relying on a centralized figure, the public utility, for buying and selling energy, instead, members can directly transact with fellow members in buying and selling renewable energy.

Additionally, BMG promotes transparency because prosumers and consumers know where there is energy is coming from, and that they have actually consumed renewable energy, which may not be the case for consumers who sign Power Purchase Agreements (PPAs) or Solar Services Agreements (SSAs) with solar providers such as SolarCity [21].

Brooklyn Microgrid’s Current Status

BMG is currently working on developing community microgrids in the “Gowanus and Park Slope neighborhoods of Brooklyn.”

The BMG is “launching a ‘simulated’ energy marketplace in early 2019, prior to launching the[ir] live marketplace” [16][19].

Anyone in the area can participate in the simulated marketplace by downloading the BMG mobile app and registering as a consumer or prosumer (energy-producing user) [16][19].

If you are prosumer, you are required to install TransActive Grid Element Generation (TAG-e G2) and smart meter at your home or business [16][19].

TAG-e G2 is a device connecting the smart meter installed at the home or business to the local energy marketplace via WiFi or ethernet connection, i.e., data is being sent across the internet [16][19].

For more information, please visit BMG’s official website.

Conclusion

Blockchain is ripe for adoption in the energy industry, especially in regards to P2P energy trading.

P2P energy trading is just as the name entails, the trading of energy from one person or entity (producer) to another person or entity (consumer), without the use of an intermediary.

To make P2P energy trading a viable alternative to the current system, there is a need for new regulatory measures to eliminate legal monopolies and a blockchain implementation that may be combined with a microgrid [8][9][11][12][17][18][19][20].

However, we recommend combining a blockchain implementation with a microgrid to fully realize the blockchain’s power in this area.

Thankfully for us, companies like the Brooklyn Microgrid are taking on the task of making P2P energy trading a possibility, not only for Brooklyn, but everywhere else in the world to show that blockchain and microgrids can make communities cleaner and more energy resilient.

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Notes

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^^^ = Use of logos, logomarks, or any other marks is solely for normative use and is in no way shape or form an endorsement by such companies of the views expressed herein, or of Greyscail Blockchain Review. The companies mentioned in this article and Greyscail Blockchain Review have no relationship, nor should one be implied from the contents of this article.

References

[1] Renewable Energy Certificates (RECs), Environmental Protection Agency (EPA), https://www.epa.gov/greenpower/renewable-energy-certificates-recs, last accessed Mar. 20, 2019.

Renewable Energy Certificates (RECs) | US EPA

[2] What is an SREC? Net metering credits explained, EnergySage, https://news.energysage.com/net-metering-and-srecs-explained/, Apr. 11, 2017.

2019 Net Metering Credits and SRECs Explained | EnergySage

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How Peer-to-Peer Energy Trading on the Blockchain Might Work

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Smart meters: a guide

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SolarCoin

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Net Metering Guide

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Bottom Line on Renewable Energy Certificates

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End monopoly protections to fix PG&E and other utilities

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<a href="https://medium.com/media/07f6dae6c1714466783417aa6a36a5e0/href">https://medium.com/media/07f6dae6c1714466783417aa6a36a5e0/href</a>

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Powering the future... thanks to your neighbor's renewable energy

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You Don't Need An Energy Company When You Can Buy Power From Your Friends

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A new way to go local: Buy solar energy from your neighbors

[13] Mark Emem, Australia: Power Ledger’s Blockchain Energy Platform Goes Live in Fremantle, Cryptocurrency News Network (CNN), https://www.ccn.com/australia-power-ledgers-blockchain-energy-platform-goes-live-in-fremantle, Aug. 12, 2018.

Australia: Power Ledger's Blockchain Energy Platform Goes Live in Fremantle

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What is a Smart Contract?

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BMG 101 | Brooklyn Microgrid | Community Powered Energy

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Microgrid Definitions | Building Microgrid

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How Microgrids Work

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Brooklyn Microgrid | Community Powered Energy

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Brooklyn Microgrid Seeks to Disrupt NYC's Power Monopoly

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The Solar Loophole Utilities Can Use to Game Energy Credits