Blockchain: Applications in the Energy Sector

In the first part of our report on blockchain, we claimed that the blockchain is an innovative technology that allows users to perform direct, fast, and forgery-proof transactions. While there are already some wellknown commercial applications in the financial sector, the use of Blockchains in other sectors, such as energy has so far been limited to a few pilot projects.

The most famous current pilot project is the Brooklyn Microgrid. In April 2016 in Brooklyn (New York) energy was traded and billed in a decentral way supported by an independent subnetwork (Microgrid), all based on Blockchain platform. Schematically, this looked like this: while some houses with solar power plants produced surplus energy, the neighbors on the other side of the road were able to buy and consume this excess of generated power – all this fully automated! As a prosumer, the owners of the solar systems can either consume their own electricity themselves, sell them to their street neighbors, or they can obtain electricity from other producers if their own electricity supply is insufficient.

The application of the blockchain in energy sector can be split into three major areas:

Blockchain Applications Energy Sector

Automation of transactions

Together with smart contracts, allows blockchain to execute a multitude of contracts and transactions in a fully automated manner. In the aforementioned example of the Brooklyn Microgrid, the numerous (micro) contracts were concluded without any human intervention. This allowed to stabilize supply and demand efficiently within microgrid, which in it’s turn reduced energy imports and exports from other networks. Moreover, since the prosumers in the Brooklyn Microgrid can efficiently organize themselves, intermediaries like energy exchange platforms are no longer necessary, which also has a cost-cutting effects.

Decentralized documentation of transactions

Intelligent measuring and data transmission systems are required for the future Smart Meter Rollout. Also in this case, the blockchain technology has a lot to offer: metering data can be automatically recorded, transferred, documented and invoiced. A big advantage is that the energy consumptions can be recorded in real time and transferred on to an online portal. Through the online portal, users can see at any time how much energy they can buy from whom or to sell for how much. This leads to a high transparency of the energy consumption and -transactions. If it was previously unprofitable to calculate and record micro transactions, micropayments might become profitable with the blockchain technology.

Documentation of property relations

The blockchain promises decentralized and forgery-proof record of transactions. The origin of each transaction can be easily tracked. In the energy industry, this property can be applied to certificates the authenticity of electricity or gas from renewable energy sources or to create CO2 certificates. In particular, a revival of the stagnating emission trading would be imaginable, for example with the introduction of a CO2 monitoring. Using Blockchain, every ton of CO2 generated by a company can be recorded and saved on a digital platform. Whenever CO2 is emitted, companies pay, for instance, a carbon coin. In contrast these companies are given a carbon coin when they have bound or consumed CO2. When all carbon coins are exhausted, the world is in equilibrium with carbon zero emissions.

Obstacles and risks

Despite the advantages which blockchain technology might potentially bring to energy sector, there are also major obstacles to implement the numerous possible applications into the real life. Many experts argue that, the blockchain technology is still rather immature and not yet sufficiently scalable (that is, the demand on computer power and storage space increases fast with the network growth.) There are also problems with acceptance of this technology. For example, the blockchain is compliant with the current regulatory requirements. It is questionable whether the security of supply is guaranteed at all times in a consumer-controlled system. Also it is unclear who is liable in case of failures or whether data protection is really ensured. In the future we will see if the blockchain in the energy industry can survive competition against established technologies.

If you are interested in blockchain or have questions to the content of this report, please contact our Energy Consulting team.

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