From cryptocurrency to banking, to retail, to industries, blockchain has been lauded as the next-generation technology to unleash a wave of innovation. Touted as one of the most critical twenty-first century technological advances, blockchain could unlock a significant step-change to longstanding systems and market designs. While bitcoin is the most recognizable application of blockchain, the principle and use of blockchain have become increasingly expansive, reaching beyond fintech and into the realm of sectors such as energy and power.
Blockchain, for example, could potentially catalyse better governance, engender trust in peer-to-peer transactions, and liberate stakeholders from the centralized, spoke-wheel model of operation across different systems.
At the most fundamental level, blockchain technology introduces a new paradigm where a common set of rules enable multiple parties to co-own and co-operate sets of data.
So, what does this mean for the transition to a grid powered by clean energy?
As a coordination mechanism and essentially a repertoire of knowledge that could be accessed by all stakeholders, blockchain promotes the transparency and sharing of information that could incentivize more resilient, economic and carbon-efficient decision-making. In the context of the power system, blockchain has the potential to incentivize renewables generation and greater energy efficiency. In bypassing the need for an authoritative third party through the establishment of a direct trust mechanism between two parties in a transaction, blockchain enables new ways for consumers and producers to engage with the grid and with each other.
While the notorious energy-intensive nature of cryptocurrencies like Bitcoin has cast serious concerns over its green credentials, the technology itself is increasingly seen as a malleable tool that could be weaponized to drive decarbonization technologies through the effective use of energy assets as well as channel investments towards clean energy specifically.
A disruptive epoch for the traditional utility model
Like other industries and market, the power sector is not immune to disruptions. The traditional utility model based around the centralized, unidirectional, and baseload-reliant paradigm, has already been increasingly challenged by the renewables revolution as accelerated cost reduction has created strong business cases for low-carbon and often intermittent generation.
The entry of new renewable technologies is coupled by the overall emergence of a new electricity network that is demanding greater attention to distributed energy resources, community energy systems, and the ability to accommodate new players and new consumer behaviours – including but not limited to the rise of “prosumers”, formalization of net metering, and behind-the-metre ventures for solar and storage, particularly as the cost of storage solutions drop precipitously.
Blockchain, coupled by the increasing ability of, and demand for, systems to introduce flexibility across different nodes of the system, provide a strong motivation to adopt a smarter grid that could greatly benefit from blockchain technology. Combined with the concept of “smart contracts”, blockchain would not only allow for greater participation but also accelerate the decentralization, decarbonization and democratization of power.
Furthermore, the increased presence and leverage of grid-edge players and technologies in energy systems (including but not limited to storage devices, smart thermostats and other smart household appliances) would likely benefit from the automatized nature of blockchain systems. Tapping into millions of these grid-edge devices would allow the new electricity networks to not only dispatch supply to meet demand but also dispatch demand to meet supply in an environment with reduced transactional friction.
Empowering consumption: From brown to green
One of the often-discussed aspects of blockchain use in renewable energy relates to the empowerment of consumer choice by tracking green electrons from generation to transaction. At a simple level, blockchain could already be utilized to rectify informational asymmetry for power consumers by the provision of information regarding the source of their energy and thus control over their consumption. As retail, commercial and industrial consumer values change – which is already evident across numerous markets – or is being progressively driven by regulation or voluntary initiatives, a blockchain-linked smart grid could provide the necessary transparency and authentication that empowers green consumer choices.
Increasing numbers of companies and models piloting and/or demonstrating this use of blockchain show that the capability of blockchain to drive green initiatives is no longer within the realm of speculation.
First generation of blockchain in the power sector?
For now, industry observers of the use of blockchain in power are often cautiously optimistic. The proof-of-concept for many use cases of blockchain remain untested, but the fundamental premise for the evolution of the power market structure and electricity networks is clear.
Fundamentally, blockchain technologies will allow entities to trade energy amongst themselves, thus putting control into the hands of consumers and strengthening their buying power as well as economic choices. With the right policy framework and grid regulation, this could precipitate greater investments in both centralized and decentralized green energy assets – whether it be channelling more investments into large-scale offshore wind projects, incentivizing more solar rooftops, or qualifying the need for vehicle-to-grid (V2G) integration.
In sum, blockchain provides the possibility for imaging a more multidimensional and modern power network.
Significant challenges for its deployment remain. For one, the introduction of blockchain use in the power sector requires a high degree of technological, financial and policy sophistication, as well as the necessary alignment between a large set of stakeholders, from powerful traditional utilities (many of which remain significantly vertically integrated and may even hold monopolistic privileges in certain markets), to governments and regulators, to consumers (across the retail, commercial and industrial sectors), to investors and project developers/operators (including independent power producers).
The development of smart grids would require a complex roadmap that is future-fit at all stages and provides sufficient flexibility to minimize the risk of policy or strategy lock-in. At all stages, the dated legal or regulatory frameworks governing the power grid must be amended to accommodate the requirements of decentralised transaction models. In the case where the full potential of grid-edge devices is maximized, the policy must also engender trust for all stakeholders, including private citizens and companies, to share their information and become fluent in the languages of the new grid operation model and smart contracts.