By Sarthak Takyar
As the electricity industry moves towards a more decarbonised, more digitalised, and more decentralised structure, blockchain promises greater automation, better data management, higher security, and lower costs. Blockchain is touted to play an essential role in managing the complex grids of the future. Blockchain use cases for the energy industry are now advancing beyond the proof-of-concept stage, and real-world projects are under way in many countries. The electricity sector, perhaps only second to financial services, is among the most advanced in its adoption of blockchain technology. Blockchain offers numerous use cases and applications for the electricity sector. While initiatives are under way to develop solutions for a whole gamut of utility practices and processes, the key areas of focus currently revolve around energy trading; grid optimisation processes; e-mobility; and management of certification of origin. Other applications include the use of blockchain in energy financing, billing and metering; cybersecurity; market communication; and asset management.
In this article, Renewable Watch takes a look at the four key application groups of blockchain in the electricity industry and provides examples of initiatives and projects that are under way to demonstrate their uses and benefits…
Energy trading has so far attracted the most attention of blockchain solution providers. Applications are being developed to target wholesale, retail, and local peer-to-peer (P2P) electricity trade. In the wholesale electricity markets, blockchain offers the opportunity to eliminate the “middleman”, provide more transparency, reduce transaction costs, and allow participants to trade in smaller volumes. However, the use of blockchain in these markets is currently restricted because of its limitations in terms of scalability and speed of transactions.
A few pilots to reduce transaction costs have already been conducted for this market. Germany-based Ponton’s Enerchain allows energy trading companies to anonymously send, receive, and execute orders via a decentralised orderbook. All this is done P2P without a central marketplace operator. As of 2018, the Enerchain pilot comprised about 43 European firms. Blockchain is also being used in retail electricity markets. It offers to reduce the variable costs of retail payment processes; bring about greater transparency in billing; and provide greater choice of energy supply to customers. As in the case of wholesale energy markets, blockchain envisages eliminating the need for intermediaries and P2P trading in retail markets. US-based companies Grid+ and Drift are operating in this space. Grid+, which is operated by ConsenSys, has developed a blockchain platform that will give consumers direct access to wholesale electricity markets. Grid+ acts like an energy retail supplier through its Smart Energy Agent, a device that makes automated smart decisions for energy trading on behalf of consumers. Through blockchain, Drift directly links independent electricity generators with residential customers and small- and medium-sized enterprises. Thus, it acts like a competitive energy supplier in deregulated markets. Currently, Drift offers its service to consumers and businesses in New York City and plans to expand across the country over the course of 2019.
Several companies in other parts of the world have also launched solutions and pilots wherein consumers can directly purchase energy services from generators or energy suppliers, thus eliminating the need for intermediaries. For instance, in Singapore, Solar Bankers has developed a P2P energy-trading platform that allows small solar generators to sell their electricity in local energy markets. In Brazil, CoSol is also enabling P2P energy trading between consumers and small-scale energy producers. Another company in this space is Malaysia-based TerraGreen, which aims to bring renewable energy projects, with a focus on biomass projects, on to the blockchain platform. With this platform, the end user is directly linked to the power producer. Moreover, end users are allowed to have direct control over the choice of energy used.
“In Malaysia, the deregulation of the electricity market is already happening on a big scale as the price of electricity is going up. This is a huge problem for the government. To shift from a regulated to a deregulated market, appropriate technology should be there. Now, with blockchain, this deregulation of the power market is going to be easy,” says Brad Lee, CEO, TerraGreen. In Malaysia, a biomass gasification plant is located in the state of Terengganu and in Indonesia, a project is located in the province of Riau. The amount of power generated from these projects is to be converted to energy tokens, and if the market is already deregulated, the producer will be able to directly sell the power to the consumer. The most popular application of blockchain in the electricity sector is P2P energy trading in a local community or in a microgrid. Such P2P local energy marketplaces can lead to the more efficient use of distributed energy resources, reduce the stress on traditional electricity grids, and lower the costs for end consumers. In addition, local P2P energy trade offers small renewable energy producers additional revenue streams.
Several pilots and projects have been developed to demonstrate the application of blockchain for P2P energy trading in a local community or in a microgrid environment. The pioneer among these is the Brooklyn microgrid project, launched by LO3, ConsenSys, and Siemens in 2016. It is a small-scale energy system that allows households to trade their excess renewable energy capacity with their neighbours using smart contracts. LO3 is now developing such projects in other countries, including the UK, Germany, Australia, and Japan. Power Ledger, an Australian blockchain-based cryptocurrency and energy-trading platform, uses blockchain technology to enable households and buildings to trade excess solar power, P2P, to make power more distributed and sustainable. The Power Ledger system tracks the generation and consumption of energy by all trading participants and settles energy trades on predetermined terms in near-real time. In 2018, the company launched the first commercial deployment of its system in the US. It is now in the process of extending its mission to allow individuals and communities to share the profits of renewable energy assets by trading in a crypto token that it plans to launch soon.
Grid management and operations
Blockchain offers the potential to better manage and control the grid and reduce the complexity of network operations. It can be applied to balance supply with demand, improve the visibility of distributed resources and assets, and achieve better coordination between the operations of transmission and distribution systems. Several progressive grid companies are already implementing pilots based on blockchain to study the potential of this technology for achieving better grid management and operations. The Dutch– German transmission system operator (TSO) TenneT is the first power grid operator to trial blockchain for balancing the grid. In Germany, it has partnered with Sonnen to use a group of residential batteries to balance the intermittency of wind power and to provide additional flexibility during periods of network congestion. In the Netherlands, TenneT has teamed up with Vandebron to run a pilot project whereby electric vehicle battery capacity is made available to TenneT for grid balancing and ancillary services.
Elia, Belgium’s electricity TSO, is studying how to use blockchain technology to automate several processes related to improving flexibility. Elia has partnered with Actility and SettleMint. In the UK, Electron, a blockchain-based application developer, is working with an industry consortium to look at how grid-edge assets can be integrated to reduce costs and increase reliability. Ponton has developed Gridchain, which aims to achieve greater coordination between TSOs, aggregators, and distribution system operators to provide solutions for congestion management.
Several companies are working on developing blockchain-based solutions for renewable or carbon certificates. Renewable energy markets depend heavily on certificates of origin, which include the renewable energy certificates (RECs) used in the US, guarantees of origin (GOs) used in the European Union, and International REC (I-REC) used in emerging markets. These certificates of origin provide details about each MWh of renewable energy generated, including how, where, when, and by whom the energy was produced.
Current market structures for these certificates are fragmented and complex. Especially hard hit are the small energy producers due to the high costs associated with the procedure. In addition, audit processes are often performed manually by a central authority and thus are prone to errors. Blockchain-based solutions can automate green certificates, eliminate the need for a central verification or audit agency, reduce transaction costs, and increase transparency. In this space, Switzerland-based Energy Web Foundation (EWF) is developing EW Origin, an open-source and blockchain-based toolkit for certificate of origin trading and tracking systems. EW Origin aims to help distributed energy assets participate in REC markets. EW Origin claims that it can do this by standardising and automating processes such as physical asset registration, asset authentication through digital signatures, secure data logging, REC creation and validation, REC ownership registration, and REC retirement.
US-based Volt Markets is developing a platform that issues, tracks, and trades RECs. France’s Engie, a multinational utility company, is working with US-based Air Products and Chemicals to certify the use of renewable energy in production processes. Singapore’s SP Group has launched a blockchain-enabled platform to transact RECs. Another blockchain company working in this space is the US-based SolarCoin Foundation. It rewards solar energy producers with blockchain-based digital tokens at the rate of 1 SolarCoin per MWh of solar energy produced. SolarCoin is a free additional reward independent of other incentives that the owners of a solar installation are entitled to (such as government subsidies, feed-in tariffs, green certificates, tax incentives, carbon credits, etc.). Some blockchain companies are working on all the use cases mentioned above. One such company is Nigeria-based OneWattSolar. At the Berlin Energy Transition Dialogue 2019, Victor Alagbe, chief operating officer and blockchain strategist at OneWattSolar, said that the company was using blockchain in three ways: one, to raise funds (through a token sale) to buy and install solar systems; two, to help users track energy usage in a transparent manner; and three, to allow users to purchase energy credits for their homes.
Concerns and the way forward
Despite its much vaunted potential, blockchain technology is not without its critics. Blockchain critics believe that in countries where the production of electricity from all renewable sources is already tracked by the issue of certificates, the use of SolarCoins as a tracking instrument for that same production of renewable energy can lead to double counting. In addition, the critics argue that there is a serious risk that more than one blockchain initiative will track the same MWh of electricity from renewable sources.
Supporting the use of the existing regulatory framework, Dirk Van Evercooren, president, Association of Issuing Bodies, writes in a recent blog post that GOs are perfectly able to provide the basis for P2P models, as information such as the technology, the region of origin, and other information that might be relevant for consumers is already present on the GO. He further adds in his blog post that the biggest concern about SolarCoins is that they do not expire. This particular characteristic of SolarCoins makes the digital currency non-comparable with GOs. “Selling a MWh of electricity from solar and then seeing the proof not being cancelled, but be allowed to ‘live on’, is simply incompatible with organising a reliable and trustworthy market in green electricity,” Van Evercooren writes.
The future outlook for blockchain companies working in the energy tracking domain, especially in European countries, remains bleak. Directive 2009/28/EC, on which the current legislation in the European Union (EU) member states is based, still permits the use of alternative tracking instruments as long as they are proven to be reliable and do not lead to the double counting of the same produced quantity of electricity. Under the new renewables directive, that is, Directive (EU) 2018/2001 on the promotion of the use of energy from renewable sources (also known as RED II), which needs to be incorporated in the national legislation of member states by June 30, 2021 at the latest, the use of alternative tracking instruments will no longer be legal. Therefore, anyone claiming to supply or consume electricity from renewable sources will have to substantiate this claim only with GOs, and not with blockchain certificates.
The big question is what will be the future of the companies providing the blockchain platform for renewable energy tracking once the RED II guidelines come into force? Van Evercooren believes that the need to use GOs to claim the use of electricity from renewable sources will only apply in the area where the EU Directive will be in force, which means the EU-27, the European Economic Area (Norway, Iceland, etc.), and most likely Switzerland. In other countries, the business case of blockchain-based tracking systems might still be legally allowed. Van Evercooren adds that if blockchain companies implement a P2P trading model, it could still be viable on the condition that the companies incorporate GOs in their system.
The critics are rightly trying to make sense of the chaos that will be created in the renewable energy sector with the widespread use of blockchain. Hence, for blockchain technology to be widely used and accepted in the renewable energy sector, it is necessary to ensure that blockchain enthusiasts who promote “democratisation of power” also promote “democratisation of debates” and come up with solutions that are less disruptive and are in sync with the existing regulations.