Blockchain could be a game changer in the energy sector, particularly in renewable energy. The technology has the potential to fulfil the policy and regulatory, technological and economic requirements of a decentralised, decarbonised and digitalised renewables-based energy system. For instance, the current practice of buying and selling renewable energy certificates (RECs) is very complicated with a major risk of errors. Blockchain could track renewable energy at source, providing an alternative to RECs. Global and Indian energy experts highlight the possible use cases of blockchain in the renewable energy space and the likely challenges…
Blockchain-based initiatives have emerged in a big way in recent years, with cryptocurrency bitcoin as the leading symbol. The core elements of blockchain are:
- Peer-to-peer distributed ledger transactions with high level of cybersecurity and comprehensive traceability
- Storage and transfer of value
- Avoidance of intermediaries enabling low transaction costs
These features are particularly relevant in the ongoing energy transition. The need for energy security and decarbonisation has led to the increased deployment of renewables and emergence of myriad storage applications. With the proliferation of distributed renewable energy systems, which have emerged as “prosumers”, the interaction between generation systems and distribution protocols is undergoing a dramatic shift.
Given the variable and distributed nature of renewables, this transition is viewed as complex and disruptive. The perceived challenges in renewable energy development pertain to reliability, system-level balance and energy market functioning. The challenges are more pronounced in the case of distributed installation such as rooftop PV.
Thus, the sector is ripe for breakthrough innovations, which will help drive this new-age distributed and autonomous energy value chain to its true potential. Blockchain characteristics, particularly cybersecurity, low-cost transactions, and automation, help integrate the distributed renewables with the conventional centralised grid in a flexible and scalable manner.
Blockchain can provide a robust link between energy generation and consumption sources directing their behaviour (including curtailment) based on energy price signals and the state of the grid. The storage and transfer value functions in particular can be quite useful in empowering smart contracts for supporting peer-to-peer trading as well as more sophisticated exchange based mechanisms (such as the REC market).
Over $250 million has been invested in energy sector-focused blockchain initiatives globally. A range of use cases are being piloted across utility operations, peer-to-peer set-ups and market mechanisms. Some of these are IBM’s blockchain platform for European transmission system operator TenneT to balance supply and demand on the high-voltage grid, Omega Grid’s pilot with a Burlington utility for real-time supply and demand management across distributed systems, and platforms such as Energy Bazaar and Sun Exchange as well as energy access oriented smaller firms like SOLShare for peer-to-peer trading.
The growing momentum in the space has also led to the creation of the Energy Web Foundation (EWF), an alliance anchored by the Rocky Mountain Institute for developing energy sector focused standards for blockchain. EWF is being supported by conventional energy giants such as TEPCO and Shell alongside several energy blockchain start-ups.
In the Indian context, blockchain can play a transformative role in scaling up distributed energy systems such as PV rooftop (or even solar heating systems), community mini-grids, storage solutions (particularly those complementing large-scale renewable energy integration into the grid) and electric vehicle (EV) charging infrastructure.
In particular, rooftop solar installations driven by net metering policies and using time-of-day pricing provide an opportunity for blockchain-based technologies. These technologies ensure requisite checks, streamlined monitoring, reporting and verification for clearing “smart contracts” in near real time. However, this is easier said than done. New regulations and policy frameworks and innovative business models are required to leverage this opportunity. Blockchain-empowered systems need to develop the ability to handle the speed and quantum of energy transactions. Further, the incumbent utilities need to step up and reform their proprietary interconnection protocols, facilitating a completely digitalised grid and paving the way for future energy markets.
There is an urgent need for an efficient data management platform in the Indian energy sector since its generation, transmission and distribution segments function in isolation. With isolation, a lot of inefficiency creeps into the system and a small amount of data is collected for data analytics. I like to call it the “unintelligent grid”.
With the advent of renewable energy, democratisation of power is taking place across the generation, transmission and distribution segments. Democratisation requires a platform for accurate data collection. In this scenario, the use of blockchain will help in establishing an open marketplace for the purchase and sale of renewable energy.
Under the infomatics arm of Magenta Power, we are building a technology layer for community-based microgrid projects near Mumbai. In these microgrid projects, blockchain-type solutions are needed. We have already developed a module that tracks how much energy has been generated and consumed and soon this module will help in the buying and selling of power. We have been conducting proof-of-concept tests and will be launching the platform in three months.
The existing open access regulations only allow power generated from more than 1 MW of solar projects to be connected to the grid. As soon as this regulation is dropped, blockchain will become an incredible open access concept in the industry.
Logically, in the future microgrid ecosystem, EV charging stations will become one of the largest consumers of electricity. They will be on the consumer side of the blockchain platform. As an operator of charging stations, I will be able to buy power at the best rate using this platform. This may be a little far-fetched, but if I have a solar system installed at home, I can sell the excess power to the grid and charge the electric car at a charging station elsewhere. This nexus can be backed by a blockchain platform. But for this to become successful, several things should come together – regulations, infomatics platform and energy storage. We are focusing on the latter two. We already have an infomatics business arm and will be working on energy storage with a partner. As far as regulations are concerned, it will take some time for India to move from a centralised power market to a decentralised one. The shift is inevitable, if not imminent.
On a global basis, it is estimated that almost a billion energy attribute certificates (EACs) are purchased and paid for annually to enable consumers to document their renewable choice. Volume wise, the key markets are growing at a 15-20 per cent rate annually, increasing the cash flow for renewable producers.
These EACs are information rich, transparent and secure. Through these, energy data is made available at the meter level. They prevent double issuing, double selling and double counting. Moreover, EACs are accepted as the standards for documenting renewable claims for CO2 accounting among leading independent stakeholders like CDP and Greenhouse Gas Protocol.
Despite these positive developments, some players may perceive the existing market to be more complicated and less transparent.
Blockchain enthusiasts need to rethink the goal of their technology. The technology should move in a direction that causes less disruption in the existing systems, and brings improvements in them. It is critical that blockchain advocates include policymakers and regulators in their thinking.
The EAC systems are not technology dependent, but rather technology agnostic. The industry should seek to utilise the best available technology to provide the best possible service. This means that blockchain should not necessarily seek to replace the current EAC systems but add value to the market by providing a better and improved underlying technology infrastructure.
If blockchain can justify its claims of providing a cheaper and more efficient infrastructure, which is more transparent and secure, then it should be embraced by the industry.
But if blockchain is positioned as an alternative policy tool to the current EAC systems, it will jeopardise years of hard work, creating confusion among customers, weakening their credibility among stakeholders, and increasing the risk of double counting. This must be avoided at all costs.
The concept of using blockchain in the energy industry came up in early 2015. The first known examples of peer-to-peer trade are the LO3 case in Brooklyn, New York, and part of this took place during the time of New Frontier (the Ethereum release). It encouraged a lot of people to consider applying for peer-to-peer trading in areas other than the financial sector. It was also during this time that I got involved with blockchain and started to experiment with it. Our initial demonstration was using New Frontier and we had covered all the different use cases. Following our demonstration, I started our blockchain lab in Rotterdam, the Netherlands, and from there things took off.
The benefits of using blockchain in the energy sector are the same as those for any other industry, provided that there is a solid blockchain use case and not a project that is done as part of “innovation window dressing”. The benefits can be:
- Creation of a single source of truth for all parties involved.
- Instead of having to settle later, you verify the data upfront.
- Reduction in administrative costs of up to 50 per cent.
- Achieving a huge redundancy; Bitcoin’s 99.9835 per cent uptime shows how robust a decentralised system can be.
The challenges of using a blockchain system in the energy sector are:
- Be ready to embrace your competition and share more data with them than you are accustomed to
- Working out the governance structure and the rules of interaction
Privacy, especially with regard to the General Data Protection Regulation, which will make you seriously consider what data can be put on a blockchain platform safely without being a liability years later.
There are a number of aspects to consider while developing a blockchain platform for the energy sector:
- Energy use: When your platform consumes more power than it handles, there is a fundamental problem. That is why for energy applications, a proof-of-work like in Bitcoin will not succeed.
- Privacy and data security: One has to carefully consider what data and types of data they wish to store on blockchain. One of the properties of blockchain is its immutability. Everybody can see what is stored on a public blockchain platform, leading to privacy issues. These concerns have increased with the introduction of the General Data Protection Regulation.
- Ecosystem: This includes deciding who will be part of the network, how will they interact and handle changes. With a system that is the property of nobody and everybody at the same time, governance can be tricky. This is not something businesses are accustomed to.
When you have the right stakeholders on board, and know how the governance should work within a particular use case and which data structure to use, you have a valid reason to apply blockchain. I would still advise to evaluate if blockchain is truly required, or whether a conventional, centralised system would be cheaper and safer.
Santosh Singh, Head, Energy and Climate Change, and Ankit Gupta, Manager, Intellecap
The inherent features of blockchain technology (encrypting, distributed ledger and transaction verification without a central authority) can solve some of the major challenges in the renewable energy sector. A quick scan of blockchain technology usage highlights that it has immense potential in transforming the traditional energy generation/distribution operations as well as creating completely innovative offerings for the sector.
Blockchain has the ability to transform the climate action. In the Paris Climate Change Agreement, the government and private sectors have committed to put a cap on their carbon emissions. A mechanism is being proposed to facilitate trading of emission reductions. One of the core provisions of the Paris agreement is “no double counting of emission reductions”. Blockchain and distributed ledger can reduce double counting, increase transparency and make the carbon trading process easier. Veridium Labs, in partnership with IBM, has already demonstrated the potential of blockchain in this aspect. There are several other solutions that can help in emission tracking, trading and facilitating carbon finance.
Blockchain is a relatively new technology, but it has already permeated in the clean/ renewable energy space. There are more than 100 young start-ups across the globe leveraging blockchain technology. They have raised more than $320 billion during 2017-18. While start-ups are driving innovation in business models and creating new use-cases, big energy companies such as Siemens, GE and Kansai Electric Power have also started investing in blockchain technology. Firms have used blockchain, smart contracts and smart metering to transform their billing operations, grid and network management, and develop smart-grid solutions, but it is the startups and new players that are driving innovation in this space.
Start-ups are leading the way. They are promoting peer-to-peer energy trading, pay-as-you-go offerings, smart home energy systems, machine learning and artificial intelligence learning based customised products based on the energy consumption profile. In distributed solar power, blockchain technology has proved to be a boon. For example, the Brooklyn Microgrid project developed a small-scale community where users could generate and store power via solar panels, and trade with other community members. Eloncity has developed an architecture that offers a storage, exchange and usage network directly on blockchain without any power companies. The company’s system uses smart energy storage batteries alongside solar panels to allow users to create, use and store their own energy. Another enterprise, Power Ledger, allows users that have installed solar panels to sell their excess power at prices determined by them. SolarCoin, one of the oldest blockchain energy projects, offers tokens to users that generate solar electricity to promote adoption and usage. The SolarCoin Foundation gives energy producers blockchain-based digital tokens at the rate of one SolarCoin per MWh of solar energy produced. SolarCoin is spendable and tradable just like cryptocurrency. However, the big stories in these start-ups are now dictating a new era of renewable energy generation and distribution and forcing the big businesses to rethink their operations and strategy.
We have a long way to go. There are some inherent technical challenges in this technology (scalability, immutability, security and inefficient technological design, etc.) but for adoption in the energy sector, the key challenge is the regulatory and policy framework. Blockchain is still seen as emerging and experimental, but its increasing implementation, even at a small scale, will gradually build confidence in this technology for mainstream adoption.
There are undoubtedly many ways blockchain can be applied. But EKOenergy focuses only on the consumer aspect, that is, how can consumers prove that they use renewable energy and how can we avoid double counting of renewable attributes. In liberalised markets, there are established tracking systems, endorsed by the state or even run by state entities. Such systems need to be used to prove the origin of electricity that comes from the grid. Examples of such systems are RECs in Northern America and guarantees of origin in Europe. In such markets, any development in blockchain-based tracking systems needs to take place within the framework of the official systems. If not, there is a risk of double counting.
We see two main opportunities in this space:
- The official tracking systems can integrate blockchain-based methods into their own database. This could be particularly interesting for smaller installations. Currently, several national issuers of RECs and guarantees of origin are studying the potential of blockchain in this space.
- Companies could also use blockchain technology to add extra information. For example, if consumers want their energy consumption to match at any given time with the production of renewable energy, blockchain could be used in combination with guarantees of origin.
Different stakeholders in the power chain can benefit from the use of blockchain. In order to be reliable and avoid double counting, such systems need to operate within the boundaries of existing, official tracking systems. Where such systems are not available, the stakeholders should fulfil the quality criteria of the IREC Standard.
Going forward, to ensure the further development of the renewable energy market and maintain consumers’ trust, it is absolutely necessary that double accounting is avoided and that systems are made fraud-resistant. This can be achieved with the greater use of blockchain in the renewable energy sector.