Distributed Energy Resources

Report looks at potential of blockchain in energy sector

A new paper by the Energy Futures Initiative assesses the potential for blockchain technology in the energy sector.

The authors see the chief attractions of blockchain technology as its ability to reduce multi-party transaction times to nearly zero and to reduce the overhead costs of using intermediaries, such as clearing houses, which can lead to more profitable enterprises.

The Energy Futures Initiative, which is led by Ernest Moniz, former Secretary of Energy during the Obama administration, conducts policy analyses supported by a multidisciplinary network of experts, many of them former Department of Energy officials.

From the outset, the report is careful to distinguish that blockchain is not Bitcoin. Blockchain technology was developed in tandem with the cryptocurrency, but is not limited to those applications

While blockchain was originally designed to support financial and banking transactions, it has also found uses in the world of physical transactions, such as tracking commodity trades.

Trading firm Louis Dreyfus has tested blockchain for managing the sale of U.S. soybeans to China, and organizations as diverse as shipping company Maersk, technology firm IBM and the U.S. Department of Homeland Security use blockchain to track freight and reduce transaction costs.

Corporate interest in blockchain technology is growing, the report says, noting that corporate spending on blockchain is rising quickly. It is expected to reach $2.1 billion in 2018, up from $950 million in 2017, and by 2021 the global blockchain market is expected to grow to $8.1 billion, the authors say.

In the energy sector, many of the same digitalization trends behind blockchain are driving changes in the energy sector such as decentralization of energy production and greater customer choice.

Although data is difficult to come by, the authors estimate there has been between $100 million and $300 million invested in over 100 energy sector blockchain applications to date. And global investment in power sector digital infrastructure has grown by over 20% annually since 2014, reaching $47 billion in 2016, which was nearly 40% higher than investment in the entire gas-fired power generation sector, according to the International Energy Agency. The report cites a Greentech Media story that says there are over 70 blockchain demonstration projects under way globally in the power sector.

Interest in blockchain has reach the point where a consortium of energy companies, the Energy Web Foundation, has come together to develop energy industry standards for blockchain. The consortium includes Shell, Equinor (formerly Statoil), Tokyo Electric Power Co., and over a dozen energy blockchain startups such as Electron, Verv, and Swytch.

With so much nascent activity, the authors say it is important “to separate the signal from the noise,” and they identified five key uses for blockchain in the energy sector. They are distributed energy resources, electric vehicle markets, energy trading platforms, carbon dioxide registries and tracking, and energy transactions in emerging markets.

As the penetration of distributed energy resources, such as wind and solar power, continues to grow, blockchain can help create a framework for improving visibility and control of those resources.

The report, Promising Blockchain Applications for Energy: Separating the Signal from the Noise, cites the partnership between the public power utility in Burlington, Vermont, and Omega Grid to use blockchain for real time management of supply and demand through aggregation and blockchain enabled contracts.

The board of directors for the American Public Power Association’s Demonstration of Energy & Efficiency Developments (DEED) program approved $720,692 in grant funding awarded to 11 projects at the Spring 2018 DEED Board Meeting and one of those projects is the Burlington Electric Department blockchain effort.

The report notes the potential for even more advanced use of blockchain such as microgrids that use blockchain to enable peer-to-peer energy markets that allow all members of a network to enter directly into energy exchanges without oversight from a centralized authority.

The Brooklyn Microgrid project on Consolidated Edison’s system in New York City uses blockchain to manage and automate transactions over the microgrid wires between approximately 60 producers and 500 consumers based on output levels of the distributed energy resources.

In the electric vehicle market, blockchain technology could be used to track use and payments of electric vehicle charging stations, which could help improve utilization rates. The vast majority of existing chargers deployed globally remain idle for most of the day, the report says. Improving access and use of charging stations is essential for the spread of electric vehicles, the report said. In 2016, the number of electric vehicles outnumbered publicly available chargers by more than six to one, the report said, citing International Energy Agency data.

Blockchain technology is also “extremely well aligned with energy trading applications,” according to the EFI report. Blockchain transactions can be logged without the need for a centralized controller, reducing or eliminating the need for multiple interactions between firms, reducing labor costs, lowering capital costs through faster settlements, the report said.

Those capabilities also make blockchain a good technology for tracking carbon dioxide emissions, the report said, noting that IBM and Energy-Blockchain Labs are testing a carbon dioxide credit management platform in China using blockchain.

And, as emerging markets become more widely electrified, they will have the opportunity to adopt blockchain technology from the outset, reducing costs and making energy more affordable, the report said. In rural communities, for instance, the report noted that blockchain can monitor and clear transactions without the need for third-party auditors to control smart meters and verify data.

The report also noted that there are legal and regulatory uses for blockchain. For example, the fact that all blockchain users have equal access to data “could be very useful in jurisdictions where competition is ensured by preventing energy companies from sharing data with one another,” the report’s authors said.

The report is available here.