Distributed Energy Resources

Study explores blockchain challenges, opportunities

A new report from the Congressional Research Service explores the opportunities and challenges associated with the expanded use of Bitcoin and its underlying blockchain technology in the energy sector.

While the two technologies are related, they are also distinct and in the report, “Bitcoin, Blockchain and the Energy Sector,” represent two separate lines of inquiry.

In its exploration of Bitcoin technology, the report highlights the many challenges the process of creating new Bitcoin, called mining, poses to the electric power sector. In treating blockchain technology, the report looks at the potential uses of the technology in the power sector and the challenges, mostly regulatory, it poses.

As interest in Bitcoin and other cryptocurrencies has increased, it has created local surges in demand that have created problems for some utilities.

Bitcoin mining involve the solving of complex problems that require high powered and specialized computers that consume large amount of energy to operate and to keep cool. To keep costs down in the competitive Bitcoin market, miners often seek out locations where electric rates are low and/or the ambient temperatures are cool.

Global power requirement estimates for Bitcoin have been rising and, in a survey of Bitcoin power needs, the CRS report noted that the highest estimate put global demand at 7,670 MW, which is nearly 1% of U.S. generating capacity.

Those estimates are offset by arguments that competition will force miners to gravitate to ever more efficient, and lower cost, energy sources while others argue that power consumption issues will be temporary because Bitcoin creation will shift from mining operations to earning revenues from transaction fees.

The CRS report, citing a 2017 study, said that nearly three-quarters of all major Bitcoin mining pools are based in either China (58%) or the United States (16%). In the U.S., New York and Washington State are favored locations because of access to low cost hydroelectric power.

In the winter of 2018, cryptocurrency mining operations in Plattsburgh, N.Y., which receives low cost power from the New York Power Authority, accounted for about 10% of local electric demand and resulted in residential power bills about $300 higher than usual.

In March 2018, Plattsburgh instituted an 18-month moratorium on new cryptocurrency mining operations, a first in the United States, and the New York Public Service Commission ruled that municipal power authorities could issue a tariff on some high-density-load customers.

Similar moratoria have been established in Washington State, where public utility districts still face challenges from rogue miners that quickly relocate to avoid facing local regulations or penalty payments.

In addition to state and local policies aimed at mitigating the effects of cryptocurrency mining, there are options that could be adopted by the federal government to improve the energy efficiency of mining operations, such as the imposition of minimum efficiency standards on computing hardware or data centers, the CRS report says.

In the section on blockchain technology, the CRS report identifies several opportunities for blockchain technology, including smart contracts, distributed energy resource record keeping, and ownership records.

Blockchain, which is the backbone of many cryptocurrencies, is well suited to those applications because of its ability to quickly validate transactions and its ability to keep records on large quantities of data.

The report identifies the trading of Renewable Energy Credits (RECs) as “one of the more easily transferrable options for blockchain.” Using blockchain to trade RECs could provide customers the ability to purchase RECs without the need for a centralized entity to verify transactions, the report says. The authors note that in October 2018, a subsidiary of the PJM Interconnection announced plans to test blockchain technology to trade RECs.

The report also notes that some energy sector applications of blockchain could be “highly disruptive,” such as using blockchain to record and trade net metered power from rooftop solar installations or using blockchain to facilitate peer-to-peer energy transactions from virtual power plants. Blockchain technology also could disrupt the traditional vertically integrated utility structure by unbundling energy services along a distributed energy system, the authors say.

And while blockchain technology applications have been limited to date, wide-scale adoption of blockchain technologies could pose vulnerabilities to grid operations, the report says.

Wider use of blockchain in the energy sector could also pose regulatory challenges, particularly if applications such as peer-to-peer energy sales straddle the line between retail and wholesale energy sales, creating potential conflicts between local and state (retail) jurisdiction and wholesale (federal) jurisdiction.

The report’s authors note that the Federal Energy Regulatory Commission has not issued guidance or announced standards associated with blockchain technologies. “Within this context, utilities and industry groups may interpret the lack of guidance as a signal to continue business as usual,” they say.

Public power and blockchain

California public power utility Silicon Valley Power and Power Ledger recently successfully completed the first stage of a program to test the use of blockchain technology for tracking and monetizing carbon dioxide reduction credits for electric vehicle charging and now plan to proceed to the second phase of the project.

In 2018, the Burlington Electric Department in Vermont won a grant from the Association’s Demonstration of Energy & Efficiency Developments (DEED) program to use blockchain technology to facilitate the integration and distribution of energy from multiple sources in real time.

In New York, the New York Power Authority, along with other utilities, is studying the potential for blockchain technology in connection with smart contracts that can automatically complete transactions when contract conditions are met.