How Blockchains are Transforming the Energy Sector

Interest in energy-related blockchains is soaring as the technology opens up new possibilities for solar producers and consumers.

(Solarplaza) – Energy players are rushing to grapple with the potential of blockchains as experts warn the technology could upend traditional utility markets in the coming years. Dr Axel von Perfall, senior manager for energy, power and utilities, infrastructure, and public sector at the accountancy firm PwC, said: “For the energy sector, the potential change in the market could be huge.”

A PwC report called ‘Blockchain – an opportunity for energy producers and consumers?’ had been one of the firm’s most popular digital transformation studies of recent times, he said. One reason why energy companies are interested in the technology is that it gives producers and consumers a way of sidestepping current business models.

“Each provider can link directly to a customer without the need for an intermediary.”

In a traditional market, the space between providers and customers is packed with intermediaries, including energy companies, exchanges, traders, and banks. But that space “looks much more empty with the blockchain,” said von Perfall, because each provider can link directly to a customer without the need for an intermediary.

“Blockchain is all about peer-to-peer transactions and getting rid of intermediaries,” von Perfall said. “For those who want to stay in business, it will require a re-imagining of their operating model.”

“In a blockchain-based market a customer could switch to a different supplier every 15 minutes.”

One example of the kind of transformation markets could expect is in terms of customer loyalty. Many utilities have customers tied into annual contracts, but in a blockchain-based market a customer could switch to a different supplier every 15 minutes.

Nevertheless, von Perfall said these kinds of changes would not happen immediately. “It will be a gradual transition,” he told Solarplaza. “Next year we will see the first real projects, with real households, and in two to three years’ time we will see a rollout of these systems.”

A number of projects are already beginning to highlight the potential of the technology, however. In New York, USA, for example, a company called LO3 Energy is developing a microgrid with blockchain-based transaction capabilities. “We think blockchain represents a really good technology for how we manage the energy grid going forward,” said Scott Kessler, director of operations.
“As devices on the grid become more and more distributed, they are going to have to transact more on their own. And as security, transparency and efficiency become more important, blockchain represents a good way to manage those things.”

LO3 Energy is building an energy blockchain that would not be used as a medium of exchange, like bitcoin. “We are transacting a number of things,” said Kessler. “The most obvious one is some quantity of electrons between two users.”

The blockchain will also be used for device control, so a microgrid community member could lease or buy the use of their neighbour’s equipment, along with energy efficiency and demand response. “There’s a number of energy attributes that can be transacted along with energy supply,” noted Kessler. “The reason why we think blockchain is the better choice is because the entire way the grid runs now is in some kind of centralised structure.

“There’s obviously a lot of security issues there, both from a cyber-security standpoint as well as a resiliency standpoint.”

Although LO3 Energy’s blockchain does not carry financial information, its transactions could be linked to price data in a third-party payment service so that users could buy and sell energy between them. Siemens, which is collaborating with LO3 Energy in the New York pilot, sees this as a key benefit.

“If a customer has rooftop solar they might be interested to sell the extra power to their neighbour,” said Clark Wiedetz, microgrid director for Siemens Energy Management.

LO3 Energy has completed a proof of concept and expects to have 40 ‘prosumers’ on board for a wider pilot in 2017.

Elsewhere, however, blockchain technologies are already beginning to have a profound effect on energy markets. Perhaps the clearest example is in Africa, where a crowdfunding platform called The Sun Exchange is using bitcoin transactions to fund commercial, industrial and community-based solar projects.

“We crowdfunded a school project in Cape Town […] entirely through bitcoin.”

“We crowdfunded a school project in Cape Town, South Africa, earlier on in the year,” said founder and CEO Abraham Cambridge. “It was done entirely through bitcoin. We had 70 individuals from around the world send bitcoin to the project. The project got financed by that; we raised the equivalent of USD$30,000 from bitcoin payments.”

The plant, which has now been built, is being leased to the school and the revenue from the lease is being shared between the crowdfunders. “I’m not going to call them investors, because they are actually the owners of the system,” said Cambridge.

The Sun Exchange has a 50 MW pipeline of projects across Eastern and Southern Africa, and is poised to enter Asia and Latin America. Cambridge said bitcoin financing could be vital in helping commercial, industrial and community-based solar power take off in regions such as Africa, which lack government support for renewable energy.

“There’s no subsidy structures, feed-in tariffs or net metering,” he said. “Most utilities are state-owned so they are almost deliberately preventing distributed generation. Clients don’t want to use their working capital to purchase the hardware, so that leaves them in a difficult situation. We have a platform where individuals around the world can send money to a project… and it’s all being done through the blockchain.”

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Jason is the director of Jason Deign Associates, a Barcelona-based copywriting and editorial services agency. He is a regular contributor to a range of energy industry publications, including Greentech Media, New Energy Update, and Solarplaza, and the author of industry reports for brands such as A Word About Wind and CSP Today.

Originally published at Solarplaza – Finance.

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