The past few years have seen a growing awareness and buzz around cryptocurrencies and blockchain and how these technological tools will alter the way business is done. It is easy for customers to see the attraction of a decentralised data system for the energy sector, but it remains to be seen whether blockchain can deliver on its promises and support the energy transition
The rise of renewables is changing the energy system and it is also bringing electricity to areas which previously had none. This shift to a growing number of smaller-scale generators embedded at the far reaches of the power system is driving a technological revolution in how electricity is brought to the market. One massive innovation is that of so-called blockchain-powered platforms that can link generators and consumers directly. These trading platforms have the potential to transform the electricity business, moving it away from the traditional model of vertically integrated utility firms serving a specific geographic area. Blockchain literally links, or chains together, blocks of data, such as information regarding a specific power generator and a specific consumer. All users have access to the blocks. “The biggest change is the elimination of third-party intermediaries,” says Michael Mainelli, London-based director of consultancy Z/Yen Group. He describes blockchain as, “Multi-organisational databases with a super clear auditing trail.” They are also referred to as smart or distributed ledgers, which are essentially shared data sets. Mainelli built his first distributed ledger back in 2005, but security concerns surrounding the inherent all-user access to the data hindered uptake. Since then the advent of cryptocurrencies, virtual or digital currencies, has been “proof of concept,” he says, with blockchain suddenly receiving a significant boost in popularity. The most often discussed cryptocurrency is Bitcoin, not to be confused with blockchain — not least when talking about energy. Bitcoin is a currency, while blockchain is an enabler of secure and multiple trades of a product across the internet. According to a note published by Morgan Stanley in January 2018, the creation of digital Bitcoin tokens — a process known as mining — could, this year, use more energy globally than the entire country of Argentina, and use more energy than that required by electric vehicles by 2025. Blockchain, by association, receives similar negative press on its energy use. “There’s a bit of a myth that needs to be dispelled around the energy use of blockchain,” says Katherine Foster from the Blockchain Labs for Open Collaboration (BLOC) in Copenhagen and a blockchain specialist at the World Bank. She sees great potential for blockchain and the energy transition. Exactly how much energy blockchain does use depends on various criteria, such as the size of the chain of data records and where the data is stored.
Energy trading
In a 2016 report, consultancy PwC laid out the potential myriad applications of blockchain for the energy market, including the decentralised trading of energy, proof of origin, emissions trading, renewable energy certification, and metering and billing. For the moment, however, experts are doubtful the technology is ready to manage energy trading, questioning its ability to keep up with the throughput. “We see millions of transactions per minute to run the energy system,” says Stu Innes, CEO of emhTrade in Auckland, New Zealand. “There are not many, if any, blockchain systems that can do that.” Stefan Fastesson, founder of Faston Commodity, a consultancy in Stockholm, agrees that the throughput of existing blockchain engines is not up to handling high volumes, but highlights that third generation engines are seeing higher levels of around 1000 transactions per second. Enerchain, the platform Fastesson is involved with, handles around 50-60 transitions a second in current load tests, but work is being carried out to increase speed as the underlying technology allows for a much higher rate. “The appeal is in the promise of what it can do in the future,” Fastesson says, adding that he thinks 2018 and 2019 will likely be a breakthrough period for the technology. Another key challenge for blockchain in the energy sector is the variety of platforms on offer and the lack of any link between them, says Foster. It is an issue which Fastesson agrees needs to be tackled for the technology to deliver on its potential. Peer-to-peer transacting is the way of the future, he argues, and so the aim is to gain experience and understanding of blockchain now, so that it can be scaled up in the future, via consolidation of the various protocols to a common platform. “Blockchain could be a good supplement to the large exchanges,” says Petter Marthinsen of Construo Consulting in Oslo, who is working with Fastesson on the Nordic Enerchain platform. It could bring in new parties that are too small to trade on exchanges by being quicker and lowering costs of trading, he says. These smaller parties tend to represent small-scale renewable energy generators, such as community-owned projects. In 2016, a record 138.5 gigawatt (GW) of renewable energy came online globally, amid improved cost competitiveness with other generation types. Of the total renewables investment of $241.6 billion that year, $39.8 billion was channelled to small-scale renewable energy systems.
The man is still in the middle, certifying that meter, diminishing the value of having a decentralised trusted ledger
Clean energy spending
James Eggleston, an analyst at Power Ledger in Perth, Australia, says renewables is the energy sector globally receiving most investment. “The most savvy investment you can make is renewable energy. The capex [capital expenditure for the infrastructure] is probably on a par with a carbon-heavy one, but you don’t have to buy fuel,” he says, meaning that the overall lifetime costs are much lower. He adds, “We’re seeing a widespread proliferation of distributed generation,” which challenges the status quo of a large centralised system. Advanced electricity meters are being held up as integral to the use of blockchain in the energy market for their ability to capture generation and consumption data and feed that information into the system. But that makes Innes question the overall value of blockchain. Intelligent meters generally need to be certified by a central body, “The man is still in the middle, certifying that meter, diminishing the value of having a decentralised trusted ledger,” he asserts. Nonetheless, he agrees there are advantages to being able to trade on a granular level, using the information provided by the meters and digital contracts. In Australia, which leads the world in the density of its rooftop solar, Power Ledger has created distributed ledger software that uses the data from intelligent meters to send invoices to consumers, helping distributed generators access the market. “In energy markets around the world, it takes around 90 days for value to flow from the people paying the bill to the generator,” explains Eggleston. “We ditch the intermediary and democratise [the market] … this kind of software really benefits the energy market.” The approach also allows smaller players to access the market in a way they were not able to before. “At the moment, people with solar photovoltaic don’t get the same payment as large generators,” says Eggleston. “We say a kilowatt hour is a kilowatt hour … we’re not changing physics, we’re just facilitating an evolution in the market.”
Working together
Innes at emhTrade believes the technology needs to evolve further if is to really help the changing energy industry: “At this stage, we can do everything we need to do using a centralised database. [Blockchain] is not solving the biggest challenges we’re facing.” He identifies these as getting peer-to-peer transactions into existing frameworks. Foster says this is a key requirement for the technology to facilitate the management of distributed generation. “We need [blockchain] systems that can interact with existing systems,” adds Foster. She is bullish about the technology’s future, suggesting the possibilities for blockchain could be endless. “We’re just at the beginning. The end may never come,” she says.
TEXT Katie Kouchakji