For many years, the energy sector has been plagued by the status quo that blockchain is looking to disrupt. From an aging workforce and infrastructure to industry-wide efficiency and supply struggles, the energy sector has been slow to adapt. Still, we cannot say the energy sector has not been innovative at all over the last decade. With advances in solar power, battery storage and smart meters, the energy sector has had its hands quite full. Nevertheless, blockchain is becoming something that the energy industry can no longer ignore if it is to power the world of the future.
Most of the attention in the energy sector over the last ten years has been focused on alternative energy production—discovering and refining alternative sources of energy. However, optimizing current energy distribution systems has been largely ignored. Blockchain will tackle such problems and bring about numerous benefits such as:
Blockchain will enable an interlinked network of devices that automatically adjust power usage and consumption based on real-time energy market data.
Imagine being able to loan out the electricity you do not use on a peer-to-peer network while seeing your electricity bills fall quite significantly. Blockchain would allow those with a surplus of energy to send it back into the grid system and sell it automatically to corresponding buyers. The transaction would be settled via smart contracts in seconds.
Verifying energy transfer, origination and immutable emission records would also be possible with blockchain. This could be done through the placement of sensors on pipelines, enabling them to gather data. This data would then be communicated through an IoT (Internet of Things) network, which would better capture system inefficiencies and predict pitfalls.
Currently, a centralized power grid is utilized by energy companies for distributing the energy produced at power plants. Although this system serves billions of people around the world, many are still excluded. Blockchain-powered “microgrids” can enable localized energy distribution derived from alternative energy sources such as solar, wind etc. Even the standard centralized grid system can become a “smart grid,” which could automatically price electricity based on usage data. This would enable users to make educated decisions on what time of the day to use electricity to get the lowest prices.
The immutability of blockchain would allow for a comprehensive record of all maintenance activities done on any pipeline, meter etc. As property changes hands, each new owner would have a clear picture of what they are purchasing and what, if anything, needs to be repaired.
There are many challenges on the road to a blockchain-powered energy sector. Blockchain itself is still in its infancy, and there are still technical and regulatory issues that need to be addressed before mass adoption and implementation can occur. The main challenges currently faced by full-scale adoption of blockchain solutions by the energy sector are:
In order to replace any archaic system of yesterday, blockchain-powered solutions will need to be able to process thousands, if not millions, of transactions per second. Without such capabilities, smart grids and peer-to-peer energy trading are simply impossible. While every day major blockchains, such as Ethereum, inch closer to the solution, we are still not there just yet.
Blockchain is supposed to be able to save companies and customers from the costly and inefficient systems of today. Ironically, blockchain itself may be quite expensive to run. You may have heard debates regarding Bitcoin’s high energy consumption. The current global power consumption for the servers that run Bitcoin’s software is a minimum of 22 terawatt-hours (TWh) per year. This is equivalent to the entire country of Poland or Ireland. While green mining solutions are being implemented, they will need to be far more scalable to fully combat this issue.
While the internet of things is developing at a rapid pace, it will need to be in full swing if all our powered devices are able to communicate seamlessly with the power grid. Just like video streaming and online gaming was not possible until the introduction of broadband internet, our hardware will need to be upgraded if it is to handle future blockchain solutions.
Regulatory agencies and legislation are known to lag behind new technologies, and this is especially true with blockchain. A clear legal framework needs to be established around key privacy, security, intellectual property, and other critical issues before full-scale adoption can happen. For example, while smart meters may lower your energy bill, what else happens with that data? Who owns it? How will third parties use it? We already saw how something seemingly insignificant as social media data was used maliciously to change the course of an entire country. This is why regulators must work hand in hand with innovators to find a balance between protecting the public and not stifling innovation.
No matter how innovative a smart grid or smart meter will be, if the user experience does not match, it will never be used. The experience will need to be simple, intuitive and on par with the interfaces of applications today. Any time a technology asks for users to replace their current habits, it needs to make that transition as smooth as possible to truly succeed as the replacement.
While eager companies have identified dozens of use cases, few have been implemented or even piloted. In 2016, Ethereum was used as the blockchain of choice for peer-to-peer energy trading. Since then, more pilots have been conducted in places like Australia by a company known as Power Ledger. While startup managed to raise over $30 million and had successful pilots, scaling these efforts on a global scale will not be easy. It will require the continued dedication and grit of hungry visionaries and entrepreneurs that want to see their vision of a blockchain-powered future come to life.