How can Blockchain technology bring innovation to energy industry
Along with use cases in various sectors, the potential of blockchains in the energy industry has just started to be realised as shown by the increasing number of startups, pilots, trials and research projects. Several energy utility companies have taken interest in exploring the potential benefits of distributed ledger technologies (DLT), as an enabling technology for low-carbon transition and sustainability. Moreover, according to senior consultancy and commercial reports by Deloitte and PWC, blockchains have the potential of radically disrupting energy related products and commodities, as they become digital assets that can be traded interoperably.
Early research initiatives and startups indicate that blockchain technology could potentially provide solutions to some of the challenges faced by the energy industry. Requirements for future energy systems can be summarised by three key principles: decarbonisation, decentralisation and digitalisation.
However, current structure of energy and electricity markets is inadequate to achieving this vision, as small players’ participation in the markets is practically excluded and incentives for active consumer participation have so far proved not sufficient. Early blockchain developers are establishing transactional digital platforms that can be completely decentralised and can enable P2P energy trading. They are developing local energy marketplaces and Internet of Things (IoT) applications that can play a significant role. At the same time utilities face demands for increasing transparency by the regulatory authorities [25]. As a result, any possibility of cost savings and efficiency improvement in the operation of energy systems and markets can prove significant and is worth investigating.
Peer-to-peer energy trading model is one of blockchain’s use cases as the proliferation of Distributed Energy Grids (DERs) or independent renewable energy sources (such as solar panels) that connect to the grid has helped convert energy consumers into producers who are able to sell excess power back to the grid. that process retains the existing dynamic of the electricity markets, centralizing the task of buying and selling energy under the control of the utilities. Bitcoin’s decentralized network could disrupt that paradigm and enable customers to sell excess power to each other within a given area. Several startups and utilities around the world have already developed pilots or are considering projects to test this possibility. For example, Brooklyn Microgrid is developing an app that enables energy trading between consumers in a neighborhood within the borough. Another common use case for blockchain within the energy industry is development of cryptocurrencies for monetary payments. Several utilities have already begun pilot projects to enable such transactions.
This is just the beginning; Blockchains are a promising technology for a wide area of services and use cases in the energy sector. The large number of established energy companies and utilities that are currently involved in DLT projects, as well as the investor interest in this area, clearly shows the potential value of this emerging technology for the energy industry. The real, long-term value is, however, yet to be proven, especially as most initiatives have trialled the technology in relatively small-scale projects that are still in an early development phase. As a result, several questions will need to be answered before mainstream adoption of the blockchains in the energy industry.
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