Will Energy Offer the Next Market for Blockchain?

photo-illustration of light bulb
Photo-illustration: iStockphoto

Electric devices that operate at what is sometimes known as the edge of the power grid—devices that range from electric vehicles to rooftop solar arrays—could help upend the utility business model and further decentralize energy production. Helping  in that process is a tool more familiar to accounting wonks than to power producers: blockchain ledgers.

The digital tool first gained attention as a driver behind the global rise of bitcoin applications, and it’s gaining notice across the energy sector.

In early May, 10 energy companies in Asia, Europe, and the United States said they would chip in a total of US $2.5 million to seed the Energy Web Foundation, a nonprofit whose mission is to accelerate the commercial deployment of blockchain technology in the energy sector.

Centrica plc, Elia, Engie, Royal Dutch Shell plc, Sempra Energy, SP Group, Statoil ASA, Stedin, Technical Works Ludwigshafen AG, and Tokyo Electric Power Co. all say they are supporting the Foundation, which is a partnership between Rocky Mountain Institute, a Colorado-based nonprofit organization, and Grid Singularity, a blockchain technology developer.

Also in May, TenneT, sonnen, Vandebron, and IBM said they are launching a pilot project in the Netherlands to use electric vehicles to help ease grid imbalances as supply and demand fluctuate throughout the day.

Renewable energy company Vandebron will recruit electric vehicle owners to make electricity from their car batteries available to the grid. The objective is to help grid operator TenneT better integrate increasing amounts of renewable energy. The project will make use of blockchain technology from IBM.

And in Brooklyn, N.Y., a two-year-old project to build a blockchain-based rooftop solar community is now looking for ways to work with local utility ConEdison and regulators to build a firmer foothold from which to accelerate renewable energy adoption and even redesign the utility business model. “The blockchain revolution is an opportunity to rethink power and distribution dynamics,” says Ashley Taylor, a community microgrid specialist with LO3, which developed the Brooklyn solar rooftop project. Solar energy advocates combed through city building permit records and went door-to-door across the borough’s Park Slope neighborhood to find solar adopters and introduce them to one another.

Once the connections were made, the solar community emerged via a phone app and blockchain that allowed for information to be shared about available solar capacity, potential buyers, and transaction details. “It’s the same notion of accounting for electrons” that a traditional utility uses, she says. But here the idea is to drive more renewable energy onto the grid, making it greener and more diversified.

In practice, blockchain technology reduces transaction costs by keeping a single copy of transaction records, avoiding the need for reconciliation and settlement and reducing the possibility for an error—or several—to enter the accounting process.

All this may seem like a nerdy accounting practice, but to the folks at the Rocky Mountain Institute, blockchain’s unique attributes suggest it has the potential to play a potentially game-changing role in the energy sector. For example, RMI says that blockchain can streamline routine billing and facilitate still more amounts of automation in the process.

As a disruptor, blockchain technology can allow potentially millions of energy devices (HVAC systems, water heaters, electric vehicles, batteries, solar PV installations, and so on) to transact with each other at the electric power distribution edge.

That’s essentially what Ashley Taylor and LO3 are working to achieve in Brooklyn. And blockchain may prove capable of providing support to utilities and grid operators as they integrate more variable renewable energy capacity.

“Rocky Mountain Institute stumbled onto” blockchain, says Jesse Morris, a principal with the Institute and member of the Energy Web Foundation council. RMI’s focus is to help utilities and communities bring more renewable energy onto the grid. And although regulatory reforms have made the process easier, “we frankly didn’t see progress on the technology integration side,” says Morris.

In announcing the Foundation, RMI said that a main challenge of the electricity sector is to integrate more renewable energy in a cost-effective fashion in an environment with flat or even falling demand. RMI says the only way to do this is by automating the demand side (consumers) and by allowing many more participants in the grid. That means even more automation at the distribution edge, and integrating this automation with wholesale markets. Blockchain is one part of achieving this goal.

Morris points to at least two potentially significant outcomes. One involves fairly routine accounting by addressing daily issues around utility billing. Blockchain better enables utilities to use individual smart meters and virtual IDs to create a secure and verifiable billing system that can deftly handle dynamic price signals as electric demand changes throughout the day.

A perhaps more intersting idea, Morris says, envisions blockchain as better enabling peer-to-peer energy trading. Individual devices would bid into energy markets and either consume energy or release energy depending on market signals.

An office building, for example, could monitor thousands of electric devices and then interact with the grid via blockchain to engage in energy supply and demand transactions in a secure and unalterable distributed ledger.

A version of that is behind IBM’s project in the Netherlands. Blockchain software enables each car to participate by recording their availability and their action in response to signals from TenneT. It’s part of a broader digital transformation effort by TenneT to explore the use of what IBM calls a “permissioned blockchain network” using Hyperledger Fabric to integrate flexible capacity supplied by electric cars and household batteries into the electrical grid.

Hyperledger Fabric is an open source blockchain framework and one of the five Hyperledger projects hosted by the Linux Foundation.

Europe may be an early adopter of blockchain technology, says Steve Callahan, vice president of Energy and Utilities with IBM. That’s because markets there are not as fragmented as in the United States with its dozens of investor-owned utilities, hundreds of municipal utilities, and independent state regulatory authorities.

“The hotbed is in Europe, predominantly Germany and Denmark,” which have liberalized markets Callahan says. In the U.S., Texas and a handful of other states have opened their retail markets sufficiently to potentially allow blockchain to be tested, Callahan says.

“We are studying it to understand its potential as a solution platform for resilience and market-driven community energy initiatives,” says Richard Sedano, a former regulator and principal with the Regulatory Assistance Project. “We suspect that this tool will come into use either guided by regulation and under the nurturing hand of the progressive and changing utility,” or through community engagement with local utilities.

“The real advance is that Independent System Operators want dispatchable power,” says IBM’s Callahan. Blockchain can satisfy that need by enabling resource aggregators. That step is critical because most U.S. utility franchises forbid one-off sales between individuals: In exchange for strict regulatory oversight, utilities were given monopoly franchises, so electricity sales—even between consenting neighbors—is discouraged in many places. 

As a result, one of the next steps by LO3 in Brooklyn is to work to meet regulatory requirements allowing it to be an energy aggregator in ConEdison’s franchise territory.

Rocky Mountain Institute for its part acknowledges that a piecemeal approach to regulatory reform may be the best approach. “We need to show regulators that blockchain works,” says Jesse Morris. For example, some Japanese utilities are allowing bitcoin payments. And blockchain could bring some much needed innovation to renewable energy credit programs, which often lack systematic accounting rules.

In parallel with the development of an open-source IT infrastructure, EWF says it will analyze use cases and organize task forces to push proof of concept programs and commercial applications. EWF says it also is actively soliciting collaboration with other technology providers to support the open-source approach of eliminating energy market entry barriers.

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