Blockchain is an emerging technology that has drawn considerable interest from energy supply firms, startups, technology developers, financial institutions, national governments and the academic communities. Innovations in rooftop solar and smart metering have consistently catalyzed the energy industry. For the transformation of energy systems, security and affordability, leveraging distributed ledger technology is necessary, which can be provided by implementing blockchain technology.
What is Blockchain?
A simple analogy for understanding blockchain technology is a Google Doc. When we create a document and share it with a group of people, the document is distributed instead of copied or transferred. This creates a decentralized distribution chain that gives everyone access to the document at the same time. No one is locked out awaiting changes from another party, while all modifications to the doc are being recorded in real-time, making changes completely transparent.
Obviously, blockchain is more complicated than a Google Doc, but the analogy is apt because it illustrates three critical ideas of the technology:
- Digital assets are distributed instead of copied or transferred.
- The asset is decentralized, allowing full real-time access.
- A transparent ledger of changes preserves integrity of the document, which creates trust in the asset.
What does a Blockchain Contain?
Blockchain is essentially a chain of blocks. Each block contains three components; Data, Hash and Hash of previous block.
- Data stored in the block depends on the type of the blockchain. In a peer-to-peer energy blockchain, for example, the data stored in the block contains the name of the sender and receiver, the amount of energy traded and the money paid/received.
- Each block has a hash, which is analogous to a human fingerprint, is unique to each block. It is used as a reference to identify the block and its contents. Once a hash is created, it cannot be changed. If the data inside the block is changed after the hash creation, the hash also changes. If the fingerprint of the block changes, it’s no longer the same block.
- The block also contains the hash of the previous block. This essentially creates a chain of blocks (or block-chain), which makes this technology extremely secure. If someone tries to tamper one block, as mentioned before, the tampering causes the hash to change. This change will not match the next block’s information it has of the previous block, hence making the whole chain ahead invalid.
How is Blockchain transforming the Energy Sector?
Blockchain technology has the potential to transform the energy sector. The energy industry has been consistently catalyzed by innovations including rooftop solar, electric vehicles, and smart metering. Blockchain can act as a driver of growth through interoperability of systems, provenance and smart contracts. According to Global Markets Insights Inc, blockchain technology in the energy market is expected to grow from $200 million to $18 billion by 2025.
Of the many use cases for blockchain, energy and sustainability are often less recognized. However, the World Economic Forum, Stanford Woods Institute for the Environment, and PwC released a joint report identifying more than 65 existing and emerging blockchain use-cases for the environment. These use cases include new business models for energy markets, real-time data management, and moving carbon credits or renewable energy certificates onto the blockchain.
How can they be integrated in our Energy Systems?
Energy systems are undergoing a transformational change triggered by the advancement of distributed energy resources and information & communication technologies (ICT). One of the main challenges is the emerging decentralisation and digitalisation of the energy system, which requires the consideration, exploration and adoption of novel paradigms and distributed technologies. Due to their inherent nature blockchains could provide a promising solution to control and manage increasingly decentralised complex energy systems and microgrids. Integrating small-scale renewables, distributed generation, flexibility services and consumer participation in the energy market is a demanding task. Some argue that blockchains could provide innovative trading platforms where prosumers and consumers can trade interchangeably their energy surplus or flexible demand on a Peer-to-peer basis, which is something we will cover in our next blockchain article.
Active consumer participation can be secured and recorded into immutable, transparent and tamper-proof smart contracts. Enabling such automated trading platforms could be an efficient way of delivering price signals and information on energy costs to consumers, simultaneously providing them with incentives for demand response and smart management of their energy needs.
Blockchains can enable local energy and consumer-oriented marketplaces or microgrids that aim to support local power generation and consumption. One of the major benefits from this approach is reducing transmission losses and deferring expensive network upgrades. On the other hand, energy is still delivered through the physical grid, demand and supply need to carefully be managed and controlled to comply with real technical constraints and power system stability.
A key challenge as volumes of Renewable Energy Systems continue to increase is maintaining the security of supply and improving network resilience. By facilitating and accelerating IoT applications and enabling more efficient flexibility markets, blockchains could improve network resilience and security of supply. Energy market operations could become more transparent and efficient. As a result, this could improve competition and facilitate consumer mobility and switching of energy suppliers. If cost savings opportunities are realised, we could leverage the technology to improve on fuel poverty and energy affordability issues.
By virtue of advantages offered, blockchains could potentially provide solutions across the energy trilemma: they could reduce costs by optimising energy processes, improve energy security in terms of cybersecurity, but also act as a supporting technology that could improve security of supply, and finally promote sustainability by facilitating renewable generation and low-carbon solutions.
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