Energy industry and blockchain: overview and applications
Since the first industrial revolution of the 19th century, the consumption of our sources of energy has been tremendously growing. For over a century we exploited non-renewable sources such as fossils fuels, coal or petroleum. But in 1956, Marion King Hubbert published his Peak Oil Theory that sounded like a wake-up call and lead to an active environmentalist movement, increasing awareness towards climate negative effects and big pollution rates as a consequence of this utilization of multiple non-renewable sources of energy. As global warming rises as a concern and with an estimate rise in temperature of 1.4 C° to 5.5 C° over the next century, never before we have been looking for sustainable, clean and reusable source of energy. The impact of climate change is gaining momentum much faster than expected, while the shift from fossil fuels to cleaner energy is slow. Hopefully, innovations are being implemented to smoothtly and intelligently achieve this transition.
The energy industry is changing
This is something we often occult on our path to energy transition, the number of energy-related products is exponentially rising: vehicles, computers, air conditioners, smartphones, servers, household appliances etc…We increasingly use our resources to create energy, but mainly because there are more and more products that need to be empowered.
In 2015, renewable energy sources accounted for 2% of the global energy consumption. We produced 109,613 TWh worldwide and 23,816 TWh (21,7%) was used to generate electricity among which 6,3% was generated from renewable energy. Geographically, Asia and Oceania lead by bullish Indian and Chinese markets outreached North America in terms of energy consumption in the beginning of the 2000’s.
The current context has never been so unsteady and the future more incertain. A lot of challenges are rising within the energy sector:
- Geopolitical difficulties over carbon emission
- Aging workforce
- Hazard in energy demand
- Business issues in energy supply
- Rising customer expectation on efficient energy provision
- Regulatory systems and infrastructures constraints
On the other side, we have innovation breakthrough and emerging technologies that transform the energy sector and the way we produce, transport, distribute and consume energy.
So how could we use innovation to overcome the aforementioned challenges, increase the use of renewable energy and turn energy consumption in an efficient manner?
While innovation in energy is a broad term incorporating technological advancements to enhance energy production, management, demand response and flexibility, we can illustrate it with several realizations across the globe.
Demand response is the change of end-user’s consumption of electricity enabled by pricing incentives when there’s high demand for electricity from consumers. As an individual, when demand is high, you pay’d more for your electric power capacity or get paid for voluntarily reducing this capacity.
Internet of Things (IoT) and big data
Installing sensors on pipelines, valves or other assets can help monitoring equipment over time, identify more quickly flaws, prevent leaks and globally shift from a descriptive maintenance system to a predictive model where data gathered by IoT and sensors allow anticipation of events, better management and workers safety.
To gain business intelligence and run analytics, smart meters are the first step towards having a grid that is observable, controllable and integrated, basically a smartgrid. Smart meters help for daily monitoring and recording of electric consumption resulting in enhancing all aspects of the consumers’ interaction with the utility and eventually improving reliability and efficiency.
3D Printing is the most cost-effective method especially for the prototyping process. The most advanced and useful 3D printing project in energy is the printing of solar panels. 3D printed solar panels have shown better results for energy capture than regular ones, although it largely depends on the quality of the components. Even though the price of solar cells and solar panels is consistently decreasing over years, 3D printing solar panels will definitely cut-off the manufacturing cost.
Innovation in delivery
Distributed generation is making renewable energy distribution more efficient than centralized one. In contrast with conventional power station (coal-fired, gas or nuclear powered) that are very centralized and require energy transmission over long distances, distributed energy resources systems are decentralized, thus closer to the need and more flexible even though their generating capacity is much less than big centralized power stations.
Innovation in carbon reduction
Technologies and techniques around carbon capture and storage are being developed to pull carbon dioxide (CO2) from the air and store it in construction materials. Theses niche innovations are scruted with great interest because they seem to be the key to avoid a massive fossil fuel power stations shutdown. The Weyburn-Midale project in Canada is one the largest illustration of this innovation.
Innovation in storage
Because solar and wind energy generation are irregular and not consistent, energy storage has become a matter. And according to projections from GTM Research and the Energy Storage Association, the energy storage market is expected to grow 17 times between 2017 and 2023. Liquid air energy storage (LAES) is one interesting innovation. It turns air into liquid air at -196 C° and stores it until we further need more electricity to be pumped into the grid. When that happens, the liquid air is brought to gaseous state again by exposing it to ambient air. The gas is used to turn a turbine and generate electricity. The first grid-scale liquid air energy storage plant has seen the light last june near Manchester, UK.
Blockchain as an enabler for smarter grids
Because the way we exploited energy sources until recently is one of the reason we worry about our future regarding global warming, and because energy is vital for human development, searching for new revolutionary innovations is an inevitable task to disrupt this industry, find sustainable purposes and solve current issues.
Lately, a new innovation has appeared on the radar: blockchain. We are experiencing all over the world the power of blockchain and what it can bring for energy and utilities. Most of the applications that have been tested or that are currently being built refer to the electrical grids and consumption between peers.
The rise of the microgrids
Before describing some of the most successful applications, we should understand what shifts are happening in the management of grids all over the world, especially with the rise of microgrids.
The current “traditional method” of electricity supply is built on a centralised system operated by major energy and utility companies. It consists of a main grid in which energy is produced at large power stations and distributed to consumers through a wide transmission network.
Just as a reminder, an electrical grid is an interconnected network for delivering electricity from producers to consumers. It consists of
- Generating stations that produce electrical power
- High voltage transmission lines that carry power from distant sources to demand centers
- Distribution lines that connect individual customers
Although electrical grids are wide spread, 1.4 billion people are not connected to an electricity grid according to the Swedish Institute of International Affairs.
The smaller grids (the microgrids) are linked to localized power sources in a decentralized pattern. For example, buildings of a given neighborhood with their own solar panels might be connected to nearby residences.
Blockchain achievements across the energy industry
LO3 Energy and the Brooklyn Microgrids project
The Brooklyn Microgrid is one of the first energy-related project using blockchain. It was initiated by LO3 Energy, a New York based start-up, to allow people to power their homes through a range of local renewable energy sources. People with their own solar panels can sell the surplus of electricity to their neighbours. Blockchain intervenes in this first peer-to-peer network for electricity to ensure an accurate record of transactions, a decentralized accounting and metering and a shared and transparent data information to users of the network. Initially, The Brooklyn Microgrid project targets the regions that are not connected to their national grid. Installing solar panels and batteries can be an easy way to bring a basic amount of electricity to a village as long as the flexibility is well managed. And that’s were blockchain can help, by securing energy transactions among users and producers. Moreover, if those independent regions were to be linked to the national grid one day, blockchain would enable keeping track of what amount of electricity and which sources of energy the residents are consuming, thus making everyone paid accordingly. It provides a reliable, lower-cost digital platform for making, validating, recording and settling energy transactions in real time across a localised and decentralised energy system.
What blockchain also unlocks is security. As modern electrical grids introduce computers, smart meters and sensors it can be prone to malicious intrusion or attacks. There are now cyber threats surrounding data management and transactions that blockchain can overcome. The fact that centralized power stations are perceived as potential targets for hackers is encouraging governments to accelerate the shift towards distributed energy resources which decrease the risk of terrorist attacks.
Now imagine that as a producer (local or worldwide) you could manage your assets through a platform, identify their characteristics, their location and optimize them. Imagine that you could choose which asset you’d like to trade, its price and its conditions. Finally, imagine that you could control your operational data and give access to only stakeholders you have selected. Well, that is what Electron, a London based start-up is trying to achieve. Electron was founded in November 2015 and provides a meter registration platform for gas and electricity supply to facilitate faster switching and data securitization. Electron also provides a peer-to-peer trading platform for producers and consumers to trade surplus of energy in an efficient manner. Backed by the UK National Grid and Siemens, they partnered with EDF Energy and Shell to create a consortium to ensure the ongoing decarbonisation, digitization and decentralization of the UK’s energy market. As the electricity system becomes more and more decentralized, they try to find a more effective and transparent mechanism for participants to trade assets according to its characteristics and its location. Location of assets has never been a problem in the current energy system but in a decentralized and distributed pattern, it does become a new variable that has to be taken into account for optimizing supply . Bottom line: flexibility is the ultimate goal of Electron’s projects and blockchain is the enabler, providing security and authentication in a decentralized system.
In western Australia, a trial has been launched last week for 40 residents of Fremantle to allow them to determine the price of solar power they generate and trade this energy through a blockchain based plaform. It is an innovative solution to trade energy in order to efficiently balance energy supply and demand through utilities. Being part of the RENeW Nexus Project aiming to explore integration of blockchain and big data in a distributed energy system, this trial will avoid dumping extra solar energy into the grid and rather provide the neighbors with this power at the right time. PowerLedger, the Australian start-up behind this project, has raised €EUR 21,5 millions last year in October through their ICO.
As number of Electric Vehicles (EV) are rising everywhere in the world (today more than 800,000 EVs in the US) there is still an anxiety from buyers and prospects regarding availability and locations of charging stations. Being able to charge electric vehicles easily and quickly whenever and wherever customers need to is going to be one of the most decisive factors in adopting new electric mobility. Different initiatives have been launched to create trading platforms to allow people to charge at any station, private or public. Because there are currently 17,000 public charging stations in the US (6,000 in the UK), connecting EV’s owners private chargers would increase the network by hundreds of thousand. Another challenge is providing a smart and secure experience for EV’s users. Share&Charge a product from MotionWerk is currently deploying a pilot in the UK, hand in hand with several partners like Volkswagen or Electric Blue, to overcome interoperability issues induced by multiple types of chargers and payment forms.
Other initiatives have been taken across the globe regarding the application of blockchain in energy and utilities. The most active geographical area is Europe as shown by the study conducted by Indigo Advisory Group.
What else should we expect from blockchain?
Besides peer-to-peer trading and EV charging which are the most advanced pilots, other use cases relying on blockchain can be thought of. For instance, a grid operator can use blockchain to optimize the supply in the network instead of shutting down a power station, which is a very expensive action, and manage electricity supply accordingly through integration of demand response across the grid.
Big companies are starting to pay attention to opportunities offered by blockchain. Often they are part of a consortium including banks, energy leaders or public authorities where they provide a business expertise and a specific need (a business case) and where tech start-ups bring technical knowledge or an integrated platform for answering the needs. For instance, Shell and BP, as part of a broader consortium, are now using a blockchain-based trading platform for crude oil, which they hope will solve trade and settlement inefficiencies.
Regarding ICOs in the energy industry, around 150+ projects has been financed for a total of $USD 450+ millions according to ICObench.com. Currently, ICOs performance might not be the best indicator to showcase the impact blockchain has on the energy sector but it has the merit to emphasize that this sector doesn’t remain idle. More and more ICO are being launched but financial returns are very low for investors.
Of course, this statement has to be carefully appreciated regarding the bearish situation of cryptocurrencies.
Below is a sample of ICOs conducted in the energy industry and their performance as of December 10th, 2018.
Optimistic perspectives for the coming years
The ultimate goal for an electrical grid is to become smart enough to grow the flexibility market and demand response market in order to balance the grid effectively and ultimately integrate more renewable energy. The smartgrid is supposed to be a combination of efficient power delivery (reliable, sustainable and high quality) and economically affordable in accordance with the needs of the user.
With that in mind, blockchain and Internet of Things combined with embedded processing, real-time communications and appropriate softwares, will definitely improve reliability and efficiency of the grid and the network.
The grid of the future will track energy generation and consumption monitored by connected objects (IoT), executed by smart contracts and recorded on a blockchain.
The decentralized pattern of this system would also incentivize people and producers to trade capacity through a marketplace. This blockchain-enabled marketplace could trace and secure transactions between participants and keep private everyone’s trading activity and data.
Finally, the inherent security and transparency of the blockchain means that it could have extensive applications across the power sector, from local micro-grid projects to large-scale cross-border energy trading.
A lot of issues still has to be overcome in the energy sector in order to secure a sustainable system where energy generation, distribution and consumption are a smart combination of clean resources, flexible markets and cost-effective solutions.