Blockchain possible use case in energy

Date: 2018-12-10

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Blockchain has the potential to disrupt large chunks of the value chain in the energy and power generation sector. Indeed, the decentralized Blockchain model may make some energy traders, metering companies or other trusted Third Parties redundant in the energy ecosystem. Today, there are more than 150 start-ups and larger companies working on the development of blockchain application in the energy sector.

A large part (> 50%) of the investigated use case target Peer-to-peer trading of electricity and the development of smart trading platforms to shortcut third parties in the wholesale market or to develop live electricity smart contract management applications.

Many start-ups are also investigating use cases in the Electric vehicle sector (charging/sharing), certificate of origins follow-up as well as IoT integration. Behind those small start-ups, large utilities and industrial players like Tepco, Innogy, Engie and many to be involved in those use cases assessment.

If Europe remains the leader in the blockchain for Energy arena (esp. in Germany and the Netherlands), many companies developed in the US as well over the last 2-3 years and are gaining momentum. Investment by VC and large players are already significant (> $300M in 2017) and I believe that we will enter in a phase of recomposition, with first mergers, acquisitions and failures of key start-ups in the sector. Major drivers for the development of the sector are the evolution of local regulations as well as the adoption of this technology by prosumers/utilities, one issue influencing strongly the other.

Possible benefits of using blockchain in energy

Smart Grids

Blockchain, with its great attributes, have the potential to disrupt the smart grids industry. For instance, nowadays people seem to have switched to electric cars. And more so, supply and demand for charging facilities have not kept pace.

Peer-to-peer

In order to apply the use of smart grids, a marketplace for supply and demand for power is needed on the local level. Smart contracts on the blockchain can be used to balance demand and supply and enable peer-to-peer trade. For this, each user has the choice to choose his preferences without a third party in the decentralized ledger (the blockchain).

Others include; Hurdles and Smart meters. Read more here.

So what are the use cases of Blockchain in Energy?

One of the most interesting use-cases for Blockchain in the energy sector relates to carbon reduction and the encouragement of using sustainable energy sources. DNV GL (a leading certification and business assurance company) introduced at the China Import Export Expo last month, their low-carbon Ecosystem. Read more here.

Ø VeChain, a public blockchain platform tailored towards enterprise is working with Shanghai Gas and ENN to pilot a platform for Liquefied Natural Gas to provide solutions for classification, logistics tracking and certification as outlined here.

Ø SubContract: they are looking to disrupt the utility industry by supporting microgrids of solar panel systems whereby neighbours can supply and buy energy from each other. The concept is that if you have solar panels on your home, you may produce excess electricity. Nowadays, you can sell that back to your local utility at a price set by the local utility.

Using a blockchain-based solution, you will soon be able to sell your excess power to your neighbours. And, if you don’t have solar panels on your roof, you will be able to buy power from your neighbour that does. This sounds like a great idea to break the lock the utility company has on buying power at the prices they set. We will now have the freedom to cut out the middleman and support our neighbours. It feels almost utopian.

Except for one thing. What about that pricing?

It turns out that in most parts of the world, the utility company produces energy more cost-effectively than local solar does. The implications for the home with the excess solar is that your neighbours won’t want to buy power from you because your power is more expensive than the utility’s power. Until local solar production pricing drops significantly, we just shot a huge hole in this business plan.

The idea of a market for local solar might work, but putting it on the blockchain isn’t enough. The market forces of power play a much bigger role. Evaluate the likelihood of investing in any idea by understanding the critical market forces first.

Ø Eloncity: This is one of the most ambitious crypto economic projects, which is working to decentralize the electrical grid infrastructure and energy monopolies by replacing them with a hierarchy of blockchain-enabled microgrids. Those microgrids allow communities to store, trade and consume locally-generated renewable energy. The system aims to achieve supply and demand balance within — and across — communities, reducing the need for very expensive peak generation power and the power transmission fees that plague the network today.

How Decentralized Energy Works :

Households need to trade frequently in order to establish an efficient energy market. As the trading volume grows geometrically with the number of households in the network, the frequency of trading, which we estimate to be millions of transactions per second in a typical country, could exceed the capacity of any blockchain. Fortunately, most of the energy trading also is limited within microgrids; that is, most trading happens between stable groups of households in the same neighbourhood or community. That allows us to scale the network by building side chains, each representing a microgrid.