The disruptive potential of blockchain technology is becoming more evident with every passing day. From the proliferation of cryptocurrencies, and its increasing applications in other areas including banking, gaming, music licensing, as well as the energy sector, blockchain technology is transforming many industries.
Commonly described as a distributed public ledger system, blockchain basically records transactions. However, the unique thing is that transactions are recorded chronologically and publicly without a central server, so there is only a single and shared version of the data across all parties.
A key benefit of this technology then is a decrease in the time and cost of transactions as no intermediaries are needed. Also, transactions are generally secure because it remains visible to everyone in the blockchain and errors from transacting over disconnected systems can be avoided.
Despite being late to the party, the energy sector has joined a host of other industries looking to harness the benefits of blockchain technology. One application of blockchain in the energy industry that is fast gaining popularity is “peer-to-peer energy trading”.
Today as more and more people embrace other renewable sources of energy and Distributed Energy Grids (DERs) such as solar panels, energy consumers have now become suppliers as people can sell back excess energy to the grid.
However blockchain technology takes this a notch further -- small-scale energy generators can now sell directly to consumers within the same area via “smart contracts” that can trigger transactions automatically, eliminating the need for a central utility/authority or other intermediaries.
With smart contracts, electricity flow can be automatically coded into blockchains and algorithms that match buyers and sellers in real time are employed. Transactions are only completed after all the predefined conditions have been met and payment can be made instantly. This gives room for a decentralised and transparent system of energy sharing that is alien to the traditional energy industry.
There have been a few successful pilot cases of peer-to-peer energy trading. Brooklyn residents successfully traded energy on the Ethereum blockchain platform in 2016. With the proliferation of microgrids, e-mobility, EV-charging, etc. many start-ups, such as Electron in the UK are making moves to facilitate energy trading.
What will this mean for energy consumers? Significant advancements in energy blockchain will eradicate the current monopolies in the energy sector and give consumers more control over their energy usage and costs. We are likely going to see variable electricity rates controlled dynamically by the forces of demand and supply.
However, the use of blockchain in peer-to-peer trading of energy is still in its infancy, and its scalability and effectiveness are still being questioned despite a few successful pilot projects.
While peer-to-peer trading remains the most significant use of blockchain in energy today, it has other current and potential applications. Blockchain has also led to the development of cryptocurrencies for energy payments and can play a role in recording emission permits, as well as the validation of renewables at their point of origin.
While uncertainties remain about its effective adoption and deployment, blockchain technology is poised to revolutionise the energy sector in the coming years.