The global energy industry is huge. Around 10% of global expenditure is currently spent on energy. Vast swathes of our current energy infrastructure were developed a long time ago and aspects of regulation designed up to 100 years ago. There are massive inefficiencies across the entire energy ecosystem. When you consider energy produced that is not needed, the inefficiencies of power plants and losses made transferring energy long distances it is estimated that only a small fraction of the energy generated intended to be used for the consumer actually reaches its end point. Significant losses are incurred as energy is generated and moved around the grid in a sub-optimum manner. The control and distribution of energy is often highly antiquated. The entire energy sector is ripe for disruption. However, innovation is being held back by regulation. There has only been limited deregulation of the market in the United States. Systems across the globe are often highly centralized and monolithic with limited opportunities for new players to enter in to the markets.
With the advent of blockchain technology, opportunities have arisen to revolutionise and democratise energy generation and distribution. Blockchain technology is already being used by major energy companies to help improve the efficiency of their supply chains and logistics. Blockchain is being utilized to tokenize fossil fuels speeding up their trade and streamlining their transportation around the globe. IBM and Shell are two companies to name a few who are looking into what blockchain can do for oil. However, perhaps the most interesting and exciting uses for blockchain relates to renewables.
By 2050 the International Energy Agency is attempting to move us to a place where 57% of the global energy supply comes from renewables. This growing industry differs from traditional power generation in significant ways. A large part of the growth in this sector is small scale and decentralized such as wind turbines and solar roof panels. Currently most of these technologies have little or no access to a network, to share information. Whilst you will most probably be tied in to the grid and potentially have a feed in tariff there is huge potential to make these systems much more efficient. Using blockchain technology we can unlock currently untapped value in our networks by making them work smarter. Best of all, all this technology can be implemented over time without having to make significant changes to our existing infrastructure.
To unlock this value, we need a system of communication between all producers, prosumers and consumers of electricity. This concept is known as a smart grid. What better method of implementing a smart grid than using the blockchain to tokenize electricity. To get the best from a blockchain electrical grid, every producer and consumer of energy needs to be connected as a node and aware of all the other nodes in its locality. These nodes should react dynamically to market conditions. They should take into account if the sun is shining, what time of day it is and be able to react to new sources coming online as others go offline. These systems have to consider that if improperly organised, pumping too much electricity through certain parts of the grid can result in its failure, fires and even death. It cannot go wrong as its potential failure has massive real world consequences.
If we can implement a system or systems which tokenize all existing energy commodities from physical fossil fuels to electricity generated through the various sources of renewable energy we can create an increasingly smart and self-organizing network that identifies needs in different areas and apportions the relevant value to electricity produced to satisfy those needs.
On the grid electrons produced by wind, tide and solar generators are indistinguishable from those generated through burning fossil fuels. Until now governments all over the world have created systems based on traded certificates. It is currently these certificates that are traded on energy commodities markets.
Currently when a renewable-power plant or a solar setup via the feed in tariff generates a unit of electricity today, a meter produces data that gets logged in a database. The data is then sent to a registry provider, where the data gets entered onto a new system and a certificate is generated. A second set of intermediary brokers setup deals between buyers and sellers of these certificates, and an additional third party verifies the certificates after they are purchased. There is plenty of room within this system for accounting errors and the potential for fraud. There is little transparency in this system and that can scare people from dealing with these certificates.
Not only would a blockchain remove all unnecessary bloat from the accounting and recording process but it would make it a lot easier for individuals to trade in and generate these energy commodities.
Governments would be able to gather better real time data, but they would also be able to effectively incentivise decarbonization of production to achieve environmental goals.
There are significant opportunities for a tokenized smart grid to interact with new technologies such as Tesla’s home battery technology the Powerwall. Excess production from a houses solar panels could potentially lease battery space in a neighbours Powerwall and re-enter the grid when the price had risen to a price where it made sense to use it.
Weaknesses in the grid would be easier to spot and the generators would be incentivised to add new production capacity where it was needed most rather than offering a standard feed in tariff.
Blockchain (specifically Bitcoin) is currently seen as a hugely wasteful and environmentally damaging use of electricity. If we are able to successfully tokenize our electrical grids and make them smarter. Blockchain may be able to shake off its reputation as an environmental villain and reinvent itself as a green energy superhero.