Blockchain technology for the energy sector: significant potential but still key challenges to overcome

What are the main advantages of blockchain?

Due to its advantages, blockchain technology has recently been paving its way to other industries, such as energy, automotive, healthcare, and others.

The main advantages of blockchain technology are:

• Transparency: Data on the blockchain is recorded in a chronological order and can be accessed by all members of the blockchain.
• Decentralization: Any member can add transactions to the ledger, there is no need of third parties. In addition, data is stored in several computers of chain members.
• Immutability: Once data is entered in the blockchain it cannot be modified or deleted.
• Security: All data is verified by blockchain members before being attached to a block and it is cryptographically secured.

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How can blockchain be used in the energy sector?

In the energy sector, blockchain is considered a promising tool to record and facilitate transactions between generators and consumers of energy, which includes various use cases, such as:

• Peer-to-peer electricity trading: Sell of excess renewable energy to other network participants through automated smart contracts.
• Management of renewable energy certificates: Real time and automated recording and awarding of renewable energy certificates to avoid double counting.
• Grid management: Automatic control of all power and storage flows along the grid to balance supply and demand in the context of increasing intermittent renewable energy integration.
• Electric vehicle charging and sharing: Peer-to-peer electric vehicle charging applications and grid services.

What initiatives are currently underway to use blockchain in energy?

Over the past few years, many initiatives have emerged around the world and more than 180 players, mainly startups, have been working to develop use cases for blockchain application with P2P energy trading being upfront. Among them, there are:

• Peer-to-peer electricity trading: Several peer-to-peer platforms such as Power Ledger, Greeneum and Rowan Energy were developed, and several additional projects are underway. For example, on September 2020, Power Ledger and OP Properties announced a sustainable project for a 39-apartment complex in Fremantle, Australia. The complex will be equipped with solar rooftop PVs and local battery storage, and apartment owners will be able to sell excess solar electricity they generate back to the grid using the platform.
• Management of renewable energy certificates: In December 2019, the EDP Group, global leader in the renewable energy sector, and El Corte Inglés, Spanish department store, launched a blockchain-based project to offer real-time validation for the origin of renewable energy used by its shopping centers in Spain. This project will allow El Corte Inglés to achieve its goal to reduce carbon emissions.
• Electric vehicle charging and sharing: Several players such as Share & Charge and eMotorWerks have been working on the use of blockchain for electric mobility. Among them, eMotorWerks has been connecting private owners of charging stations and drivers of electric vehicles using blockchain to share energy in an efficient manner.
• Grid management: Finally, blockchain can contribute to renewable energy grid management. For instance, the Department for Business, Energy and Industrial Strategy in the UK, has awarded funding to the blockchain technology developer Electron, to connect renewable generators to local energy assets in order to build a real-time distribution-level marketplace. This consortium brings together important players such as Community Energy Scotland, CGI, EDF, Elexon and more.

What are the limitations of using blockchain in energy?

While several initiatives have emerged, blockchain still faces some challenges for large scale adoption in energy, such as:

• Scalability and power consumption: Due to their design, public blockchains typically require high energy consumption per transaction and long delays may occur before transaction is confirmed. While technology is evolving, it stills needs to be improved.

An example of time and power demands for public blockchains can be seen in the use of Bitcoins. A Visa transaction requires 0.001 kWh of power, whereas a Bitcoin transaction requires an estimated 740 kWh per transaction (2020 data). In addition, Visa’s platform is capable of handling up to 65,000 transactions per second, whereas Bitcoin transactions may take from several minutes to hours to be confirmed.

• Lack of clear and consistent regulation: Although the work on regulations has already started in different regions, such as in Japan and Europe, the lack of blockchain procedures or global regulations is a key barrier for the adoption of blockchain in the energy sector. Regulations are required to manage a future decentralized energy system, regulate electricity tariffs, and solve possible disputes and transactions reversals.
• Limited grid infrastructure: To optimize the use of blockchain in the energy sector, it requires a more interconnected smart grid where new players may participate on existing smart meters.
• 51% attacks: For some blockchain, attackers with majority control of the network can interrupt the recording of new blocks and impede transactions to be completed. This type of attack presents higher risk for small networks, as the computing power required to take over 51% of large blockchains would be enormous.

What future for blockchain in the energy sector?

Blockchain stands out as a promising technology in the power sector as it can be seen by its pertinent use cases. Its potential explains the great optimism presented by market studies regarding the future of blockchain in energy*. As a matter of fact, the combination of new initiatives using blockchain technology in the power sector (with peer-to-peer applications at the forefront) to improve sector’s efficacy, transparency, facilitate the integration of distributed energy sources and reduce costs, are paving the way for a promising future for blockchain in this sector.

However, the blockchain has not yet reached commercial success and several challenges need to be addressed for the technology to be increasingly used at a larger scale. With our experience in the energy sector and new technologies such as blockchain, our team supports you in all your innovation and new market development projects!

About the author
Sylvain, Project Manager in Alcimed’s Energy & Mobility team in France