A Beginner’s Guide to How Blockchain Technology Will Disrupt the Energy Sector:
Today, cable cutting is mostly associated with canceling your cable TV subscription to switch to Netflix or Amazon. There might come a time in the not too distant future when equally large numbers of consumers opt out of the central power grid – not to go completely ”off the grid”, but to join smaller microgrids with their neighbors. This vision of distributed, local, renewable energy is finally becoming a reality thanks to blockchain, as an early pilot project in Brooklyn shows.
Siemens recently unveiled a microgrid in Brooklyn, New York. You can take that ”micro” quite literally: the grid consists of five homes on one side of the street, and five homes on the other. Neighbors will be able to trade electricity directly among themselves via a blockchain. It’s not the first blockchain initiative in energy: earlier this year, SolarCoin, a digital currency for renewable energy based on blockchain tech, announced an integration with Smappee.
We’re in the early days of a thorough disruption of the energy grid, which is good news for renewable, distributed energy. And blockchain is making it all possible.
But why do we need blockchain for renewable energy?
Historically, we’ve built grids because we generate energy in massive power plants that cause a lot of pollution. We build them far from our homes, because you really don’t want to live next door to a nuclear or coal power plant.
Unfortunately, the transmission and distribution of energy over large distances is not very efficient. On average, about 5 percent of energy is lost between the power plant and your home.
When renewables first started to pop up, everyone quickly started dreaming of distributed energy production. If every home had its own solar panels and/or heat pump and/or wind turbine, they thought, imagine how much more efficient and clean our energy production would become.
Very early on, it became clear that the vision of the standalone ”off the grid“ house was not realistic – it would require substantial investments to make every home self-sufficient (it would also probably require a diesel generator, which is not exactly sustainable). So it was clear that some form of local grid would help to balance demand and supply – either at city level or even neighborhood level.
This, of course, created a new problem: how to manage the payments?
Grids were built to function as a one way street: they transport massive amounts of energy from the producer to your home. Utilities send someone to your home once a year to look at your meter and then they send you the bill.
It’s not very elegant and hardly efficient, but it sort of works.
That entire model goes out the window when consumers start to create energy at different times of the day with a range of technologies.
We can already see that renewable energy won’t just be generated from solar panels – it will be generated from a range of technologies that also include wind turbines (perhaps shared with some neighbors), a CHP (combined heat and power), and a home battery or a car battery. That’s on the production and storage side.
On the usage side, there will be appliances that can be switched off and on, but also appliances that can be turned up or down.
For example, around noon your solar panels will be hard at work: this will be the time to put the air conditioning a few degrees cooler so that you don’t have to blast it when you come home. You also might set the freezer a few degrees colder, which will be agood way to get rid of excess energy in the short term. Or, heat the swimming pool. And of course, fill the car and the home battery to capacity.
Or, it could be a grey Saturday afternoon, so you decide to turn up the heat before you come home and start preparing a three course home cooked meal while your son is in the shower after soccer practice? Maybe the freezer can be switched off for a few hours.
When you really couldn’t avoid it, you would buy energy that you didn’t produce, if possible from very close by (like your neighbor who’s off for the weekend and whose home battery is full).
Managing this degree of real-time optimization and trading between neighbors would require a complete overhaul of the grid and of the way utilities track energy usage and payments – in real time, accurately and digitally. This is called, fittingly, a ’smart grid’ that hinges on ’smart meters’ – as opposed to a dumb grid that requires a person to show up to read your dumb (analog) meter every year.
However, building this smart grid on top of the existing dumb grid is a fantastically expensive and long-term project. Think 15 to 25 years.
Enter blockchain. Blockchain allows consumers to produce energy, and to trade it directly with other consumers in a peer-to-peer network.
This is how the Brooklyn project works. But there are other initiatives, like SolarCoin, which is part of the initiative, a non-profit that brings together partners like Ethereum and RWE (Innogy).
SolarCoin is a digital currency like bitcoin. The difference with bitcoin is that SolarCoin is not „mined“ by letting a computer work out some computations. It’s mined by producing renewable energy. If your solar panel creates 1 MwH of energy, you receive 1 SolarCoin.
This solarcoin is kept in an online wallet that you can update manually or let it update and earn automatically by, for now, a Smappee energy monitor (other energy monitors will follow).
This same wallet can be used for three things:
- to store the coins you create with your solar panel,
- to receive payments for the energy you sell, and to,
- pay for energy you trade with your neighbors.
In fact, you won’t even need to install energy production at your home. It will become perfectly possible to buy a solar panel, install it anywhere and collect SolarCoins.
Theoretically, your home might be an apartment in Boston, but your solar panel can be in the Nevada desert. Just connect your SolarCoin wallet for your panel in Nevada to your monitor installed in your apartment in Boston, and pay for the KWh you consume in Boston with the SolarCoins that you earn with your panel in Nevada.
Using a blockchain currency, you can trade this energy in a truly peer-to-peer way: transparent, in real time, and secure thanks to the distributed ledger.
In this scenario, there is no longer any need for a centralized grid management or utility which keeps track of your consumption.
In the decentralized future of energy, the digital currency in a sense becomes the energy meter: it keeps track of consumption/production and settles the bill at the same time. Thanks to blockchain, the promising and important perspective of a distributed, local, renewable energy grid is finally becoming a reality.
Also be sure to read Blockchain for the Internet of Things (White Paper)