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Energy is at a crossroads in the world. As climate change worries grow and markets call for cleaner, more sustainable use of power, the energy sector is ripe for disruption; power systems that are more efficient, decentralized, and transparent are needed.
However, in the present context, blockchain is one of the most appealing and potentially revolutionary trends. It seems to have garnered most fame as a concept surrounding digital currency (Bitcoin) but blockchain has the potential to transform how we create, distribute, and consume energy, particularly if it relates to renewables.
In this blog, we take a look at blockchain and renewable energy, and the ways blockchain can help the renewable energy industry overcome its problems and discover new opportunities for its consumers, producers, and the environment.
Blockchain technology secures and traces records without relying on key intermediaries. Each block in the tamper-resistant transaction history contains transaction records and links up to form a chain. Unlike decentralized blockchain, a single party can control block information. Once recorded, information on the blockchain cannot be changed or deleted.
Originally associated with digital currencies, blockchain is based on the principles of decentralization, immutability, transparency, and security, making it applicable to various fields beyond digital currency, such as energy, which prioritize transparency, security, and efficiency.
The Challenges Facing Renewable Energy
In recent years wind, solar, and other clean energy sources have become more affordable and are widely adopted, making the renewable energy sector one of the most rapidly growing segments of the economy.
This progress is nevertheless, far from the end of the story, as there are still challenges in the transition to a fully renewable energy future.
1. Energy Storage and Grid Integration
Renewable energy poses a major challenge due to its intermittent nature. Solar and wind energy generation depends on environmental conditions and may not always provide a consistent electricity supply. Deploying renewable power into existing energy networks designed for continuous energy sources like coal, oil, and gas is difficult.
Energy storage technologies like batteries have not yet resolved this issue, as they are costly and not universally available. The key to achieving a stable and resilient energy grid lies in storing surplus renewable energy for use during periods of low generation.
2. Distribution and Decentralization
Typically, traditional energy systems are centralized, with large power plants that produce electricity that is put into the grid which is then distributed to consumers. Renewable energy technologies such as solar and wind are, inherently, decentralized while their incorporation into existing energy systems often necessitates substantial infrastructure upgrades.
Furthermore, the need for an effective, distributed energy delivery network for renewable energy hinders when more individuals and businesses create their renewable energy.
One option for liberalization is peer-to-peer (P2P) energy where individuals or communities could buy energy produced by other individuals or communities in their surplus. However building a platform for these decentralized energy transactions to take place must be transparent, secure, efficient, and trustable for the parties involved.
3. Lack of Transparency and Trust
Even in the energy sector, which has long been characterized by its glove box — pricing, billing, and the environmental impact of energy production — the process is incredibly complex and opaque.
Many consumers do not see where they’re putting their energy, how much they are paying, or what their environmental impact is when they use it. A lack of transparency can damage the consumer’s confidence in the renewable energy solution and slow its adoption.
To support renewable energy, consumers need to be able to learn about the type of energy they use, what they’re paying for, and how their energy use is affecting our environment.
Solving these Challenges with Blockchain
With blockchain technology, many of the operational challenges of the renewable energy sector can be solved.
Being based on the decentralization of control and security, the potential of the blockchain is to allow for the optimization of decentralized energy production, distribution, and consumption, thus the creation of a new ecosystem for a more sustainable future.
1. Decentralized Energy Trading
Decentralized energy trading is one of the most promising uses of blockchain in the renewable energy space. Blockchain can create P2P (peer-to-peer) energy trading platforms where individuals, communities as well as businesses can trade in their surplus renewable energy with one another without an intermediary.
Imagine, for example, that a homeowner has solar panels and could sell excess energy to his neighbors or other businesses to power the lamps in their living rooms or the energy he generates could be fed directly back onto his neighbor’s electric meter to receive credit for its usage.
With blockchain, these transactions are broadly secure, transparent, and immutable so they don’t rely on utility companies or a third-party broker.
Blockchain could create a more decentralized and open marketplace for energy, reducing energy costs, encouraging the embrace of renewable energy, and empowering consumers to be turned loose to control the energy that they use.
2. Improved Grid Management and Energy Storage
They can also be used to control the energy grid and optimally dispatch their energy storage. It also allows blockchain to help better coordinate energy producers and consumers by providing a transparent and secure ledger of energy transactions.
For example, blockchain can trace the flow of energy from renewable sources to the grid and keep a watchful eye on the energy storage system availability.
In a system in which renewable excess energy is produced at sunny or windy times, blockchain can save this energy in batteries or alternative storage systems so that it is available when demand spikes, e.g. time when generation is low or consumption high.
Additionally, energy transactions can be automated by means of smart contracts: self-executing contracts whose terms are written into the code. Imagine that a smart contract automatically releases stored energy from a battery once it detects demand for energy is higher than the supply.
3. Renewable Energy: Transparency and Trust
Blockchain adds to this a lack of transparency in the energy sector, empowering consumers with granular, verifiable records of where their energy is sourced from and the cost. To take one example, blockchain-based energy certificates can keep track of the carbon impact of energy production, with consumers able to learn about the carbon footprint of the electricity they are consuming.
By being more transparent about energy consumption, blockchain can help consumers make better decisions about how they consume energy. This would then in turn act to incentivize renewable energy adoption as the consumers are made aware of the environmental benefits their energy consumption provides.
In addition, blockchain can help eliminate intermediaries and reduce administrative overhead to ensure fair pricing. By having smart contracts able to ensure automatic payment enforcement of the payment terms, we can ensure that producers and consumers are fairly paid for the exchanged energy.
4. Serves as an Investment Facilitator for Renewable Energy Projects
Further investments in renewable energy can also pave the way through blockchain technology. For this reason, tokenization, which is the process of breaking down an asset into fragments and issuing each fragment as a token in the form of an asset, is explored.
It becomes easier for retail investors to participate in big-scale renewable energy projects, such as a solar plant or a wind power plant, projects that are big and hard to undertake. The transition to a more sustainable energy system can be supported by blockchain by enabling it to be easier for people to invest in renewable energy infrastructure.
Additionally, a secure and transparent method of monitoring the performance of investments and understanding that funds are being put to good use is offered to investors.
5. Sustainability Incentivizing Carbon offsets
We can also bring blockchain to play in carbon credit market promotion. They define carbon credit as a form of tradeable certificate that represents the right to emit a specific amount of carbon dioxide.
Although these credits are regularly utilized by companies looking to offset their emissions, there have been problems in the market for carbon credits, including fraud, lack of transparency, and a less-than-optimal market.
By ensuring that blockchain serves as a transparent, secure, and verifiable record of carbon credits, it becomes much easier for companies to buy and sell carbon credits without fear of price manipulation. That ought to drive more investment into renewable energy projects and encourage companies to lower their carbon footprints.
Some real-world examples of Blockchain in renewable energy:
There are already several companies and projects that are experimenting with how blockchain can take the renewable energy sector forward. Some notable examples include:
1. Power Ledger
Australian startup Power Ledger uses blockchain to make possible peer-to-peer energy trading. Instead of some sort of traditional utility company, the platform allows users to buy and sell excess renewable energy directly.
Power Ledger is an Australian clean energy technology firm that has been supplying some utilities, governments, and businesses with a blockchain-based energy trading platform.
2. Brooklyn Microgrid
New York City’s Brooklyn Microgrid is a community-driven energy project using blockchain to enable local energy trading. Through the project, renewable energy is generated, stored, and traded within the community to form a decentralized, more efficient, and more resilient energy grid.
3. WePower
The idea is that WePower wants to connect renewable energy producers with corporate buyers in a blockchain-based platform.
The company allows renewable energy producers to tokenize their energy so they can sell it directly to buyers in advance, enabling them to get the capital required to fund new projects. WePower wants to bring order to the energy market: more efficient, more transparent, and more accessible.
Conclusion
Integration of the blockchain in the renewable energy sector can fundamentally transform the energy field through efficiency, transparency, and decentralization improvements.
Blockchain can address many of the renewable energy sector’s challenges by allowing peer-to-peer energy trading, and grid management, promoting investment in renewable energy, and carbon offset markets.
As blockchain technology matures, we should expect more creative solutions that push the adoption of renewable energy even further. The future of the energy system could be energized by blockchain provided that the correct regulatory frameworks and partnerships are deployed.