What does blockchain mean for the renewable energy sector?

Blockchain is often presented as an almost magical tool for solving many of the world’s problems, but for many, this technology remains confusing and mysterious. The recent explosive growth and the sudden fall of Bitcoin have drawn a lot of attention and put a new focus on the topic.

There are numerous blockchains today, Bitcoin being the first. While the Bitcoin blockchain’s only application is a cryptocurrency, recent developments are allowing blockchain to be applied in many new areas, including energy.

We asked specialist Olga Jensen about the key things everyone should know about this groundbreaking technology and what it could mean for the future of the energy sector and the renewable energy transition.

Back to basics – what is blockchain?

Blockchain technology is no more than a new way to handle data – essentially, a decentralised database.

Take the example of money transfers: as of now, most people keep their money in a bank, who they trust to handle transactions and keep track of their balance. The bank stores their financial data centrally and has a monopoly on it. All digital transactions have to go through the bank, and they are the only ones who can tell you your balance.

Blockchain cuts out the bank and allows people to make transactions directly. Like a bank, it ensures a sufficient amount of money is transferred, keeps records, and makes sure data is secure and trustworthy. Unlike a bank, the database has no owner.

Instead, the blockchain network is run on many individually owned computers or “nodes” that maintain the database of transactions. The same history of transactions is stored either on numerous decentralised computers or – as in the case of bitcoin – on every computer, which makes the system difficult to tamper with. If a hacker wanted to alter anything, they would need to hack all of the devices simultaneously.

To summarise, blockchain eliminates the need for a third party. Blockchain is useful in databases with no intermediaries, where users still need security and trust – not just for money, but for any transfer of data.

Is it true that blockchain uses a lot of energy?

Yes and no. This depends on the “working principle” of the blockchain – the system for agreeing that a transaction is valid.

Blockchain’s energy consumption is directly linked to “data mining” – solving mathematical problems to validate transactions and gain rewards.

In Bitcoin’s data mining system, every machine in the network competes to solve mathematical problems. The first to solve each problem “wins”, receiving Bitcoins for their efforts, and at the same time blocks of transactions are validated.

This huge number of machines computing simultaneously leads to enormous energy consumption. In March 2018, the Bitcoin network reached 57 TWh of annual electricity need – around 86.5% of the consumption of the Czech Republic. A single Bitcoin transaction needs over 500,000 times more energy than a Visa transaction, entailing huge carbon emissions.

Thankfully, there are alternatives to this system that could allow Bitcoin and other blockchains to become more sustainable.

For example, the current system for validating transactions, “proof of work”, could be replaced by another system known as “proof of stake”. This system consumes less energy because mining does not have to be carried out by all the nodes. Instead, the job of validating blocks is shared out based on users’ stakes in the network. Therefore, it is more energy-efficient.

To sum up, yes, blockchain technologies based on the proof of work system – such as Bitcoin currently use huge amounts of electricity. However, there are many alternative “working principles” that could help to avoid wasting energy.

How could blockchain affect the energy sector?

Blockchain’s ability to allow peer-to-peer energy transactions could significantly disrupt the energy sector, particularly by encouraging decentralisation.

The growing use of small renewable energy installations, such as rooftop solar panels, can create stress on electricity grids that were designed with large, centralised power plants in mind. By allowing peer-to-peer energy trading and incentivising local consumption at the time of production, blockchain could stabilise the grid, aiding this decentralisation.

However, with users paying each other directly, many of the traditional market roles could be called into question, including distribution system operators, retailers, suppliers, metering point operators, balancing groups and more.

Pilot projects for community energy and peer-to-peer have already been successfully run by the Brooklyn Microgrid in New York , PowerLedger in Australia, Conjoule in Germany and many more. However, in Europe these experiments are limited to pilots under regulatory exemptions or private microgrids – peer-to-peer remains far from being rolled out universally.

Blockchain could also be used for electricity tracking with at least two purposes: rewards for generating renewable energy (e.g. SolarCoin) and renewable energy certificates or carbon credits. For those who want to invest in renewables but lack the funds, blockchain technology could enable collective investments, ensuring fair and transparent sharing of revenues.

Should we accept blockchain-based solutions as a reliable method for energy tracking?

Given properly calibrated and installed smart energy meters, blockchain could ensure the tracking of electricity in real-time and avoid double counting.

As of now, electricity can only officially be called renewable in Europe if accompanied by Guarantee of Origin (GO) certificates. GOs – for both normal renewable and EKOenergy certified renewable energy – are issued for every MWh, which can be prohibitive for small producers who may never generate this much electricity.  Blockchain could open the door for these small-scale producers, as well as new market players such as aggregators, to receive energy certificates.

However, there needs to be a way to make sure that installations that already have GO certificates do not use blockchain certificates to sell the “greenness” twice. If blockchain is accepted as a solution for energy tracking, it must be carefully monitored and strict criteria developed.

So will we all live in a blockchained future?

As always, the future is uncertain, but one thing is for sure – the way we store and exchange information is changing, and it is unlikely that the energy market will look the same in decades to come.

If harnessed for good, blockchain could play a key role in speeding up the renewable energy transition. At EKOenergy, the international ecolabel for renewable energy, we are looking forward to seeing how these technologies develop.

Illustration by Petter Nissinen

Posted on 12 April 2018