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Blockchain and the Future of Energy

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The Challenges

The energy industry has had an incredible impact on our world over the past one hundred years, bringing affordable and reliable electricity to businesses and homes and powering revolutions in manufacturing, computing, and – well, pretty much everything else. In 2017, however, the industry faces significant challenges. Encouraged by policies aimed at addressing climate change, new alternative energy producers are connecting to the grid, but many of these create electricity at times that don’t match peak demand, or produce energy intermittently.

Policies to encourage citizens to adopt energy-efficient behaviours need more than “wait for the discount on next month’s electricity bill” incentives to be fully effective. And households are beginning to purchase electric vehicles (which come with high-capacity batteries) and to install newly-inexpensive solar panels, but these energy resources cannot be seen, tracked, or accessed by utilities managing the grid.

As a result, power supply often remains out of sync with power demand, forcing either expensive permanent additions to “base load” capacity (by building new power plants) or the purchase of electricity from grids in other regions – and our necessarily ambitious climate change goals go unmet.

Blockchain and Overcoming these Challenges

Blockchain technology promises to help utilities overcome these challenges and to create new opportunities as well. As we discussed in our first post, blockchain is essentially a shared and distributed ledger for tracking assets and transactions across a network of participants.

Because it is distributed – every participant has a copy of the blockchain software and a copy of the ledger – no single participant has to take on the burden of setting up and maintaining a single massive database to track everyone and everything happening on the network. This makes it easy for new participants of any size to join or exit the network; they may be a regional utility company, a neighbourhood, or a single household.

And because blockchain’s consensus mechanism – which requires parties to certify that a transaction happened the way it is claimed to have done before it can be placed immutably on the chain – has a strong fraud-reducing impact, there is a much lower requirement for a significant level of trust to be established between any two participants before they transact. This makes it much easier to form a wide and mutually-beneficial network of participants, without necessarily requiring credit histories or bona fides. A utility, alternative power providers, regulators, hundreds of thousands of households: all can participate in a single blockchain.

Once connected, each participant in an energy blockchain would be able to “expose” elements of their energy demand or supply to the other participants, based on the blockchain permissions they set and the rules they must follow. An alternative energy provider, for example, could expose the types of controllable resources it has available, as well as the types of market services it would be willing to offer and at what price.

If a family’s solar panels are producing surplus power that they (being on vacation for two weeks) can’t use, their software could automatically sell that electricity to the utility or even to other households – earning them money while they’re on the beach. Or the household’s battery could store the energy and make it available to the utility whenever it needs to draw on that power to balance the grid, participating in a program that could include a flexible range of financial or non-financial incentives.

For its part, a utility would be able to see all of the energy assets connected to its grid, from the small natural gas generator installed by a local factory to the stored energy in the batteries of electric vehicles purchased by individuals across the region and made available for draw down by the grid (at the right price).

As more of these assets become connected to a grid and turned into purchasable commodities by the blockchain, a utility will have an ever-increasing number of ways to balance volatile electricity demand against a mix of base, intermittent, and stored energy supplies. And as blockchain participants with their own set of permissions, regulators and governments would enjoy unprecedented transparency into the dynamics of grids, into electricity pricing, and into supply and demand behaviours that would enable them to improve policies and develop more powerful and more finely tuned incentives for clean energy production and use.

What will this mean for a single household?

First, participating in an energy blockchain would turn energy-related equipment into income-generating assets: a solar panel, an electric vehicle, a farm’s wind turbine – all of these would not only lessen a household’s electricity bill (as they do today), but their production and storage capacities would become actors in a range of market services of value to utilities, businesses, and other households.

Even households without energy-producing or storage equipment would benefit, as their energy-efficient behaviours – which free up grid electricity for use by other participants – could be transformed immediately (not via a discount on next month’s bill) into new income.

What’s more, by partnering with a payments platform, a utility could offer its blockchain participants an easy way to transform their energy income into a range of other instruments relevant to the outside economy: immediate cash in their bank account, loyalty points with their favourite brand or program, discounts on purchases at their grocery store.

Making the Vision Real

All of this potential lies not in our far future, but in the near to medium term. In fact, we’ve launched just such an initiative already with partners IBM – one of the global leaders in developing and applying blockchain solutions, and a major participant in the Linux Foundation’s Hyperledger Fabric (a permissioned blockchain platform) – and Alectra, an electrical distribution company serving nearly one million customers in Ontario’s Greater Golden Horseshoe area.

Combining IBM’s blockchain technology, Alectra’s energy expertise, assets, and regional customer base, and our own digital payments platform and unmatched merchant and financial institution network, together we plan to start making real the exciting vision we described above.

And, naturally, we’ll be keeping all of you in the loop – and perhaps even working with some of you – as we make progress.

Click here to read part one of our series: Blockchain Comes of Age.

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