Bitcoin tech could spark energy revolution
Blockchain technology is well-known for its use in the financial sector as it enables the trading of cryptocurrencies such as bitcoin. And, over the last couple of years, we’ve seen more companies investigating its potential in alternative fields, including renewable energy.
We’re now seeing some interesting results of that work.
For example, British utility Centrica said last month that is planning to use blockchain to help address the issue of curtailment of renewable energy, which affects up to 10% of production in the UK. The utility is planning a pilot to help consumers to buy and sell locally produced wind and solar energy in order to avoid waste of energy.
To do this, Centrica would use a blockchain energy trading platform developed by New York-based LO3 to allow up to 200 homeowners, businesses and renewable energy producers to buy and sell energy according to their needs.
Blockchain could change the energy market as we know it.
“Blockchain is an opportunity for the energy market place as a whole. Changing the energy market place then becomes an opportunity for renewables because they would become more flexible and more responsive to what the market really needs,” said Elaine Greig, director at consultancy Renewables Consulting Group, who has been conducting research to encourage the renewable energy market to make use of the opportunities that blockchain could offer.
In short, blockchain could enable the development of a decentralised yet integrated trading system that would permit renewable energy businesses to trade energy with a greater flexibility. This could help create an open energy market, in which large and small renewable energy producers representing interconnected nodes are able to interact directly between each other to responsively satisfy the energy demand.
Such a system would be enable a more efficient management of the grid, cut operational costs and provide new revenue streams for wind and solar producers. That’s the aspect we expect to make investors really take notice.
“Traditionally, renewable energy providers have just sold MWh through a subsidy system. This is how you get some guarantee of income”, said Greig. But the market needs auxiliary services to keep the lights on, and blockchain technology could enable wind and solar producers to come in and give the grid operator alternative ways to manage the grid.
Greig explains: “If you have open access for your energy trading, more and smaller renewable energy providers could be able to provide short-term energy contracts, for example. You know what the wind is going to be in 12 hours, but you can’t say that with six months’ notice. But, for short-term response, you can then bid in and secure income by being available for that need.”
“For renewables, this would take the system beyond just selling few MWh to actually providing services that the grid needs”, she said.
Wind and solar companies would be the biggest winners of this decentralised system and, ultimately, consumers. Greig argued: “People selling would be able to sell what they couldn’t before, while people buying would be able to buy cheaper energy and services.”
This would also potentially represent a threat to traditional utilities.
“A free energy trading system will affect what the utilities can do, because they will have to be very responsive to a market. While previously they had full control over what happened, they have no control of a completely peer-to-peer market, which will be a big challenge, and so they need to get very responsive because it will be very difficult for them”, Greig said.
What’s the solution for these utilities? “At some point they would have to deal with it because they are not like Uber and Just Eat, they are responsible for keeping the lights on, so they will have to find a solution… It’s a problem worth being solved.”
The use of blockchain technology in the energy market is still largely unproven and some barriers remain. One of the biggest issues is the current regulatory framework, which prevents the adoption of a decentralised transaction model. However, Greig said she found it promising that UK energy regulator Ofgem is supporting blockchain as part of its “Innovation Link” programme, for example.
Blockchain hasn’t yet enabled bitcoin to overhaul the global financial system, but it could yet start a revolution in the energy trading market.