Blockchain may be best known for its cryptocurrency applications but it is promising to be a game-changing force in any application that requires certification and exchange. As part of our April Blockchain Series, we explore the hype surrounding the blockchain’s potential for the Internet of Things (IoT), through applications in smart buildings, cities and grids.

Blockchain is essentially a distributed ledger, where a continuously growing list of records, called blocks, are linked and secured across a broad network. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires collusion of the network majority - making it very difficult to corrupt or manipulate data once recorded. Blockchain therefore allows secure transactions to take place transparently and in an instant.

The Smart Grid covers a broad spectrum of technologies that have helped bring about greater efficiency, visibility and intelligence. This evolution has facilitated the greater incorporation of renewable and distributed energy, as well as placing the first stepping stone towards prosumer culture. Now blockchain promises to turbo-charge the grid’s smart evolution while offering a range of new power system opportunities only possible in blockchain’s climate of transparency and trust.

Energy Marketplace

The smart grid seeks to move us on from the slow, cumbersome energy system that has been in place for decades. Today, few energy companies update electricity bills in real-time, leaving customers to decipher confusing monthly energy bills in order to work out their daily usage patterns. This outdated system also makes it impossible to accurately compare what an energy bill might be if a consumer switched to another provider, negatively impacting the competitiveness of the market. While smart technology makes these issues more visible, blockchain enabled smart grids offer an open and highly-functional energy marketplace solution.

A power plant, for example, could update the blockchain to show how much electricity it has produced since its last entry, or block. That amount of energy would then be easily divisible among its consumers. Blockchain would also allow consumers of any size to bid on the electricity level indicated on each block, thereby creating a dynamic pricing system for electricity. This open energy marketplace would foster much greater competition in the sector.

Such a system would give consumers, and automated power buying mechanisms, visibility and access to real-time electricity rates. Meaning some companies could choose to operate at night, when rates are at their lowest, thereby easing the daytime demand on the grid, reducing costs to the company, and boosting the economy. Consumers who don’t have the option to operate at night would have greater incentive to invest in energy storage, in order to buy at low rates and use the power when it suits them - providing the same set of benefits.

Greener Power

Despite what we may hear from utilities and agencies about how green the electricity powering our specific homes and buildings is, the truth is that once renewably generated electrons enter the grid they are indistinguishable from electrons generated by fossil fuels.

In order to keep track of clean energy production the majority of power authorities around the world have applied a system of tradable certificates - such as the US Environmental Protection Agency’s (EPA) Renewable Energy Certification (REC).

“Problem is, the way we manage these certificates sucks! and it’s holding up investment in renewable power,” says Jesse Morris, an energy expert at the Rocky Mountain Institute. “A new system based on blockchain could be the solution,” he says.

In the current system, producers of renewable energy must first develop a spreadsheet showing production levels. That spreadsheet is sent to a certifying agency for review, and if approved it is passed onto the energy company. Only at that point can the energy company sell those certificates to “prove” that they are supplying a certain amount of green energy. The entire process takes up to two months, which really does “suck,” as Morris says.

Under a blockchain-enabled smart grid, the whole certification process is resolved in an instant. Sources of renewable energy would incorporate energy meters connected to the blockchain and updated in real-time. Electricity from those sources would be marked as renewable from the point of production, meaning the energy and the certification could be produced and sold immediately and instantaneously. This reduces lag time as well as costs across the sector, while also minimizing opportunity for fraud and error.

Prosumption

Just as we don’t know which electrons are clean and which are dirty, there is also a challenge to identify which electrons came from where, especially as distributed energy resources (DER) turns power consumers into prosumers - those who produce and consume energy. Our current systems for recording electricity production and consumption have been designed around large power stations feeding consumers such as residential and commercial buildings. It would not be able to handle the potentially millions of small-scale prosumers that DER promises to bring online.

In Germany, a world leader in distributed energy generation, grid operator TenneT is currently testing Europe's first blockchain project to stabilize the power system, in collaboration with home solar storage producer Sonnen. "We have less and less conventional power plants to rely on, but more and more renewables, and we need means to integrate them into a system, so we are looking for new technologies," Ulrike Hörchens, spokesperson for German grid operator TenneT, told German news agency DW.

Blockchain can essentially verify all the transactions brought about by a full-scale DER system without the need for a central main server. All the information is encrypted and stored in “blocks” for each prosumer, thereby making the whole process practically immune to fraud or tampering. According to Sonnen’s Mathias Bloch, “if 10% of German households opted for a battery in their basement and hooked it up this kind of network they could provide 6,000 MW of capacity — roughly four times that of Germany’s biggest nuclear reactor.”

Blockchain does not produce electricity itself, nor does it directly create power efficiency, but by applying blockchain we can unleash the potential of DER and therefore create new grid capacity. Pilot projects like the one in Germany hope to prove the sustainability of blockchain-enabled power systems but they still have some way to go. Opponents of such systems even claim that the blockchain itself is a heavy power consumer, so undermines the very objective of applying it. Most experts, however, believe that it is just a matter of time before power systems become blockchain ready, and many see that happening across society very soon.

"In a couple of years," says Fabian Reetz of Berlin-based think tank Stiftung Neue Verantwortung, "we probably won't be talking about blockchain anymore, but about the applications built on it" — applications that embrace everything from distributed energy trading to property ownership, or even voting and paying taxes.