The Energy Web Foundation is supporting the commercial implementation of blockchain applications that promote investments in clean, secure, and reliable electricity systems worldwide.
Blockchain technology—the technology underpinning Bitcoin, Ethereum, and numerous other digital currencies— has the potential to profoundly transform the energy sector. Specifically, we believe blockchain will redesign the rules of the game on how energy is distributed and transacted.
Energy Web Foundation (EWF)—a global nonprofit organization founded by Rocky Mountain Institute and Grid Singularity—is building an open-source blockchain infrastructure to serve as the standard industry platform for blockchain applications in the energy sector.
Where to Start?
To understand the potential impact and value of blockchain in the energy sector, it’s first helpful to understand the problems that the technology can solve.
Electricity grids and markets have remained largely unchanged for the past century: power is generated in massive, centralized stations and transported one-way over vast distances to endpoints at the grid edge that operate mostly independently and obliviously to the broader system they inhabit. The whole system is regulated by a mix of authorities and relies on complex physical and financial transactions between consumers, retailers, utilities, third-parties, and grid operators to function.
In recent years this paradigm has started to shift, as cost-effective (and zero-margin) renewables, behind-the-meter energy resources (including flexible loads), decarbonization policies, market deregulation, and software-enabled services have proliferated in response to societal and regulatory demands for resiliency, customer choice, and carbon mitigation. Utilities and grid operators must now account for these technologies and policies in both short-term (balancing) and long-term (investment) planning with limited visibility and control over them. Incumbents are constrained by regulatory frameworks and investments made in and for a fundamentally different era.
Advances in IT and communications networks have driven a digital revolution within the electricity sector; an explosion of data from internet-connected devices and sensors across the system has created new products and service offerings for consumers and operators alike. Even so, these solutions solve for single problems rather than system-wide harmony and program administration and data management remain burdensome as a mix of proprietary and closed systems often compete, rather than complement one another.
As a result, existing market models are at odds with a diversifying asset base (increasingly dominated by low-cost natural gas and variable renewables), intermediaries pervade all steps in the delivery chain (particularly for services like renewable energy credits, demand response, and electric vehicles), and consumers and operators alike struggle to maximize value of DER. And increasing digitalization of the grid heightens the risk and potential consequences of cyberattacks.
This is the great challenge for the 21st century electricity system: Reconciling legacy infrastructure and market models, evolving consumer preferences and policy mandates, and rapid digitalization with the physical realities of the grid.
Blockchain is best known for supporting digital cryptocurrencies, and early blockchain experiments were limited in scope to one or a few functions like executing transactions between parties on a distributed ledger. But innovations in blockchain technology, including the development of Turing-complete programming languages, have unlocked radical new opportunities.
Just as modern personal computers and smartphones are platforms upon which nearly infinite applications can operate, a blockchain is a decentralized, immutable, cryptographically secure computing environment. Think of a blockchain as a virtual machine: a computer, with a single, knowable state, that is supported by a network of physical servers connected by a common protocol. There is no single point of failure in the system, and once data is added to the ledger it cannot be deleted or changed.
Blockchain is a technology that elegantly fuses physical assets and financial markets, and three attributes are particularly compelling for the energy sector:
- Blockchains with smart contracts could simplify and lower the costfor all types of energy transactions – ranging from wholesale trades to renewable energy credits – enabling buyers and sellers of all sizes to interact directly using smart contracts—code, shared between participants, that executes an action when a set of predetermined conditions are met. This type of peer-to-peer trading system also enables real-time settlement, eliminating the need for intermediaries and related process steps, lowering internal administration and auditing costs. Smart contracts can also be combined to create distributed applications that can perform all kinds of functions ranging from asset registration, to measurement and verification, to unit commitment and dispatch.
- The “immutability” of data on a blockchain-based system makes data computationally impossible to tamper withdue to a combination of strong cryptography, the interdependent relationship between each block of data, and distributed consensus. Guaranteed data integrity and strong encryption to protect confidentiality and privacy commoditize trust between parties, even if they do not know each other.
- An open-source, global blockchain infrastructure will help encourage standardization across geographies. A common platform would help enable frictionless buying and selling of energy globally—enabling the market participation of many more resources (generation, storage, and load) and buyers, especially ones currently shut out of the market due to the high transaction costs and complications associated with participation.
By securely managing data (memory) and supporting decentralized software applications (intelligence), blockchain can be the digital brain for electric grids.
EWF has filtered through a wide range of roughly 200 energy-specific blockchain applications to focus on four application domains with an estimated market size of at least $1 billion per year:
- Certificates of origin: Any blockchain application where renewable energy generators and certificate buyers interact directly and use smart contracts to streamline the overall process through the automation of certificate issuance, tracking, and retirement;
- Demand response: Any blockchain application where demand response aggregators (i.e., utilities and third parties) use secure smart contracts to conduct aggregation, real-time measurement and verification (M&V), settlement, and trading for energy efficiency and demand response programs;
- Utility Billing: Any blockchain application where utilities and third parties use cryptographic identities to manage metering, customer settlement, advanced rate implementation, or customer switching;
- Transactive energy: Any blockchain application where devices automatically respond to local conditions on the distribution grid in real time, engaging in two-way price negotiation based on a combination of user preferences and grid needs.
EWF has partnered with over 20 global energy companies to test the value of blockchain within these domains, and where value is identified, deliver a foundation for commercial applications. Multiple projects within each domain are underway, including an open-source Certificates of Origin application to be released in the coming months. Over the next year, EWF will continue to explore other shortlisted use cases—such as the management of electric vehicle batteries and charging infrastructure, supply chain tracking for utilities, and wholesale market settlement—where blockchain can lower costs, enhance privacy and security, and create new revenue streams.
Crafting a New Global Standard for Value Creation in the Energy Sector
EWF will be announcing several major updates about our core blockchain infrastructure, affiliate ecosystem, and initial demonstration projects at Event Horizon 2018 in April. In the meantime, companies interested in joining the growing list of EWF affiliates from across the globe and driving the creation of the blockchain platform for the energy sector should send an email to email@example.com.
Sam Hartnett is an Associate at Rocky Mountain Institute and member of the Energy Web Foundation team, where he works with major energy companies to develop blockchain applications for demand response, electric vehicles, and peer-to-peer markets.