Blockchain Use in Microgrids: Applications, Benefits, and Challenges

As centralized energy systems age, many communities are searching for more sustainable, reliable sources of power. As a result, microgrids, or small networks of distributed energy resources, are becoming popular among communities, enterprises, and neighborhoods.

Blockchain, a digital ledger technology that records and tracks transactions, can help facilitate the global adoption of microgrids and promote trust in peer-to-peer (P2P) energy trading. From automating smart contracts to protecting transaction data through inherent immutability, blockchain use in microgrids opens up a world of possibilities.

The Basics of Blockchain Microgrids

A microgrid is a small, self-sufficient energy network that serves a local area, such as a neighborhood, business park, or town. To understand blockchain applications in these small, decentralized systems, it is important to know how these energy systems operate and where a digital ledger can support their operations.

Understanding Microgrids

Most energy systems operate using a traditional centralized model on a large power grid. Power plants and power stations generate energy for all consumers within a certain geographic area. A wide transmission network then distributes this power to these consumers.

Under a microgrid system, neighbors participate in a localized energy market and can trade power within a specific ecosystem. Residential consumers can use a microgrid, as can discrete operations like schools, mines, health care networks, military facilities, and municipal services.

There are several key benefits of microgrid systems:

Sustainability: Microgrids promote the widespread use of renewable energy sources. To generate power for consumers within a local area, microgrids rely on distributed energy resources, such as solar panels, wind turbines, and battery storage. These devices often generate cleaner and more sustainable energy than power plants, which typically rely on fossil fuels.
Reliability: Microgrids are more reliable than centralized energy systems as they eliminate a central point of failure. When a large power grid experiences a failure, all consumers can lose power for hours or even days. However, distributed energy resources operate independently from each other close to the energy load. If one generation system experiences an outage, the blackout affects only a handful of consumers. It is far less likely that multiple power generation sites would experience simultaneous outages.
Transactive Energy: Consumers can secure tangible compensation by participating in microgrids. In a centralized power system, utility companies control the purchase and sale of energy. When excess energy becomes available, consumers do not typically receive any benefits. However, microgrids facilitate the transition to transactive energy systems, where consumers can own and operate distributed energy resources. When these consumers generate excess energy, they can sell the power back to the grid or their neighbors.

How Blockchain Can Support Microgrids

A blockchain is a shared, immutable digital ledger that records transactions and can be used to track assets, such as land, money, copyrights, intellectual property, and distributed energy resources. Blockchain networks can be public, where any party can participate, or private, where authorized users are the only people who can access it.

When a transaction involving these assets occurs, the blockchain network records it. Each block of transaction data connects to the ones next to it in the chain. No party can change or alter a transaction after the blockchain network records it. If a transaction contains an error, the appropriate users will need to enter a new transaction to resolve it.

Blockchain can support microgrids in several ways. Because the ledger is immutable, blockchain networks make it simple to accurately track energy transaction data and confirm the exact time and sequence of certain sales. Using blockchain electricity management platforms, all parties have greater control and visibility over their energy usage and can easily engage in transactions.

To facilitate an energy transaction, users can implement smart contracts into the blockchain network. A smart contract is a set of rules that dictate when an energy transaction can occur. When a transaction meets the conditions of the smart contract, the blockchain automatically completes the sale.

Blockchain Applications in Microgrids

Blockchain can improve energy democracy and support the transition of consumers into independent prosumers who manage their own energy resources. There are several prominent applications of blockchain in microgrids, including P2P energy trading, energy efficiency, and virtual management platforms.

Peer-to-Peer Energy Trading Networks

P2P energy trading is one of the most popular applications of blockchain use in microgrids. Under a centralized energy system, consumers do not have access to benefits, even when their energy activities support the centralized power grid. Utility companies are usually the sole beneficiaries of energy transactions.

Transactive energy systems that operate using microgrids shift this centralized system. Consumers produce their own energy and sell the excess to their neighbors and to the grid, gaining compensation in the process. However, navigating these contracts can be very complex without the right tools.

This is where blockchain technology can help. Blockchain can help consumers validate, record, and settle energy transactions in real time across multiple distributed energy resources. Using virtual resource management platforms, prosumers can configure smart contract rules to complete these transactions automatically.

Virtual Electricity Management Platforms

To make transactive energy more accessible, microgrids require virtual electricity management platforms. Prosumers require insight into their distributed energy resources, power generation, and energy transactions. Consumers also need to track their own energy usage and identify areas for efficiency.

Blockchain can aid in the development of virtual applications where consumers and prosumers alike can manage their energy. Using blockchain platforms, all parties on the microgrid can receive secure and real-time updates of energy usage data. Prosumers can configure smart contracts without needing to understand complex technology rules.

Because blockchain ledgers are immutable, these electricity management platforms provide an additional degree of accuracy and reliability. No one can alter or tamper with an energy transaction, and all parties can use these platforms to track and facilitate their transactions.

Emission Reductions in Power Grids

Climate disasters, such as floods, fires, and droughts, are increasing in frequency year after year, according to the United Nations Environment Programme. Experts link rising global temperatures and greenhouse gas emissions to these catastrophic events.

Large, centralized power plants are major contributors to these emissions. In fact, only 5 percent of the earth’s power plants are responsible for 73 percent of global greenhouse gas emissions.

Environmentally conscious consumers are searching for ways to reduce emissions and turning to microgrids. While microgrids alone help reduce emissions by supporting the transition away from these large plants, blockchain technology can advance this goal even further.

Using blockchain, consumers gain a more comprehensive view of their energy usage. As a result, they can deploy changes to optimize resources and reduce their reliance on the centralized power grid.

In a microgrid system, blockchain networks can automatically assess energy levels from distributed energy resources. By analyzing data in real time, this technology can facilitate efficient transactions and help mitigate a community’s carbon emissions. In fact, case studies show that a proposed P2P trading framework can save 1465.9 g of carbon emissions each day.

Current Blockchain Microgrids and Concepts

Blockchain can support independent and grid-connected microgrids alike, and many communities, governments, and businesses are taking notice. There are several projects where people can see blockchain microgrids in action, including the Port of Rotterdam initiative, the Brooklyn microgrid (BMG), and Switzerland’s Project Quartierstrom.

Use Case #1: The Port of Rotterdam

The Port of Rotterdam is a large seaport located in the Netherlands. Many commercial energy consumers operate in the port’s dock, which presents a strain on energy resources. Wanting to reduce its energy consumption and promote the use of renewable energy, the Port of Rotterdam began engaging technology companies to develop a microgrid electricity trading platform.

In August 2020, the port launched a pilot of its microgrid electricity trading platform, known as Distro. This technology operates using artificial intelligence and blockchain, which facilitates energy transactions between the Port of Rotterdam’s commercial energy consumers. This solution is helping the port reduce historic wastages and promote the use of renewable energy.

Use Case #2: The Brooklyn Microgrid

One of the most well-known blockchain microgrids operates in New York City. The Brooklyn microgrid acts as an energy marketplace for solar energy, which prosumers generate. Using the BMG marketplace, local residential and commercial solar panel owners can sell their excess energy back to other participants in the grid. The BMG marketplace is a grid-connected microgrid, meaning that it derives power from the main grid as well as distributed energy resources.

The transactive energy platform uses blockchain to save transaction data in an immutable ledger. Users can engage in energy transactions by configuring smart contracts in a smartphone app. Consumers can track their usage and transactions in the app as well, providing them with greater control over their energy resources.

Use Case #3: Project Quartierstrom

Project Quartierstrom is a microgrid initiative involving thirty-seven households in Switzerland. The Swiss Federal Office of Energy funded the project to help identify whether blockchain-powered microgrids could support a local community.

Beginning in July 2019, the Swiss community produced their own solar power locally. Prosumers configured smart contracts and consumers established their maximum prices using a digital portal. Each household received a computer with built-in electricity meters and blockchain software to facilitate energy transactions.

Using automated blockchain technology, Project Quartierstrom assessed energy usage per household and placed energy bids up for purchase and sale every fifteen minutes. As a result, consumers were able to participate fully in the energy economy. Project Quartierstrom ended in July 2020, but the follow-up project Quartierstrom 2.0 is continuing the initiative.

Pros and Cons of Using Blockchain Technology in Microgrids

Blockchain technology can support the microgrid in several ways. However, many people still hold certain concerns about blockchain networks.

This technology requires high scalability, secure blockchain platform components, and significant investment in infrastructure and development. As a result, there are many challenges to implementing blockchain in microgrids:

Scalability Issues: Blockchain networks need to handle massive amounts of data, and transaction volumes increase every day. To accommodate the ever-growing number of transactions, blockchain networks need to be highly scalable. Building massive, highly scalable infrastructure can be intensive and expensive.
Regulatory Support: In order to implement blockchain in microgrids, new types of contracts, regulations, and laws are necessary to govern distributed energy systems. However, it is not in the energy industry’s best interest to radically overhaul their operations and support the transition to distributed energy systems. Proponents of blockchain microgrids can face difficulties while trying to pass legislation due to industry opposition.
Privacy Concerns: Many people worry about implementing blockchain due to perceived privacy issues. On a public blockchain, anyone can participate and see transaction data. For businesses and other private groups, a public blockchain for energy transactions may not be the best fit. Private blockchains restrict access to authorized users and may support the privacy needs of these enterprises.

While blockchain proponents may face several challenges to adoption, there are several advantages of this technology. Blockchain can open up economic opportunities for consumers that could not access these benefits before. This technology can help support the transition to clean energy, reducing the world’s reliance on fossil fuels.

Additionally, blockchain can help facilitate the transition away from aging, centralized power systems. As these systems continue to crumble and contribute to major crises, blockchain can open a new, decentralized system that is more reliable, accessible, and visible than legacy operations.

Advancing Blockchain Applications in Energy

Blockchain use in microgrids has the potential to open a wide range of opportunities, from automated energy transactions to improved energy efficiency. Greater blockchain investment can support microgrid systems and large utilities alike.

To learn more about blockchain-based applications in the energy sector at large, check out this article from IEEE Access.

Interested in learning more about blockchain use in microgrids? Get involved with IEEE Blockchain-Enabled Transactive Energy (BCTE). This program is series of regionally diverse virtual forums addressing Blockchain-enabled transactive energy in the domain of electrical power and energy application development. To learn more about IEEE Blockchain, join the IEEE Blockchain Technical Community to stay informed of latest activities.