Blockchain Applications in Energy: Accelerating Change through Technology

Blockchain technology is making waves in the energy industry. Blockchain can help facilitate communication between distributed energy resources like a solar panel, smart meters, or a smart grid. This technology can also automate energy transactions through smart contracts, making it easier to engage in a transactive energy system.

While blockchain technology has the potential to unlock several benefits and opportunities, many people do not have a clear idea of how blockchain works or how it impacts energy distribution. Understanding blockchain applications in energy can help accelerate change and disrupt the energy industry as a whole, which is quickly getting older.


How Blockchain Applications Impact the Energy Sector

Although technological advancements have improved the energy sector over the past century, a centralized energy model is becoming quickly outdated. Blockchain has the potential to transform the centralized energy sector into a more sustainable decentralized model.

Centralized energy models can present issues for security, reliability, and sustainability. By migrating from a centralized energy system to a decentralized, blockchain-powered one, residential and business consumers alike can unlock significant benefits.

Understanding Blockchain

To understand how a blockchain application could impact the energy sector, it is first important to understand how blockchain works. Blockchain is a network that helps record transactions and track tangible and intangible assets, such as land, copyrights, intellectual property, and distributed energy resources.

There are three key elements of a blockchain:

  • Immutable records: Blockchain is a shared, immutable ledger that stores transaction records. When a transaction enters the shared ledger, no participant in the network can change or tamper with it.
  • Distributed ledger technology: All participants in the blockchain network can access a distributed ledger, which contains the immutable transaction records. The network records these transactions only once, avoiding duplication.
  • Smart contracts: To automate transactions, participants can implement a smart contract into the blockchain network. A smart contract is a set of rules that lives on the blockchain. When a potential transaction meets the contract’s conditions, the blockchain automatically conducts the transaction.

When a transaction occurs, the blockchain network records it in a block of data. A user can configure the data block to record specific characteristics, such as an offering price or location. Each new block is linked to the ones before it in the chain, making it easy to confirm the exact time and sequence of transactions. This architecture also makes it difficult to tamper with existing blocks or insert blocks in the wrong location.

Blockchain and the Energy Industry

The energy industry traditionally operates using a centralized, legacy system. Large power plants and grids serve a certain geographic area, and consumers pay utility companies to distribute electricity to their locations. This century-old model is facing multiple challenges, including failing infrastructure, more frequent climate disasters, and poor communication due to outdated, siloed systems.

The centralized energy model also puts consumers at a disadvantage because it limits the effective use of transactive energy. In a transactive energy system, power can be generated anywhere, using distributed energy resources like solar panels, wind-generating units, and battery storage. The energy produced can be used locally, or sold to the grid for use elsewhere. With a transactive energy system, this can happen automatically and seamlessly.

In a centralized model, trading energy between locations can be slow and cumbersome. Additionally, traditional power plants often rely on nonrenewable energy sources, like coal or natural gas. These fossil fuels are major contributors to climate change. In fact, only 5 percent of the world’s power plants are responsible for 73 percent of global carbon dioxide emissions.

Blockchain can help facilitate the transition to a more sustainable, distributed, stable, and equitable transactive energy system. By using a blockchain network, utilities and consumers can facilitate transactions through smart contracts and fully participate in the energy economy.


Prominent Blockchain Applications in Energy

There are several prominent blockchain applications in energy that consumers and energy companies can leverage for their advantage. Some of the most exciting include peer-to-peer energy trading, electricity data management, and wholesale electricity distribution.

Use Case #1: Peer-to-Peer Energy Trading

One of the main benefits of transactive energy is the potential for peer-to-peer energy trading. Renewable energy is becoming more popular as consumers want to make sustainable changes. Consumers can sell their excess energy back to the central power grid, but transactional costs can be high. Using blockchain, consumers can purchase and sell energy among their neighbors, which has a lower transactional cost.

Blockchain also supports the creation of virtual microgrids, digital platforms that can operate autonomously from central utility authorities. Consumers can leverage virtual microgrids to manage, validate, record, and settle energy transactions in real time across distributed energy resources. Under this system, consumers have the power to produce energy on their own and sell the excess back to their peers on a pay-per-use basis.

Use Case #2: Electricity Data Management

Blockchain technology can help provide consumers with greater control and efficiency over their energy resources. Instead of relying on applications from energy companies, consumers can use their blockchain platform to manage their energy usage and resources. Additionally, blockchain provides a greater level of transparency and security because another user cannot alter transaction records.

Blockchain platforms provide access to secure and real-time updates of energy usage data, helping consumers quickly manage their efficiency. Consumers can also configure their smart contracts to meet their transaction thresholds, helping automate and facilitate valuable energy transactions.

Use Case #3: Wholesale Electricity Distribution

Wholesale electricity distribution is another exciting use case for blockchain in energy applications. To diversify their businesses, energy companies may want to offer a way for consumers to trade and purchase energy directly from the grid. Companies can facilitate these transactions using blockchain technology and Internet of Things (IoT) devices.

IoT devices have sensors that collect certain data points, such as information on performance, usage, security threats, and more. Using IoT data, companies can continuously monitor the performance of the grid and identify when excess energy is available. Companies can integrate IoT devices with their blockchain networks.

With blockchain technology and smart contracts, companies can automate energy transactions for wholesale electricity distribution. They can eliminate the need for employees to monitor and analyze data manually, improving efficiency and streamlining productivity.


The Potential of Blockchain Applications in the Energy Sector

Blockchain applications in the energy sector hold a lot of potential not only for consumers but for utilities as well. By implementing advanced blockchain technology into its processes, energy companies can unlock benefits for efficiency, security, reliability, and more.

Blockchain Facilitates Energy Trading

Energy trading requires high efficiency and reliability. Using traditional, legacy technologies and methods, however, it can be difficult to create a platform that meets these requirements. By leveraging blockchain technologies, companies can settle and record energy transactions in near real time.

Without blockchain, engaging in energy trading can be very complex. Companies sometimes need to hire an intermediary to facilitate the transaction, and often need to engage in reconciliation so both parties can reach their goals. By using blockchain technology, however, energy companies can implement smart contracts and filter out trading opportunities that do not meet their best interests.

Blockchain Facilitates Sustainable, Reliable Energy

Due to the impending climate crisis, sustainable energy sources are more important than ever before. Energy companies often engage in transformations where they invest in renewable energy projects and take steps to reduce their environmental impact. Blockchain can help facilitate this transition to sustainable energy.

Transactive energy systems often rely on renewable energy sources, reducing society’s use of harmful fossil fuels. Blockchain makes it easier to engage in transactive energy and facilitates the economic benefits of the system, driving consumers’ interest in distributed, renewable energy resources.

Additionally, overloaded, centralized, and outdated power grids can fail and malfunction. If one part of the system fails, the entire area that the system serves can experience failures. This can lead to serious disasters and prolonged outages like the 2021 Texas power crisis, which resulted in hundreds of deaths.

Decentralized transactive energy systems do not experience widespread outages. If a consumer’s energy source fails, the outage only impacts that consumer. This system places less stress on the centralized grid and improves resiliency, which is crucial for business continuity. By using blockchain technologies, it is easier to facilitate the transition to a distributed energy landscape and reduce the stress on the grid.

Blockchain Facilitates Auditing and Regulatory Compliance

Energy companies have a duty to report vast amounts of data to multiple regulatory agencies, depending on the scale of their business. Auditing and regulatory compliance can be a very cumbersome process that requires lots of manual labor and carries significant risk.

It can take a very long time to gather and clean the required data. Additionally, security issues can arise during these processes, and the data could fall into the wrong hands. Using blockchain, however, energy companies can potentially eliminate many of these issues.

Blockchain provides regulators with access to secure, clean transaction data at the source. Because of blockchain’s secure architecture, companies can demonstrate that the data is valid and free from tampering. At the same time, companies can retain strict control over what data is available and who can access it by configuring a private blockchain network to meet their needs.


The Future of Blockchain Applications in the Energy Industry

Blockchain is an important component in the transition to sustainable, equitable transactive energy systems. Without blockchain technology, transactive energy is less accessible to the general public. Consumers lose out on benefits for sustainability, compensation, control, automation, and more.

Blockchain technology has the potential to provide significant benefits to the energy sector as well, and many stakeholders are taking notice. In 2018, for example, the Chilean National Energy Commission launched a blockchain-based platform that tracks energy data throughout the country. Because blockchain is immutable, this effort is helping the government agency improve security, transparency, and trust in energy market information.

However, many barriers to blockchain adoption remain:

  • Concerns for data privacy: On a public blockchain, any participant can join the network and access information about transactions. As a result, many residential and business consumers are hesitant to adopt this technology because of privacy concerns. However, techniques are emerging to combat these challenges, such as data encryption and the use of private blockchain networks.
  • Infrastructure challenges: Blockchains need to handle very large volumes of data and may not have the fastest processing speeds. As a result, blockchain networks require large storage space and high-performing blockchain infrastructure, which can be expensive and difficult to obtain.
  • Lack of knowledge: Many people are unfamiliar with how blockchain works. They may dislike blockchain because of certain assumptions or associations they have with the technology.

While these blockchain challenges may seem daunting, there are many opportunities for innovation. It is possible to overcome barriers to blockchain adoption by conducting deep research on the technology and advancing its capabilities. Using these solutions, researchers can facilitate the development of strong, secure energy transaction systems that run on blockchain.


Learn More About Blockchain Applications in Energy

With blockchain technology, energy transactions can be smarter and simpler than ever before. Energy consumers can enjoy compensation benefits, energy companies can improve their reliability, and both parties can leverage blockchain to create innovative new use cases.

However, key barriers still pose a challenge for widespread adoption, especially when it comes to transactive energy systems. In the future, it is important to improve our knowledge of blockchain and advance how we use this technology in energy trading, storage, control, and more.

To learn more about blockchain applications in energy, check out this article from the IEEE Systems Journal.

Interested in learning more about blockchain applications in energy? 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.