The energy sector is undergoing a paradigm shift. Geopolitical factors, global warming, renewable energy technologies, and many more factors are catalyzing this shift. Governments, businesses, and non-governmental organizations (NGOs) collectively try to steer this shift. However, they face many challenges. They are exploring cutting-edge technology solutions to overcome these challenges. Blockchain plays a key part in this effort. Read on, as we describe prominent blockchain use cases in the energy sector.
The global energy sector is massive, and it faces key challenges
The following pieces of statistics illustrate how large the energy sector is:
• Statista, the well-known statistics portal states that the global energy consumption was 620 quadrillion British Thermal Units (BTUs) in 2018. The portal estimates this to rise to 910.7 quadrillion BTUs in 2050.
• The renewable energy landscape forms a relatively small part of the total global energy sector. However, even the market for renewable energy is large. An Allied Market Research report states that the global renewable energy market will rise from $928.0 billion in 2017 to $1,512.3 billion by 2025. This translates to a CAGR of 6.1% from 2018 to 2025.
The global energy sector faces significant challenges, e.g.:
Geopolitical complexities: Geopolitical complexities cause significant uncertainties in the production and price of crude oil.
Global warming: Global warming and the heightened awareness around it make the world look for alternatives to fossil fuels.
Inefficiencies: Energy distribution involves complex processes. Retailers act as intermediaries, which increases the costs to consumers. Complex processes give room to widespread corruption.
The complexities of renewable energy technologies: The world looks at renewable energy as an important tool to combat global warming. However, renewable energy technologies are relatively new. These technologies are expensive.
The cost of renewable energy: The renewable energy landscape doesn’t yet have the economy of scale that the world needs. Renewable energy often costs higher. This sub-sector needs efficiency.
Why explore blockchain to resolve the challenges in the energy sector?
As we see, some of the challenges in the energy sector are complex processes, intermediaries, and inefficiencies. Blockchain makes a difference here due to the following characteristics:
Decentralization: Blockchain helps businesses to build decentralized business models. Such business models remove intermediaries.
Distributed ledger: The distributed ledger of blockchain makes it easier to share information. Stakeholders can access information quicker, and the transparency of the system improves.
Immutability: Blockchain uses encryption, digital signatures, cryptographic hash functions, and consensus algorithms. The combination of these prevents the tampering of data. This improves the trust in the system.
Smart contracts: Blockchain platforms like Ethereum offer smart contracts, open-source pieces of code where one can encode contracts. They execute autonomously. One can’t reverse the execution of smart contracts. This makes contract administration easier.
The market for blockchain in the energy sector will likely experience significant growth. A MarketsandMarkets report projects that this market will grow from $279.0 million in 2017 to $7,110.1 million by 2023. That translates to a CAGR of 78.32% during the 2018-2023 period.
Important blockchain use cases in the energy sector
The following are a few prominent blockchain use cases in the energy sector:
1. The transformation of the wholesale electricity distribution using blockchain
The electricity distribution system witnesses plenty of inefficiencies. Retailers contribute to these inefficiencies in the consumer electricity market.
Retailers don’t build the electricity grid infrastructure, and they don’t own it. These companies provide services like metering and billing. Retailers charge consumers for these services. These charges inflate electricity bills.
Blockchain can remove intermediaries. Grid+, a blockchain solution provider is doing exactly that in the energy sector.
GridPlus Energy is a subsidiary of Grid+. This retail electricity provider uses blockchain to remove various fees that were charged by intermediaries. This reduces costs for the consumers. GridPlus Energy offers real-time settlement of transactions. It offers affordable prepaid and post-paid energy plans to consumers in the deregulated areas in Texas, USA.
2. Enabling peer-to-peer energy trading using blockchain
Peer-to-peer (P2P) energy markets are shared networks of entities. Entities participating in such networks buy and trade excess energy from other participants. P2P energy markets enable consumers and organizations to trade directly with each other. This reduces the dependence on intermediaries, furthermore, it reduces the wastage of energy.
Implementing P2P energy markets tend to be hard. How will participants know who has excess energy? How much should consumers pay? What mechanisms exist to eliminate frauds? Power Ledger, an Australian company answers all of these questions using blockchain.
It has developed a blockchain-based energy trading platform. This platform allows households, organizations, and power grids to trade with each other. The Power Ledger blockchain platform allows participants to track, trace, and trade energy in real-time.
3. Improving electricity data management with the help of blockchain
Energy companies, governments, regulators, and relevant NGOs track a massive volume of information. This information includes market prices, marginal costs, energy law compliance, fuel prices, etc. Effective data management is key to delivering value to consumers.
However, many challenges lie in managing energy-related data. The data sources are varied. Many intermediaries control the flow of data, and some of them manipulate the data. The energy sector witnesses large-scale corruption in many countries. Corrupt players in this sector misreport intentionally.
This sector needs data management systems that prevent tampering of data. Blockchain offers immutability, transparency, and security, therefore, it can help here. In 2018, the Chilean National Energy Commission (CNE) decided to use blockchain to manage energy-related data.
The regulator decides to record, store, and track energy-related data on a blockchain platform. It chose Ethereum to do that.
4. Improving efficiency in the oil and gas industry using blockchain
The oil and gas industry maintains various trading systems. This industry also maintains a wide range of information systems to manage data like labour, transaction settlements, etc. The presence of many information systems causes inter-system communication issues, furthermore, it reduces the visibility of data.
Blockchain can help with its distributed ledger. It offers immutability and security, which ensures data integrity. BTL, a Canadian blockchain start-up demonstrated that in 2017. The company built a blockchain-based protocol named Interbit. This platform facilitates gas trades and tracks the relevant data.
BTL conducted a pilot project involving Interbit in 2017. Oil and gas majors like BP and Wein Energy participated in this pilot project. The 12-week pilot project demonstrated significant cost reduction in managing and tracking gas trades.
The energy sector is witnessing a series of tectonic shifts. Stakeholders in this sector use a variety of technology solutions including blockchain to steer this shift effectively. Blockchain is making a mark in this sector, thanks to its decentralization, distributed ledger, security, immutability, and efficiency. We reviewed a few prominent blockchain use cases in the energy sector.