5 Blockchain applications in the electricity sector

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In 2008, an article published by Satoshi Nakamoto introduced the world to Bitcoin, a cryptocurrency that promised to revolutionize the financial system. Just over 10 years later, Bitcoin has made remarkable strides, becoming a digital currency accessible to people all over the world, and its underlying technology, known as Blockchain, has come to be explored in several other sectors.

This article discusses applications of Blockchain technology for the electric energy sector and shows how it aligns with other industry trends, such as clean energy generation and electric mobility.

Blockchain and Smart Contracts

In a simplified way, Blockchain can be compared to a ledger, such as those of notaries, where transactions are recorded. However, this ledger is not physically located in a specific location, but distributed on the computers of users of the system. It is as if each customer of a notary had an identical digital copy of the ledger and all changes in one of these copies (for example, for the registration of a new transaction) were automatically replicated for all their copies. Thus, the Blockchain guarantees accessibility and transparency about the information stored on it.

The information is stored in chained blocks, sequentially linked in chronological order, creating a transparent and immutable history of the stored transactions and records. For example, if we use Blockchain to store a property’s registration record, all purchase and sale transactions for that property would be stored in sequence, but it would not be possible to change a past transaction already registered. In this way the technology guarantees the security and immutability of the data stored in the Blockchain.

In addition, Blockchain uses consensus mechanisms, a procedure in which the links in the blockchain network reach an agreement on the state of the distributed ledger to ensure that there is confidence in the information stored in the system, eliminating the need for a central authority for the validation of stored information. Going back to the real estate registry example, a Blockchain solution could eliminate the need for physical registry offices to verify and effect the registration of each transaction. Thus, Blockchain guarantees the reliability of stored information and promotes disintermediation in business processes, eliminating the need for central authorities (such as notaries) and, consequently, reducing the cost associated with operations.

Some of the central features of Blockchain are:

  • Accessibility and transparency of information stored in a distributed manner;
  • Security and immutability of records;
  • Reliability of stored information;
  • Disintermediation in business processes;
  • Process automation;
  • Cost savings.

These characteristics make it considered a disruptive technology and can be applied in different use cases related to the registration and traceability of assets (such as real estate, intellectual property, jewelry, production inputs, etc.) that are represented internally on a Blockchain platform like Tokens. Blockchain technology can also boost the so-called sharing economy, helping to create solutions for the intelligent control of shared access to shared objects or resources (such as shared means of transport).

On top of this distributed and secure Blockchain infrastructure, smart contracts enable transactions to be carried out automatically by the system.  Intelligent Contracts, according to the jusbrasil website, can be understood as excerpts of programs (computer codes) that are executed during the execution of a transaction, thus any contract capable of being executed or enforced by itself, being able to formalize negotiations between two or more parties.

This mechanism can be used to ensure that contract terms and business rules (such as the price of an asset, available balance, etc.) are automatically verified by Blockchain during the execution of a transaction, reducing costs and increasing the efficiency of these processes. Taking the case of real estate registration as an example again, in a property sale transaction, Smart Contracts could transfer the property registration to the new owner after the contract clauses were validated, such as the signing of the contract by the parties involved and transfer of the financial resources of the purchasing party.

Applications in the electricity sector

Blockchain technology has also been applied to the electricity sector, exploiting the characteristics of the technology to create new business models or even to improve the efficiency of current processes. I listed 5 applications of Blockchain technology and their use cases in the energy sector.

1- Commercialization of P2P distributed generation energy

This is probably one of the most well-known use cases for using Blockchain in the electricity sector. The idea here is to allow distributed energy, generated, for example, through solar panels, to be traded directly (point-to-point, or P2P) between producers and consumers, without direct control by the concessionaire.

The concept was first applied in 2016 to a pilot project implemented in the Brooklyn neighborhood of New York. The system allowed the first direct commercialization of solar energy using Blockchain. The technology used in the project was an open source Blockchain called Ethereum and the transmission of energy between project participants took place through a microgrid from the company LO3 Energy, a US startup.

Electric Mobility

Blockchain can be used in the context of recharging electric vehicles, enabling energy transactions, as well as payments, to be carried out through this distributed platform.

Share & Charge is a pilot for an Open Recharging Platform for electric vehicles, developed by the German startup MotionWerk, which uses Blockchain technology. Companies that operate recharging points (or owners of private electroparts) can make their recharging infrastructure available on the platform, while drivers can use the platform’s app to find an electropost, perform the recharge operation and pay with their own virtual currency. the platform.

3- Certificates of origin

Another Blockchain application in the energy sector is related to its use for the registration of renewable energy, which is currently done through Renewable Energy Certificates (or REC). The use of Blockchain and Smart Contracts could make the registration and traceability of renewable energy more automated, reducing the costs associated with the process.

The EWF (Energy Web Foundation), a consortium of companies that produces Blockchain-based solutions for the energy sector, created EW Origin, an open source toolkit for certification of renewable energy origin.

4- Wholesale energy sales

The Wholesale Energy Market is the environment in which large volumes of energy are traded, typically between generators, transmitters and distributors (in Brazil also extending to retail, through the so-called Free Energy Market). It is a complex negotiation and commercialization process, involving technical, institutional, legal and regulatory aspects, which are specific to each country’s electrical system.

In Brazil, the CCEE (Electric Energy Trading Chamber), settles the purchase and sale contracts, working in coordination with the National Electric System Operator (ONS) in defining and adjusting prices and executing energy auctions for future delivery.

In this scenario, Blockchain could be used to automate the processes of energy commercialization through Smart Contracts, enabling greater efficiency of the processes, with the reduction of the processing time for the settlement of the contracts and lower cost of the process as a whole.

Energychain, a PONTON project supported by 40 European energy utilities, uses Blockchain technology to create a decentralized infrastructure for wholesale energy trading. The project started operating in 2019 and should facilitate the commercialization not only of electric energy, but also of other commodities, such as oil and gas.

5- Optimization of backoffice processes

The application of Blockchain has also been considered to improve the efficiency of backoffice processes of companies in the energy sector, making use of Smart Contracts to automate part of these processes, such as Billing (automation of the generation of consumer billing and credit calculation of energy for distributed generators), Asset Management (registration of electricity system assets, including distributed energy resources), Security Management (protection of privacy and confidentiality of customer, supplier and partner data), among other operational aspects.

The use cases above show that Blockchain can play a very relevant role in the energy sector, potentially enabling new business models, or improving the efficiency of existing processes. However, it is worth noting that the application of technology in the sector is still embryonic, with pilot projects and experiments being put into practice, but still without a broader adoption of the technology.

According to an article published by Forbes, a better understanding of the technology, the costs associated with its implementation, and other issues such as scalability still need to be answered to enable commercial applications with Blockchain in the energy segment.

As it is an essential sector for society, the regulation must also be adapted, aiming to enable new business models created by technology, but without compromising the safety, quality and reliability of the electrical system.

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