Last week, the Council on Foreign Relations released a report on the ways in which blockchain could impact the future of our power grid.
Until recently, access to data on blockchain experiments in the energy sector has been fairly limited. However, things are starting to change. Last year, startups raised $300M through both traditional venture capital and ICO’s. Two of the most heralded fundings came from Drift (consumer-to-generation) and LO3 Energy (peer-to-peer), both of whom are looking to connect consumers to the energy provider of their choice with distributed ledgers.
As I explained in a post earlier this year, electricity trading transactions are still tracked in Excel or databases that rarely are connected but owned by large corporations. This system adds millions in additional transaction costs and makes full transparency between market actors almost impossible.
A de-centralized ledger solves almost all of these errors and would empower new entrants (i.e. consumers with excess power capacity due to solar panels) to enter the market.
Other than the power trading market, we see three major use cases for blockchain technology to impact the grid.
- Grid Security and Generation Balancing- According to McKinsey, the connected-home market is growing at a rate of 31% year-over-year with ~30M homes having some form of IoT device installed. The long-term result will be unparalleled access to data for grid operators and utilities. Blockchain has the opportunity to help solve the problems of cybersecurity and data management that will come with this new paradigm. Without access to software talent, these service providers will need help from startups to build the capabilities that allow them to take full advantage of technologies like blockchain.
- Infrastructure Financing- The US’ power grid is aging and well behind the rest of the developed world and our current political climate has prevented us from making large investments in infrastructure. ICO’s could give both individuals and investors the opportunity to participate in the power grid like never before. The use cases are wide ranging from peer-to-peer EV charging transactions to larger scale generation or transmission projects. Blockchain could provide the ledger while ICO’s could easily be tied to the amount of power transmitted to the end-user (i.e. return based on output and efficiency). It is important to note that this one is the most far-fetched of the three as it would require both consumers to become more educated and/or utilities to participate. Both of which are far from guarantees.
- A New REC — These market-based instruments represent the rights to renewable electricity generation. They contain information such as generation source, the number of megawatt hours generated and delivered to the grid. The immutable and transactional nature of REC’s makes them the perfect candidate to be placed on a distributed ledger. Furthermore, the trading of RECs is currently highly specialized and opaque, a publicly available blockchain would open access to consumers and businesses alike.
Of the four potential use cases highlighted here, the ones that manage the increasing complexity (trading market, generation balancing, and cybersecurity) of the electric grid are the most likely to occur near term. Utilities are under increasing pressure to better manage their costs and engage their consumers. In a world where devices are connecting to our grid at an exponential pace, it’s both as possible and difficult as ever.
Originally published at kevindstevens.com