In the face of a growing global population that is also modernization at an ever-increasing rate, companies, governments, and other thought leaders continue to work on implementing solutions to our mounting energy problems. While alternative sources of renewable energy are continuing to be developed and refined, the present-day energy sector also needs to consider ways to increase the efficiency of our more traditional energy systems.
These concerns, while sound on from a carbon-emissions perspective, are also being proclaimed by a growing cadre of “green” motivated homeowners looking for a solution to help not just the planet but their own energy bills as well. Traditionally, the flow of energy between end-users and their utility providers has been very one-directional: from energy producers to consumers. However, with people starting to install rooftop solar panels, these homes are now able to send excess power back to the utility companies and reduce their bills. While this is an important first step, it’s a far cry from creating a truly efficient system for the two-way transfer of energy in our power grids. Instead, another idea has been gaining traction – the prospect of people trading amongst themselves.
This concept of peer-to-peer (P2P) energy trading amongst end users isn’t new, but there are many regulatory barriers that have prevented this idea from taking off in the past. In the United States, for example, regulation from the National Electricity Market (NEM) requires that any energy vendors have a generator larger than 5 megawatts; the equivalent of 5,000 5kW solar systems or a $50 million investment. Considering this is completely out of reach for the ordinary person, these regulations have created a barrier to entry for homeowners with P2P aspirations. Fortunately for them, the growth of decentralized technologies has already begun to radically change this landscape.
A Blockchain-Powered Solution
Blockchain technology has become increasingly popular in the last few years with the rise of cryptocurrencies such as Bitcoin. The idea is that this type of decentralized technology, when applied to the energy sector, can let people trade energy amongst each other freely across a vast network of end users without going through any middlemen. Energy providers can raise capital by issuing their own energy tokens that represent a certain unit of energy, and investors can either consume these tokens for their own needs or resell them down the road if they have an excess. This promises to rapidly speed up transactions as well as cut down on costs through a peer-to-peer process without any intermediaries. This type of end-user trading becomes possible due to the ability to pre-program “smart contracts” that trigger these transactions automatically, allowing prosumers to feed their surplus energy back to others. Once buyers and sellers have matched thanks to these blockchain back algorithms, the smart contract automatically executes without the possibility of interference.
Blockchain enthusiasts would be eager to point out that facilitating a P2P trading network barely scratches the surface of what can be accomplished with blockchain. Some alternative ideas being explored include authenticating renewables at their point of origin, maintaining certification standards, or keeping decentralized ledgers of emission permits. Yet despite the potential for improvement, the energy sector has been slow to realize blockchains potential for innovation, unlike other sectors (such as the financial market which has already jumped on various crypto-projects). At a ground level, however, there is a growing demand for these solutions as alternatives to the current power paradigm.
The Budding Marketplace
The numerable crypto-projects aspiring to revolutionize this space are largely backed by a growing public interest in the area. During the Business of Blockchain conference hosted by MIT Technology Review, the technology consultancy firm Accenture said that 69 percent of surveyed consumers expressed interest in having a peer-to-peer energy-trading marketplace, with a further 47 percent stating they were willing to sign up for community solar projects. Across North America, Europe, and Australia, demand for “green” and “local” energy sources on a community or municipal basis has been skyrocketing, facilitating the evolution of several projects.
The Brooklyn Microgrid
Instead of developing a universal, large-scale platform that would connect hundreds of thousands if not millions of end users, some theorize that it would be easier to implement a series of local, independent microgrids connecting resident’s regional communities together in what would be a smaller but easier to implement system.
One company, LO3 Energy, is working on developing a solution based on this principle. Having first launched its experimental project, called the Brooklyn Microgrid, in 2017, this mini-utility grid connected people who had solar panels on their rooftops with neighbors that were interested in buying locally generated green energy. Like other microgrids, this system operates independently from the traditional energy grid. Participants would install smart meters that track the quantity of energy they generate/consume, and via smart contract backed technology, automatically distribute excess energy in a neighbor-to-neighbor transaction all from a touch of a mobile app.
“Blockchain is a really good communications protocol for what we want to do,” said Lawrence Orsini LO3’s founder. “This isn’t just about settling energy bills. It’s about self-organizing at the grid edge, which can’t be done with normal databases.”
Although the Brooklyn Microgrid only consists of 50 physical nodes, the company has already signed a partnership with German conglomerate Siemens along with regulators across several countries in an effect to expand this system. Their newest project, Exergy, looks to take the same technology that made the Brooklyn Microgrid successful and applying it to the rest of the world.
Australia’s Power Ledger
One of the most prominent blockchain-energy projects is based out of Australia. Power Ledger is a company that has developed software which reads the outputs of electricity meters, keeping track of energy consumption. This information is then recorded on the blockchain, just like the Brooklyn Microgrid, but this time utilizes its own unit of energy measurement/digital currency called Sparkz, which can be converted to Australian dollars.
In just six weeks, the company raised over $34 million in what was Australia’s first initial coin offering, and later accumulating a further $17 million during the pre-sale phase.
“This is in response to a decentralisation of energy trading – it’s becoming increasingly untenable to have a centralised system which is incredibly expensive because of infrastructure,” said Paul Donovan, environmental scientist and one of Power Ledger’s investors. “Just look at the reduction in users, people who are going off-grid or demanding less electricity because of their renewable energy solutions, because of solar and batteries.”
In Australia, end-users are able to sell surplus power back to energy retailers at a rate of 6 centers per kilowatt hour. However, should their batteries run low, consumers would be required to buy back power from the same utility companies at a rate over 25 cents per KWh. There’s no flexibility or negotiation involved, so if an unexpected need for power comes up, there’s little that can be done with the current system.
Power Ledger began with three separate trial projects, each handling a small retirement facility, an 80-home community, and an electric facility utilizing wind and solar power respectively. As of 2018, the company is working on a variety of projects including a partnership with Northwestern University in the United States. They also boast partnerships with companies like Origin, one of Australia’s largest utility providers, and a poised to continue their P2P energy aspirations.
Are Large-Scale Solutions Viable?
Despite the growing interest for these small scale, “micro” energy grids, there is a difference between simply selling some spare kilowatt hours between neighbors and having a truly independent energy system that automatically balances supply and demand among millions of participants. On a larger scale, projects will need to deal with the difficulties that come with the security, scale, and frequency of transactions needed to make a large scale blockchain energy trading platform a reality, not to mention the fact that it’s harder to transfer energy over far distances as it is across neighboring communities.
Some projects, such as Grid+, are trying to change the energy sector from a macro perspective, albeit in a different way that isn’t necessarily P2P. This blockchain project is trying to replace utility companies, which tend to demand a steep markup in exchange for their services which including metering, and instead offer energy prices closer to wholesale levels.
Regardless, while blockchain projects are eager to take a more “microgrid” centered approach around community and municipal energy trading, larger systems that work on a state, provincial, or even national level seem to be harder to implement, for good reason.
But even if a microgrid-style solution is the only kind that takes off, it would completely change how end-users manage, consume, and generate their own energy. A growing cadre of empowered, decentralized prosumers trading their surplus energy to other members of the community could potentially become the predominant way that we generate our power in the future.
Also published on Medium.