Blockchain technology isn’t only applicable for monetary transfers of wealth or daily financial transactions. It also supports many other forms of information transfer, and in 2016 this was thought to be ideal for energy supply transactions, in a report from PwC global power & utilities (1). In this article I will briefly cover the general outlook from 2016 on the prospects of the blockchain technology in the energy sector, and how it looks today.
Let’s start of with the basics, the blockchain technology arrived with Bitcoin. The blockchain provides decentralized storage and records all transaction data. As the Bitcoin blockchain, was slow and suffered from large fees, new innovations like smart contracts started to arrive. Smart contracts operate on specifically defined rules that enables autonomous matching of distributed providers and their customers. This means they are running autonomously in the background, just like the energy consumption data trackers in your house or apartment. All this data is currently only being used by your energy supplier and they are also handling any energy production coming from solar panels that they sell to the regional energy grid on your behalf.
The blockchain is an efficient tool, because it allows for “prosumers” – households that not only consume but also produces energy – to buy and sell energy directly through the smart contracts. This removes the third-party intermediary – your current energy supplier. Back in 2016, the use of blockchain technology was only in its infancy, though with a successful trial run in New York. The trial saw one neighbour producing energy and selling it to another neighbour.
But why is this even something energy providers are considering? First of all, it’s cheaper, and the decentralized storage of transaction data increases security and greater independence from a central authority. As local power production provides energy security, when it comes to power outages, these smart contracts allow for communities to trade power if the regional physical energy network is down.
There’s also applicational value with a focus on documentation of ownership of power, and with regard to distributed transaction records. The blockchain system will initiate and transmit transactions while recording them in a tamper-proof way, as all transactions are made and paid in cryptocurrency between individual parties.
But at this point in time, the blockchain technology hadn’t really stood the trial of time. In 2021, things are different. The shortfalls of 2016, like lack of adoption, lack of standardization and high transactions cost are almost eliminated. In 2019, the Energy Web Foundation (a non-profit organization founded in 2017) launched the Energy Web Chain, the world’s first public and open-source blockchain dedicated to the energy sector.
EWC is one of the only public blockchains whose validator nodes are run by corporations like Shell, Engie and Vestas (2) – and more than 100 affiliates have signed on to the chain. Validator node operators’ responsibilities consist of creating new blocks, validating and completing valid transactions and publish it to the network. They’re also tasked with providing network security and offer opinions and contribute to modifying the Energy Web client, protocol and validator set. Validators are rewarded through the native currency Energy Web Token (EWT), but the token is not required to use by users and applications except for paying the transaction costs on the EW Chain.
The general idea is that any user with a device producing a certain amount of energy, can request a certificate to be minted on the blockchain to receive a certain amount of tokens to trade or sell to others, that can claim the equivalent amount of energy from the network. So the EW Chain is in itself a trading platform, but it’s also a platform that allows different types of applications running on it – whatever best serves the specific use-cases that are in demand. The key element is the peer-to-peer transaction that entirely skips the third-party element that is prone to downtime and maintenance. And in order to ensure accurate data for the EW Chain, it has also implemented Chainlink Oracle (3).
In 2020, the Austrian Power Grid AG and Energy Web Foundation announced a proof-of-concept process that will allow small-scale distributed energy resources to participate in a frequency regulation for the Austrian power grid. The project named “Flex-Hub”, contains a number of open-source software applications from the Energy Web Decentralized Operating System, including the EW Chain. This will increase the qualification and registration of providing units, bid management, and financial settlement functions under one service. In short, this project will allow for real-time balancing of power generation and consumption to maintain a stable energy network within the broader Austrian energy grid. In order to have a working peer-to-peer energy trading platform, it needs to fit in with the broader regional energy grids.