Blockchain and the Energy Industry

The blockchain is a concept which is revolutionising many businesses. If you’ve heard of it, it’s most likely in connection with digital currencies like Bitcoin. That was the first application of the technology, but it’s proven valuable for many kinds of interactions.

What is a blockchain?

A blockchain is also known as a distributed ledger. It’s a set of records which are replicated on multiple servers. Cryptographic techniques ensure that a record was created by a known author and that it hasn’t been altered since then. The existence of multiple, independent copies keeps anyone from deleting records.

What the records represent depends on the blockchain’s purpose. With Bitcoin, they stand for transfers of assets. In other applications, they can represent real-world events such as shipments and purchases, or they can indicate commitments to future transactions.

Blockchains provide an efficient way to conduct small transactions. There is little overhead, and every transfer of value is permanently recorded.

There are public and private blockchains. Anyone can participate in a public one, and the records are visible to everyone. A private blockchain is stored on servers which aren’t open to the public, and participants need to be approved.

Smart contracts and tokens

Most blockchains include the ability to run software, called “smart contracts,” which are built into them. They can be triggered by conditions in the blockchain or by external inputs. A smart contract can guarantee that a transaction will be completed, even if the parties have no other reason to trust each other.

Even if a blockchain isn’t directly concerned with money, its users will usually have a supply of “tokens” which they spend to perform actions. This prevents flooding the blockchain and other abuses. Tokens, unlike blockchain currencies, can’t be traded on a public market. Performing certain actions lets users earn more tokens.

Blockchains need to grow in a controlled way. One way is “proof of work,” also known as “mining.” Solving a computationally difficult problem generates a new block, and the owner of the system that solves it receives tokens as a reward. In other cases, providing services which the blockchain encourages, such as posting records for consumption, earns tokens.

Blockchain for energy management

In the energy industry, Blockchain is starting to provide a better way to deal with the volatility of prices and lets small producers participate. For example, when people install solar panels in their homes, they can be both sellers and buyers. Sometimes they need more power than they can produce. At other times, they have a surplus, and it would make perfect sense to sell it to their neighbours. This would be difficult under traditional business models, but blockchain technology allows energy sales to be automatically negotiated as market conditions change. It works together with “smart meters” to control and monitor the energy transfers.

Using the blockchain, the seller can set a minimum asking price. The available energy can go up for auction or go to the first bidder. Either way, the posted price is irrevocable for the time that it’s valid, and acceptance results in automatic payment. Systems where parties can exchange energy in this way are called microgrids.

The same approach can work with larger transactions. Business-to-business energy networks could use blockchain-based negotiations to contract for the best price. The overhead would be low, and participants could quickly respond to changing conditions.

The advantages of blockchain in any fast-moving market are efficiency, trust, and low overheads. In the energy industry, this will lead to more effective use of local power generation and lower costs for all involved.

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