How Blockchain will Transform Energy sector?

Blockchain, an emerging technology with the potential to reshape the future has been spreading across a wave of industries. Simply defined as a distributed and decentralized ledger that records and verifies digital transactions, blockchain technology can disrupt and transform traditional business models . Not only it speeds up transactions and cut down costs, but also increases transparency, security, and operational efficiency. Unique attributes of blockchain technology makes it an ideal choice for the energy industry - including power, oil, gas and renewables. Transforming the way power is traded and transactions are conducted, this nascent technology could address the challenges in security, operations and supply chain management of energy sector. In this blog, we are going to find out how blockchain technology could revolutionize the energy sector.

The current context of energy sector has been plagued with a lot of inefficiencies such as geopolitical difficulties, rapid exploitation of non-renewable energy sources, energy leakage, regulatory systems and infrastructure constraints. Furthermore, energy sector is built on a centralized system operated by major power holding companies, which leads to significant security and trust concerns. Increasingly complex and heavily-regulated could benefit from the potential applications of blockchain technology. Opening up an array of possibilities for renewable energy distribution, it helps address the process inefficiencies associated with the siloed infrastructures of energy sector.

1. Decentralized trading platform and microgrids

In the legacy infrastructure of energy sector, utility companies need to follow manual procedures for energy commodity trading. This is set to change substantially when transactions are placed into a blockchain network. Blockchain technology could enable transparent and accurate trading of energy by eliminating third-party intermediaries, thus resulting in lower costs. Implementing a distributed trading platform for energy utilization through microgrids facilitates efficient energy management and secure supply. These smaller grid systems, linked to different localized energy resources act as a primary distribution network that can operate autonomously. Blockchain technology allows the grid participants to have a better overview and control over the resources they manage.

Decentralizing the energy platform with microgrids helps in simplifying market processes and empowering the end users with better visibility and flexibility over the transactions. It also encourages the participation of more prosumers (a person who consumers and produces energy) and incentivize consumers to regulate their energy consumption according to the supply. With blockchain systems in place, it is quite possible to accelerate clean energy deployment, reduce carbon footprint and keep track of the energy exported. According to GlobalData, the global microgrids market is projected to reach $30bn in 2022. VAKT, a UK based company has launched an enterprise-grade blockchain platform for managing physical energy transactions from trade entry to final settlement, eliminating reconciliation and paper-based processes. Brooklyn Microgrid project, a pilot project launched by LO3 Energy in New York, with the goal of creating self-sustaining microgrids is another noteworthy use case.

2. Peer-to-peer energy trading

Considered as one of the most discussed and acknowledged blockchain applications in the energy sector, peer-to-peer (P2P) trading could benefit the masses substantially. Traditional power grids are disrupted to create a P2P network where consumers can trade energy with one another. Such peer-to-peer transactions bypass a central utility or retail energy provider thereby ensuring lower costs and optimal use of energy. A scalable business model developed with blockchain enables secure and transparent trade of energy between consumers directly through smart contracts. These self-executing contracts encoded into the distributed ledger could trigger the transactions when specific conditions are met.

Moreover, P2P trading also allows tracking the exchange of power across the microgrid accurately, thereby balancing the demand and supply effectively. Energy financing is another major use case of blockchain in energy industry. Startups with a primary focus on blockchain-based energy projects can raise funds through peer-to-peer lending platforms. Blockchain networks enables companies to connect with a multitude of investors around the world. Since the global renewable energy investment is on the rise, it would be easier for blockchain-based renewable energy projects to raise funds.

Energy-focused crypto startup Power Ledger launched a blockchain-based, peer-to-peer renewable energy trading platform in a Bangkok neighborhood and Australian coastal city of Fremantle on a trial basis. A large number of utility firms across the globe have been collaborating with various blockchain startups to test and launch the P2P trading system in order to drive renewable energy development.

3. Electric vehicle (EV) charging

Electric vehicles are fast becoming an everyday reality. As the EV market reports a growth rate of 50%, it is certain that the global automobile fleet is marching towards a zero-emission, clean and silent transportation experience. However, lack of infrastructure and rising costs are some of the major barriers to EV adoption. The charging infrastructure market is gaining momentum in an effort to meet the evolving needs of EV market. This is where blockchain comes in. A peer-to-peer network can be established with blockchain where EV drivers can share their charging stations with each other. Both residential and commercial power suppliers can benefit from the blockchain microgrids.

This decentralized model allows individual EV owners to rent out their charging post and receive payments for the service. Introducing smart contracts and smart metering would help in ensuring a smooth user experience. Having a better-connected, distributed network for electric vehicle charging infrastructure microgrid helps in mitigating range anxiety for EV drivers and increasing the adoption of EVs. Share&Charge, an application based on Ethereum technology, developed by innogy Innovation Hub is the first global P2P marketplace for EV charging enabled by blockchain. It was launched in Germany and the United States. This technology has also piloted in Australia and U.K by a host of other companies.

For an industry that struggles with substandard trading methods and mistrust, the unique attributes of blockchain technology to record and verify every transaction in a tamper-proof manner could be revolutionary.

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