Energy and Blockchain
A blockchain is a ledger which is made up of individual ‘blocks’, each representing a transaction.
This ledger exists independently on the servers of multiple ‘nodes’, and the nodes must validate the accuracy of any new block by consensus before the block is chronologically linked to blocks representing prior transactions.
A blockchain’s heavy encryption enables secure data transfer and prevents retroactive editing of the transaction chain, making it a permanent and transparent record of ownership. Additionally, smart contracts (codes which execute a transaction once conditions are met) can be embedded into a blockchain to automate transactions.
Potential Use Cases in Energy
Blockchain has the potential to transform the energy sector by:
(i) providing a smart and decentralised energy generation and distribution infrastructure; (ii) automating transactions using digital contracts, and (iii) documenting ownership to facilitate asset management and certification of renewable energy. These innovations can significantly reduce costs associated with facilitating transactions, keeping records and ensuring regulatory compliance. However, they also raise questions about the meaning and regulation of producers, security of smart devices, and scalability of technology.
Smart meters are self-reading meters which record energy consumption and send this data to energy suppliers to enable accurate billing.
Smart metering is likely to benefit from blockchain in two key ways: firstly, using a blockchain to record and transmit data protects both the supplier and the consumer from the risk of data privacy breaches and errors; secondly, smart meters can provide real-time household consumption data and recognise when the household is producing surplus energy.
This data can facilitate a household’s decision to sell energy to a conventional or micro- grid via a blockchain platform.
Blockchain could serve as a method of documenting ownership of energy assets. For instance, IBM announced its first blockchain-based green asset management platform earlier this year. Currently in use in China, the system allows enterprises to generate and manage carbon assets or emissions allowances more efficiently.
Using smart contract-based transactions, the platform can shorten the carbon assets development cycle and reduce the cost of development. The blockchain’s immutable ledger could also make it easier and less expensive for regulatory authorities to audit and oversee the trading of carbon allowances under the cap-and-trade system.
Decentralised Energy System
Although the current generation, transmission and supply of energy is highly centralised and consolidated, improvements in the efficiency and affordability of renewable technology (e.g. solar panels for private use) have enabled consumers to generate their own energy, which they can use or sell onto the existing grid.
As these active consumers grow in number, they will be able to use physical micro-grids (network control systems, batteries and energy meters) to store and distribute independently produced energy amongst their local peers. Blockchain can provide a secure and transparent platform for consumers to execute peer-to-peer transactions or sell to the conventional grid.
Digital Contracts and Payment
Blockchain can provide a secure and transparent platform for peer-to-peer energy trading and enable individual consumers to safely record, transmit and use energy data.
Additionally, smart contracts embedded into a blockchain can automate the use of energy data collected from smart meters to trade on a blockchain platform. For example, smart contracts can be triggered to sell energy when a household is producing surplus energy and the price is right, or to buy energy if the household is a net energy consumer.
Certification of Renewable Energy
A Renewable Energy Certificate (REC) proves 1 megawatt hour of electricity has been produced by renewable sources. Renewable electricity providers issue RECs to represent the amount of clean energy they have generated. This is then sold to utility companies, which are required to use certain levels of renewable power. With this system, the amount of renewable energy produced is calculated by estimates and projections.
However, using blockchain technology and the Internet of Things could allow solar panels to calculate their own levels of energy production and then issue RECs to the owner. A project with NASDAQ and Filament uses the NASDAQ platform to issue the assets and using Filament’s technology to track the solar panel data.
Linklaters' relationships with regulators, banks, merchant acquirers and other payment institutions, as well as with payment services and systems providers, mean that we understand the issues that affect the financial technology ecosystem, enabling us to deliver incisive advice.