Chaining the energy: Blockchain may bring changes in the energy industry

By: | Updated: June 1, 2018 1:25 PM

In India, power sale of decentralised solar PV, insurance contracts for business-creation microfinance, data sharing of implementation schemes, or single-window approval for infrastructure projects are few areas where blockchain can be used

Blockchain, Distributed Ledger Technology, DLT,  Amazon, electricity market,  Global Blockchain CouncilThe reduction in time, cost and vulnerabilities are some of the touted advantages of DLT/blockchain.

By Shafqat Mobarak

Blockchain is best explained when analogising it to two games from many of our childhoods—pakdam pakdai (or ‘catch me if you can’) and chain-tag. In the former, only a chaser gets to decide whom to tag to keep players out, whereas, in the latter, as the first chaser tags a player, they both join hands and collectively decide whom to tag next, so as to join the growing chain of chasers. In the first game, only one has the power to end the game, whereas, in the second, the power is distributed among the linked players.

Now, relate the two games with a centralised and distributed activity system. The centralised system requires a third party to validate and approve the request. For example, for a payment to Amazon to buy a book, the transaction needs to be validated by a MasterCard or Visa gateway system. In a decentralised activity system, the transaction can be completed without a third-party service provider. That is the principle on which the Distributed Ledger Technology (DLT) or blockchain works. It manages a series of blocks, each having its own identity called ‘hash’, carrying the information to collaboratively complete the process.

The validation of the system comes with the openness; it comes from the trust. In a centralised system, the main reason for a third party to validate your transaction is that one trusts their decision. But in DLT, the trust has been shifted from a person or entity to the mechanism of decision-making.

In the energy sector, blockchain could also play an equitable role. With ongoing technological research, it has been claimed that DLT can be used to link energy devices like microgrids, electric vehicles, batteries, even biomass-generated power small ‘consumers’ to make transactions at the distribution level. The advent of national grids to the areas where the government has already provided electricity through microgrids has witnessed reluctance on the part of suppliers. With blockchain, the accounting of such areas’ electricity usage patterns would prepare the national grid to integrate the existing system and provide a platform for the electricity market.

Beyond Bitcoin

Bitcoin is the best example of blockchain in practice and has led to its popularity, while spurring curiosity as to what it has to offer for other sectors as well. In financial services, blockchain can connect stakeholders like vendors, governments, loan sanctions, fund-raising, data management, KYC and others. Ripple, a San Francisco-based company, is working to provide global financial settlement solutions for banks. The system, which intends to reduce time and costs of settlements, is being used by Thailand’s Siam Commercial Bank and Japan’s SBI Remit.

The Estonian government is using blockchain-based Keyless Signature Infrastructure technology. Dubai, in addition to setting up a Global Blockchain Council to evaluate the use of technology, has entered into a partnership with IBM for logistics and trade solutions. In supply chain management, IBM and Maersk are trying to inculcate a tamper-proof system globally for shipment movement tracking and trade workflow.

Blockchain in energy

LO3 Energy and Siemens have been working on blockchain projects in energy. They have built a pilot blockchain-enabled microgrid in Brooklyn that connects about 60 solar sites. The sites use the technology to enable system owners to sell and buy electricity. Similarly, blockchain may provide a platform to the electric vehicle users to digitally negotiate with power suppliers to buy power at the best price. Obviously, before that, we need robust charging infrastructure and other modalities in place to create a virtual electricity market.

In India, power sale of decentralised solar photovoltaic, insurance contracts (smart contracts) for business-creation microfinance possibilities, data sharing of implementation schemes, or single-window approval for infrastructure projects are some of the areas where blockchain can be used. The draft National Energy Policy suggests fuel-neutral subsidy, wherein blockchain would not only make the subsidy transfer safer, but may also provide the beneficiary with an option to connect with the fuel service providers directly.

The challenges ahead

The reduction in time, cost and vulnerabilities are some of the touted advantages of DLT/blockchain. Since the technology is new, its strength and loopholes still need to be thoroughly evaluated. Scalability of the system is one of the restrictions that has been brought to light; the current level of transactions per second through blockchain is seven, as compared to 2,600 transactions per second of Visa. A constant duplication of information because of the distributed system requires a considerable amount of space access in the system.

With rising applications of blockchain, the system access will continue to rise. As the blocks contain the information about all the transactions which have been done in the system, the level of personal financial privacy and choice of liberating the information to other involved blocks remains a question.

Most importantly, the massive usage of energy for the functioning of blockchain is an issue worth considering, although the Energy Web Foundation, a blockchain developer foundation, has been trying to find a way to reduce the amount of power usage. Recently, they have unveiled a solution of using proof-of-authority, a set of trusted ‘industry validators’, as a consensual validation process rather than the proof-of-work.

Policy frameworks

Every new idea has a dark area which exists till it gets discovered. Blockchain, with all its possibilities, needs a serious look at its vulnerabilities and commerciality. Energy needs to be accessible and sustainable before singing a song of blockchain. A virtual electricity market would be an ideal solution, but first a sea of rooftops and net metering systems needs to be in place.

Blockchain in the electric vehicles consumer power market would also require a robust charging infrastructure and battery disposable plans. Before introducing it into the public sector data-handling system, we need a robust and informative data repository. Blockchain may bring changes in the energy industry, but simultaneously policy frameworks are also needed to welcome the feasible changes in the future.

The author is Young Professional in Energy and International Coordination, NITI Aayog. Views are personal

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