Blockchain and Energy: The Potential Power of the Token

By Shane Mulligan, PhD

The energy revolution is often characterized by a number of D’s, including decarbonisation, decentralization, digitization, and democratization. The rapid growth of distributed renewables, along with declining costs, the booming uptake of battery storage and EVs, and digital wonders from smart appliances to blockchain applications, seem to portend profound changes in almost everything that happens in a modern electrical grid.

But the fact is the real changes are only beginning, and even while national grids see mindboggling contributions from renewables, especially, the grid itself, and the functions of procurement, transmission, balancing, billing, management and maintenance, remains centralized, bureaucratic, and more than a little resistant to change.

It’s understandable that the world’s biggest machine, our electrical grid, is not ready to turn on a dime. But the energy revolution is set to get a boost from blockchain technology, which could be the catalyst for a virtual phase shift in our electricity system.

Proponents see the blockchain as a key to unlocking the efficiency potential of distributed renewable energy generation, recording daily transactions across the grid, projecting and managing demand, handling green energy certifications, and keeping track of real generation, storage, and transmission assets. And while central utilities are sure to resist threats to their dominance (and their pension schemes), many are embracing the promise in the blockchain to improve their ability to adapt to and avail of the changes taking place.

Chile’s national energy grid, for instance, adopted a custom blockchain platform in March 2018, which is now recording market prices, marginal costs, fuel prices, and compliance with the renewable energy regulations on its blockchain. The London-based firm Electron has (among other things) shown blockchain to enable immensely quicker switching of customer accounts between providers in the deregulated UK market. And Austrian firm Grid Singularity joined with America’s Rocky Mountain Institute to create the Energy Web Foundation, which is collaborating with a number of energy majors as it works on developing an open-source blockchain that will support multiple energy-oriented applications. Meanwhile, researchers with Ireland’s ENERPORT Project have started examining the prospects of blockchain-based peer-to-peer (P2P) energy trading to enable “more localised energy balancing and improved integration of these distributed grid technologies” like renewables, EVs, and smart appliances.

With the energy sector offering fertile ground for blockchain innovators, it’s hardly surprising that we’ve seen a number of high stakes token sale events in this sector in recent months. Australia’s Power Ledger raised around $34 million Australian dollars in its POWR token sale in 2017; Grid+ has sold some $36 million worth of its GRID token; WePower, just listed on Binance (WPR), raised $40 million in early 2018. A 2017 report from Solar Plaza lists some 64 “blockchain and energy” projects, of which 1 in 4 had held, or were planning to hold, an ICO or token sale. The number seems to grow weekly.

The mass of funding going into these startups could of course go a long way to building new products and markets, in Ireland and elsewhere. The €500 million designated for energy innovation within Project 2040 could also help Irish innovators build their niche. Ireland’s relatively isolated grid could offer an ideal testing ground for scaling tests on peer-to-peer trading, as ENERPORT is contemplating. To date P2P has only been tested on a number of small-scale (microgrid) projects by companies like LO3 in New York, Power Ledger in Australia, New Zealand, and India.

P2P trading offers a solid use case for a token-based blockchain model, especially when seconding as a local currency tradable at local shops, as at De Ceuvel, a business park in Amsterdam that is testing an energy token known as the Jouliette. In an ideal world, prosumers (at once producers and consumers) can exchange value behind the meter in a kind of barter system. Blockchain could effectively cover much of the utility’s role as buyer and seller, enabling these prosumers to share the markup typically claimed by the utility or system operator; where storage capacity is integrated, users could manage time of use to reduce their costs and even generate more revenue by selling back to the grid at high prices (this is part of the model being proposed by GRID+).  

On a larger scale, implementing an energy-based currency, at a national or even international scale, could be a tougher sell. But the groundbreaking SolarCoin is, after some years, starting to see considerable growth in its network. Likely the first “energy coin”, SolarCoins are awarded to solar generators at a rate of 1 SLR per MWh produced (this is also the coin generation event: SLR are mined through Proof of Work, that is, of verified solar power production). SLR are distributed as a bonus payment on top of any FIT or other tariff received, and they can be sold on exchanges or redeemed at participating retailers against purchases (of solar parts, or training, for example); for retailers they can work as a customer acquisition tool, especially as the number of registered generators grows. Another “rewards” token is the EnergiToken (ETK), which is to be distributed by Manchester based EnergiMine as a reward for conservation behavior, from buying efficient appliances or EVs to taking public transit. Again, the idea is that tokens can be distributed and accepted by vendors and firms that want to encourage such behavior, such as appliance companies, grid operators, or governments.  

Indeed, customer acquisition seems to be a key purpose of many of the coins on offer these days. POWR is most useful for “application hosts”, primarily utilities that would use the platform; the GRID token, enabling pre-purchase of 500 kWh of electricity at wholesale prices, is effectively a coupon against future purchases; WePower’s token gives token holders priority access to pre-purchase electricity from (yet-to-be-built) renewable power plants. Of course, an utterly essential purpose of these token distributions, from the company’s perspective at least, is in generating start-up capital; but the use case is vital to ensuring these sales events don’t run afoul of securities regulations. 

Researchers with the energy arm of the German Blockchain Association have been thinking deeply about the ways in which tokens can be used in energy blockchains, such as to represent storage capacity and services, to enable transactions around energy shifting, and even to facilitate sharing of energy in co-operatives, multi-residential settings, and local communities.

According to one researcher, the benefits of such tokens could be most fully realized in a network that enabled transacting between all these functions using a standardized or fully fungible token, so that a farmer with solar and storage could use, generate, and store electricity, be paid to provide grid regulation, sell his carbon credits and settle his bill, all on a single account.

With standardized energy tokens any inverter, energy monitoring device, or a microcontroller in a smart appliance can implement the required logic for energy tokens to be minted and exchanged. Derivate [sic.] marketplaces such as energy exchange markets and carbon credit markets would only need to integrate one API (or rather: ABI)— that of standard energy tokens?—?and offer the value exchange of energy for any community globally. https://medium.com/@sebnem/parte-finale-the-energy-tokens-5b5f7c4fdacd

For now it seems likely that utilities will hold a central role in such a system, at least until their job, like the rest of ours, is replaced by automated systems based in AI and smart contracts. Off-grid enthusiasts may protest continued centralisation especially since maintaining the authoritative utility negates much of the blockchain’s innovative promise. But the energy system is not going to change overnight, and projects like ENERPORT, Electron, Grid Singularity and Power Ledger may achieve far more working closely with utilities and incrementally moving us toward a more distributed, participatory, and climate-friendly electrical system.

Written by Shane Mulligan, PhD. 

Prepared and edited by Andrew Carroll, Journalism MA in DIT. 

If you would like to have your company featured in the Irish Tech News Business Showcase, get in contact with us at Simon@IrishTechNews.ie or on Twitter: @SimonCocking