Around the globe, the energy transition — or the transformation of the energy sector away from fossil fuels and towards zero-carbon energy — is rapidly gathering pace. The current power grid, however, is struggling to keep up. As detailed in the recent report by the IBM Institute for Business Value, Revive aging power grids with blockchain: A new model for energy flexibility, blockchain and other emerging technologies may be the answer to liberate today’s overly centralized utility system.
By enabling automated device identity and introducing a layer of trust over technology, blockchain can both empower the energy transition and make the grid more resilient and secure.
Built for a world that no longer exists
The current energy grid system is outdated and resistant to change, impeding both the growth of the renewable energy segment and creating security risk. In the traditional utility structure, a limited number of large, controllable power plants generate power continually, which is then distributed in a top-down model to match local demand across geographies.
The highly centralized nature of this system makes the grid susceptible to single points of failure: system failures, cyber-attacks, or other disruptions (such as weather-related disruptions) in one area can have a disproportionate effect across geographies as energy is cut off and rolling blackouts ensue. This linear model also makes it exceedingly difficult for grid operators to handle the new and much more variable energy supply from renewables, slowing the pace of renewable energy adoption.
The rise of the prosumer
The growth of renewables is not the only factor complicating system orchestration by destabilizing demand patterns and energy flows. Increasingly, individuals and businesses that traditionally only acted as energy consumers are now installing decentralized energy resources to generate power as well. These prosumers, such as homeowners investing in solar panels, individually feed relatively small amounts of energy into the grid on an intermittent basis, which again puts the top-down utility model under stress. When disruptions occur anywhere in the grid, the delivery of this decentralized power is halted in order to regain control; in some cases, even the prosumers generating the power cannot use it themselves.
But it doesn’t have to be this way. In the future, these decentralized sources could provide energy flexibility: their small-scale supply could help to match local demand, even during grid disruptions. This decentralized model holds many potential benefits, including increasing resilience of the grid by removing single points of failure, boosting efficiency by matching local generation and consumption, and reducing the costs of traditional grid infrastructure and maintenance.
Two-way trust: How do we get there?
In today’s world, in order to participate in a utility network, any device that is interacting with the grid has to be known and certified. Since managing all of these devices manually would require significant effort, automated device identity — also known as self-sovereign device identity — is key. Blockchain enables this self-sovereign identity as each device can be registered or certified as a unique entity in the network and be recognized throughout its life cycle with a complete history of its power generation and consumption transactions.
Historically, the decentralized model has not been feasible at scale: utility companies and grid operators were needed to serve as the middleman to validate the registered devices, facilitate and coordinate power generation and consumption, and ensure stability of the grid. With the rise of blockchain technology, however, a new model is possible. Smart contracts, or individual deals between validated parties implemented in algorithms and executed autonomously, can independently facilitate the transaction processing and coordination among devices without the need for a trusted third-party.
With the help of blockchain, smart contracts in microgrids can not only digitally facilitate, verify, or enforce a contract — such as sourcing tiny amounts of energy from tens of thousands of solar panels or charging electric vehicles — but can also balance volatility in the grid by utilizing price signals to manage decentralized generation and demand. We have already seen this implemented successfully at scale with electric vehicles and household batteries in the EU, for example, with the transmission system operator TenneT.
Since blockchain introduces a new layer of trust through technology, traditional grid operators can be assured that devices are connected correctly and power is being distributed in a safe and authorized manner, while consumers and prosumers can finally gain ownership over their energy system.
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As blockchain and other technologies mature, we are just on the cusp of discovering what is possible. A critical step at this point is for governing bodies, the energy industry, technology providers and prosumers to be future thinkers together in order to accelerate the energy transition.