Blockchain technology in the energy sector

Once passed the hype, blockchain technology could be a key step in managing our increasingly complex energy system.

The energy sector has seen a sharp turn towards distributed generation in the last decade while – in contrast to the technology – the organisation of the energy market and trading has hardly evolved. Shortly, blockchain technology is increasingly casted as ‘the next wave of disruption’ having the potential to adapt the trading principles to the distributed ownership of energy resources.

‘A blockchain’ is an ordered, back-linked distributed ledger of ‘blocks’ of digital events. This data structure has a set of distinct properties:

  • The blockchain is both public and private. It runs simultaneously across all connected devices, distributing the record across the network. As a user, you encrypt your information, only allowing that data to be revealed when you make a transaction.
  • Blocks are linked ‘back’ to the previous block in the chain. The sequence of links linking each block to its parent creates a chain going back all the way to the first block ever created. Because recalculating this history requires enormous computation, the blockchains’ history is immutable.
  • Blocks are only seen as permanently added to a chain when they are added in all distributed copies of the blockchain

As you can gather any kind of data, action or transaction in a ‘block’, these properties of the blockchain make it a suitable platform technology for many applications in the increasingly distributed character of the energy sector as it eliminates the need of intermediaries or a central authority to verify, validate and store the content of the blocks. Peer-to-peer (P2P) trading of energy is in this context the most commonly mentioned application, from trading energy of small solar energy installations to charging electric vehicles. Other than being used to execute P2P supply transactions, the blockchain could also provide the basis for machine-to-machine communications (M2M) such as M2M metering, billing and clearing processes; could document shared ownership of asset and assist in asset management; and could provide a sound tracking of guarantees of origin, emission allowances and renewable energy certificates.

In the coming months, 3E will elaborate on the most promising applications and debunk common misconceptions of blockchain technology in the energy sector.