How Blockchain is Enabling a Local Energy Movement

How we power our economy is an important decision that most Americans currently do not get to make. According to a study from Pew, 65% of Americans want to accelerate the development of renewable energies. However, only 15% of electricity in the U.S. is generated by renewable sources. In light of this, companies such as LO3 Energy and PowerLedger are betting that if consumers have choice in selecting their power source, this disparity will diminish. Using recent advances in blockchain technology, these companies are pioneering a new energy infrastructure based on consumer choice.

In traditional energy markets, electricity is distributed to consumers through electric utilities. As natural monopolies, utility companies act as the gatekeepers between the energy bundle options that consumers can choose and the consumers themselves. They also happen to be heavily regulated entities that have been slow to adapt to the public’s waning demand for fossil fuel-based energy sources.

So far, this has left American consumers who want to use clean energy with two options. If they are located in a renewable energy producing area, they may be able to purchase a green tariff or an energy bundle with a set amount of renewable energy. Alternatively, they can install solar panels themselves, becoming a “prosumer.” If they produce excess energy, they can sell the energy back to the utility at a predetermined rate.

While these options are a drastic improvement from four years ago, they are still not ideal. Unless one can afford their own energy generation, consumers interested in going green remain at the whim of utilities. In most places, even if you know that your neighbors are harvesting solar in their backyards, there is no way to procure that local energy in an open market without rewiring your street’s power lines.

However, blockchain technology offers an opportunity to transform the fundamental structure of the energy market. Due to the ability of blockchain infrastructure to facilitate transfers of value in a secure and immutable way, the technology has enabled the development of peer-to-peer (P2P) energy trading systems that can layer on top of microgrids.

Microgrids are decentralized energy ecosystems, in which generation and distribution remain local. They have been employed throughout the world to accelerate rural electrification and are lauded as essential to constructing resilient communities. And now, with the advent of blockchain technology, microgrids can also safely facilitate P2P energy trading. Under such operations, consumers are able to purchase energy directly from participating local producers, unlocking an essential element of consumer choice in the electricity market.

Companies are quickly taking advantage of this market opportunity. In 2016, New York-based LO3 Energy launched America’s first Blockchain-based energy trading system in Brooklyn. The project is aptly titled the Brooklyn Microgrid (BMG). The BMG project uses blockchain infrastructure to maintain a secure ledger of energy asset possession. Participants install tailored energy meters that automatically measure how much energy is produced and traded. Users, both residential and commercial, can use an app to see where energy is being produced in their neighborhood and consume energy based on which producer best suits their needs. According to the BMG’s website, the microgrid company has not created an additional transmission infrastructure in Brooklyn and instead runs on top of the traditional grid, which is managed by Con Edison.

LO3 is not the only company looking to boost local energy trading in the US. Australia-based PowerLedger, whose Initial Coin Offering (ICO) raised $34 million in October 2017, has recently announced a partnership with American not-for-profit energy company HelpAnswers to develop P2P energy trading platforms across North America. PowerLedger previously launched a blockchain-based energy trading pilot in the Western Australian town of Busselton. In the pilot, solar prosumers were able to sell their excess power to neighbors using an app designed by PowerLedger. According to the results of the experiment, consumers were able to purchase renewable energy more cheaply than if they had bought the energy from the regional energy company. And the community’s 130 prosumers were able to sell excess power for more than double what the traditional grid would pay previously.

Features unique to blockchain technology make it a clever solution for P2P trading systems. It allows for transactions of digital objects without the risk of double-spending, a shorthand way of describing the process in which a digital object is copied and loses its value. Blockchain systems achieve this through maintaining a distributed ledger, which records the movement of digital objects simultaneously across multiple servers.

In order to ensure that all servers maintain a consistent list, Blockchain systems rely on a consensus mechanism – a predetermined methodology that governs who and how transactions can be added to or removed from the ledger. Blockchain systems also require a method of identifying the parties involved in the system. Blockchain systems often use secure cryptographic methods, such as Public Key Infrastructure (PKI), to manage user identity on the system.

The proliferation of microgrids and P2P energy trading across the country not only creates opportunities for emerging local energy businesses, but also increases transparency between the producers and consumers. In this era of distrust, this transparency is particularly meaningful.