The blockchain technology has found use cases in various industries and this has assisted in increasing flexibility and cutting costs. And as it continues to proliferate new forms of collaboration, which are potentially better, that is expected to replace present-day intermediaries. The energy sector is no exception and here blockchain technology is expected to support the shift from a model that is producer-centric to one that is prosumer-driven.
With the current model producers just do as the term suggest – produce electricity. The producers then sell the power to the users or the consumers. But following the reduction in the prices of solar panels as well as energy storage equipment, consumers are not just consumers but they have become producers too, thus the term ‘prosumers’.
At the moment the electricity that consumers are producing is mainly for their own use but it is expected to progress to peer-to-peer trading. Thus the existing top-down model will change to a distributed model.
Under a new system a so-called ‘information grid’ will emerge and it will run parallel to the physical electricity grid. Enormous amounts of data will be generated by the information and all this will require processing. But as with any revolution there will be both opportunities and challenges. In this disruption of the energy sector blockchain technology will be required as there will be a need for the recording of all peer-to-peer trading transactions in a manner that is secure and flexible.
The adoption of the blockchain technology in the energy sector has been compared to the introduction of cellphones in the 1980s or the internet in the late 1990s. For the energy sector the shape of the entire industry will be significantly changed. Some players in the industry are already experimenting with the technology and this includes Royal Dutch Shell and BP who are developing a digital platform based on blockchain which is to be used in the trading of commodities. The digital platform is expected to start operations late this year.
In Europe over 30 energy firms on the continent have joined a peer-to-peer trading system based on blockchain. The first trade for this system which focuses on the trading of wholesale energy occurred last year. And in the United States Siemens and LO3 Energy have partnered to develop peer-to-peer trading for households in Brooklyn, New York.
In the Brooklyn project solar panels have been installed on five properties and all the power that remains unused on the properties is then sold to the other buildings.
Though all the five properties remain linked to the electricity grid, the management of the transactions is conducted on the blockchain and by using smart meter technology it is easy for neighbors to transact with each other. The project has thus demonstrated that it is possible to develop a local community market for green energy.
There are challenges facing the blockchain-based models though and this include the question of who takes liability in case a transaction fails. This is because with a decentralized system there are no intermediaries who can take the blame. Regulations are also out of date for this era and they will require an update.
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