EDITOR’S NOTE: The role of blockchain applications for promoting a modern grid that values flexibility, competition, reliability and resilience will be among the many diverse topics of discussion at ACORE’s inaugural Renewable Energy Grid Forum, taking place on November 8 in San Francisco. For more information and to register, please visit: www.renewablegridforum.org.
Blockchain, the much buzzed about technology that records transaction information on a distributed ledger and provides the opportunity to embed automated “smart contracts” has tremendous potential to drastically improve efficiency and profitability in an array of market sectors.
It is especially applicable within the energy industry, where blockchain has a range of existing and emerging applications that could transform how energy is managed, maneuvered and paid for, which could ultimately improve the performance of the grid and enable greater deployment of renewable energy.
To understand the promise of blockchain for the renewable energy sector, we recently sat down with ACORE board member and Global Director of New Energy and Blockchain at IBM, Neil Gerber (pictured right).
In the following interview, lightly edited for clarity and length, we discussed the most common use-cases and applications that can maximize renewable energy deployment through blockchain and other grid modernization technologies.
ACORE: How would you best describe Blockchain, and what is IBM’s perspective on its applications in the energy industry?
Neil: When most people think of blockchain, they think of a full decentralized technology which acts as a distributed ledger to record cryptocurrency transactions chronologically, securely and publicly. There is no one trusted party, like a bank or clearinghouse, that needs to be trusted to consummate transactions.
However, there are actually at least three different kinds of blockchain applications; public, private and hybrid. As in the cryptocurrency example, a public blockchain network has no access restrictions and is open to everyone on the internet – think Bitcoin and Ethereum – there is only one network, and everyone joins it to participate. On the other hand, private or permissioned blockchains are purpose-built and aimed at the enterprise and business world. Participants and users must be granted access to the network by its owners, who govern it, including by managing onboarding of new participants, monetization strategies, privacy and security rules and more. Finally, hybrid blockchains are permissioned networks running on public networks, like Ethereum.
IBM is primarily focused on implementations of permissioned networks using the HyperLedger Fabric, which is an open source project within the Linux Foundation. However, we also are involved in a variety of projects on different technology platforms, like Ethereum.
While there are quite a few potential blockchain use cases for the energy and utility industries, we are focusing primarily on five or six key areas that we feel can truly benefit from the unique attributes of this emerging technology. These cases include grid integration of distributed energy resources (DER); energy use disaggregation; renewable energy credit (REC) and carbon credit management; contract, asset, and work management; and cybersecurity.
In the carbon credit area, we are currently working with Veridium to help them develop a more trusted, auditable and valuable carbon credit via tokenization, which can be used to help companies lower their carbon footprints transparently and cost-effectively. We see a near-term future where a variety of green credit instruments (RECs, GOs, RINs, REDDs, etc.) can be made more fungible and valuable via the use of interconnected blockchain networks.
ACORE: Do you think blockchain will allow for more transparency into the value of carbon in different markets?
Neil: Blockchain can certainly make carbon credits more fungible, granular and auditable. Also, blockchain can facilitate the trading of RECs across markets and geographies, therefore helping to displace carbon on a global scale. For example, RECs are an imperfect measurement of greenhouse gas (GHG) reductions. One megawatt hour of wind generated at 3:00 a.m. in Texas will likely not displace any GHG emissions, whereas one megawatt hour at 5:00 p.m. in Los Angeles could directly displace a gas peaker plant. So, creating systems that contain additional, more granular information, embedded in a blockchain, could allow market differentiation of the quality of credits, and provide a higher quality “green” credit to buyers.
ACORE: As you mentioned, it is difficult to track emissions across companies’ supply chains, as part of efforts that an increasing number of Fortune 500 companies (like Walmart) are now pursuing to reduce their global carbon impacts. Do you think blockchain could be used to help track how companies’ suppliers are using renewable energy?
Neil: I think implementing blockchains like the ones discussed above could allow companies to make better decisions on the instruments that they invest in to meet their sustainability objectives. The potential is there to combine these proven carbon emission reductions with carbon offset accounting to better understand the impact of their decisions. This enhanced accounting is something that corporations, shareholders and customers care about and want to get right, and blockchain may help them to do so in a cost-effective way.
ACORE: How can blockchain be used as an enabling technology to further the deployment of renewable energy, energy storage and electric vehicles?
Neil: As mentioned above, blockchain can play a role in making better use of the accelerating deployment of DERs through networks that enable market operators to access DERs like behind-the-meter batteries, photovoltaic systems and electric vehicles (EV). One current example is the use of IBM’s permissioned blockchain network by TenneT, which supplies the grid with flexible capacity from EVs and residential batteries. In a pilot project in Germany, TenneT (a Transmission System Operator) along with sonnen eServices (a DER aggregator) were able to use their permissioned blockchain network to aggregate residential batteries and mitigate wind power curtailment at times of transmission overload. Another use case in the Netherlands, involves TenneT recruiting Tesla EVs to help manage grid stability at the transmission level.
ACORE: Do you think blockchain could help utilities more accurately price dispatch models by facilitating dynamic time-of-use rates? Would this cause the price of demand response technologies to decline?
Neil: Blockchain integration would certainly allow utilities to more accurately price dispatch models because the grid would be more competitive, transparent and streamlined. These improvements could lead the unit value of demand response to decrease, but a comprehensive blockchain solution might also enable DER producers to access new ancillary market services and receive repayment for their full suite of applications. These applications are mostly still in the pilot stage, but you can imagine how the technology could solve for grid inefficiencies. The grid could reduce their overall cost to serve, while DERs, through value stacking, could increase their returns.
ACORE: Do you think utilities can integrate blockchain into their business models?
Neil: Incorporating blockchain solutions into markets is going to increase competition and reduce barriers, but blockchain can also help utilities receive full payment for the services they’re providing. Residential solar owners use the grid as a battery, but don’t pay the utility for the service they provide. A blockchain solution could account for all the transactions that have happened on the grid and build in the ability to pay the utility a micro-fee for the use of the distribution grid. Net metering and other current regulatory constructs are clunky, imperfect options for incorporating distributed energy onto the grid. Blockchain could provide more granularity and flexibility, allowing utilities to earn profits for their service as energy integrators.
Likewise, these applications are enticing to regulators, because they should find the immutability, traceability, transparency and auditability of blockchain appealing. It would help to reduce market friction, speed up rulemaking and therefore reduce the regulatory burden on utilities.
ACORE: Are there particular regulations and market constructs here in the U.S. that you think are needed to enhance the viability and scalability of blockchain deployment?
Neil: The IBM applications that I have mentioned thus far are primarily located in Europe, because the regulatory structures in Europe tend to provide utilities with more flexibility to innovate.
Regulations and market constructs are the two main drivers behind the viability of both initial test projects and long-term applications. For example, our view is that DER integration networks, as they scale, will be able to support what I call peer-to-utility-to peer use cases, where users on a scaled network could transact with each other, subject to utility-governed reliability and safety constraints. In this model, consumers (or “prosumers”) could generate and store their own distributed energy and trade it with others locally. However, these types of novel applications will require some enlightened regulation to come to fruition.
ACORE: What would you estimate the level of integration for blockchain in the energy industry will be ten years from now?
Neil: Predictions can be tricky, especially when faced with the classic innovation curve, and I’m not sure we have discovered the perfect application yet. I do think a solution that adequately integrates DERs into the utility model would align multiple stakeholders. Utilities are frustrated because they’re getting shortchanged, the DER industry is unable to effectively access larger markets and regulators are encumbered by a slow and archaic system.
Ten years from now, blockchain would ideally enable operators to utilize fully the capabilities of all grid devices. For example, an EV would be completely integrated and able to lower its charging costs by providing value back to the grid in times of disuse. Your heating and cooling would operate similarly, and home batteries and solar panels could arbitrage changing prices to maximize performance. Then at the end of the month, you would get a report on every transaction over that timeframe. Blockchain can automate these processes and remove the human factor, optimizing processes using artificial intelligence and machine learning.
Finally, I think a key market to watch will be how companies and governing bodies interact across multiple networks. Blockchain could maximize companies’ sustainability goals by allowing them to track RECs and overall progress towards emissions reductions more accurately. If either of these applications of blockchain proves to be reliable and scalable, they will improve the viability and profitability of renewable energy, energy storage and EVs.