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Blockchain has been a key word in many areas over the past two years, including the energy sector. However, despite the best intentions, blockchain for energy continues to struggle to go beyond the hype and provide any real benefit. Rather, it adds complexity to the electrical system rather than solving the critical systemic challenge to provide people with a clean, reliable and low-cost power – the "trilemma" energy.
Blockchain is a fantastic technology, but does it work in energy?
It can not be denied that, as technology, blockchain has been a turning point. It is an elegant protocol that allows people to verify information and perform direct transactions with each other in a reliable environment, without needing a central authority. Without a third party, transaction costs can be reduced and market efficiency improves. It could be applied to almost all markets, in theory. In the energy sector, dozens of companies are trying to use blockchain for resource registers, peer-to-peer business, network-level transactions, energy financing, vehicle recharging electricity and renewable energy monitoring.
Trying to apply an existing technology to new systems has become a common quick approach to gain incremental gains, but this approach is fundamentally wrong. You need to understand what problem you are trying to solve before applying any technology – such as blockchain – to get the best result. Otherwise, we risk dependence on the path and will inevitably limit potential solutions rather than allowing them. Technology is a tool that should integrate systems, not bind them.
What is the systemic challenge we are trying to solve?
The current architecture of electricity is based on central control to maintain the system's balance. Previously, this was achieved through the inertia of thermal generation: essentially, by dialing the knob up and down to balance what was a more predictable and controllable system.
Since the foundations of this system have been laid, the way we generate and use electricity has drastically changed. In the United Kingdom today there are about 1 million power generation points, compared to just 80 in 2004. At the same time, energy use is exploding, with a demand substantially pushed by technology, including digital consumption and now electric and artificial intelligence vehicles.
Energy flows in the system between sources of supply and demand have changed substantially, but the infrastructure we use to support this – the network – has not. It has remained basically the same for over 130 years. The result is a rigid and centralized system that can not effectively manage the variability of distributed energy resources and modern energy consumption. Managing this grid is like trying to centrally control the Internet.
A more open and decentralized system is urgently needed, where the network itself becomes the "Internet of energy". A platform based on decentralized control and innovation without authorization, while maintaining the stringent reliability and security requirements essential for this critical infrastructure.
The optimal result is an energy system in which everyone has the maximum freedom. One in which participants can purchase, generate, store and efficiently exchange electricity at their convenience, with maximum reliability and minimum costs and environmental impact. A system that adapts and allows new technologies and usage patterns, not the other way around.
This can not be achieved within the current architecture, where maintaining balance becomes increasingly difficult with the addition of greater complexity. Complexity as a blockchain.
Is there an opportunity for blockchain in energy?
The energy industry faces the fact that while blockchain technologies can bring incremental improvements within the existing energy system, they are inherently limited in solving the systemic challenge of the energy trilemma.
There is merit for the blockchain in specific marginal use cases where it is possible to optimize existing processes, such as storing, recording and validating information on the use of energy. This can only bring incremental benefits because blockchain – like any technology – is just an instrument, not a solution in itself.
However, blockchain can be an integral part of a systemic energy solution in one way: using technology to better manage the connection between physics (electrons) and the energy economy, taking into account both the time and the that the position of energy within the system. This requires sufficient visibility within the system itself, which can only be achieved by incorporating the technology into the network. No current blockchain for energy applications adopts this approach, let alone the ability to follow you, according to the recent blockchain report of the World Energy Council.
Provide an energy system suitable for the purpose
The energy sector must focus on the fundamental challenge we face: providing people with clean, reliable and affordable energy.
What is needed is a solution suitable for the purpose specifically designed to overcome the energy trilemma and provide a sustainable energy system for all. This can be an architecture that intrinsically balances, using the decentralized control of the energy exchange enabled by the blockchain, or something similar, but the solution must be determined by the characteristics of the system, not vice versa.
Blockchain is an interesting tool, but it is not in itself the answer. The buzz of the industry should be just about how the system will be – details can follow.
