How blockchain can transform the energy sector

What is blockchain?

Think about the accounting of any company or business. As a general rule, a general ledger is usually kept, in which the inflows, outflows and balance in monetary units for each account are recorded. What blockchain does is to create ledger accounts of inflows and outflows for each user and to register them reliably. This register is created very securely.

A transaction is a computer record created by the identification of two parties operating in the blockchain or block system. That transaction is recorded with a time stamp and public verification. This would basically be a block.

How do blockchains work?

If there are successive subsequent transactions, they are verified together with the previous transaction so they are definitively linked to each other. This would basically be a blockchain.

Here are some examples to help explain this. The result of a transaction using blockchain technology would be the refund of monetary units in one of the accounts in this ledger, while a deposit of those units occurs in another account in the ledger.

For example, if company A has 100 currency units in its account, and pays 50 units to company B with blockchain, when they generate the transaction securely using blockchain, the result will be that B receives 50 units while A's account now has 50 units having transferred the rest.

How is it different from an ordinary transfer system?

Once this is understood, it is worth asking how these transactions differ from those that can be carried out between bank accounts. In the example above, A's bank could check the account balance and transfer the amount (if there are enough units) to B's bank.

There is a radical difference because with blockchain there is no need for banks, bank accounts or any other institution or intermediary. The information is simply stored securely on the blockchain.

Where is blockchain information hosted?

It is dispersed across millions of processors that are part of the blockchain community or network. All computers are synchronised at regular intervals by means of an iterative secure encryption process. This means that blockchain information has a very high degree of reliability, and it is practically impossible for it to be falsified, since no hacker can control millions of interconnected computers at the same time to alter this information.

The owners of these computers have, in turn, incentives to stay in the system, as they are compensated for it (e.g.: with bitcoin mining).

As for the process for storing blocks, basically the network's computers verify each transaction using consensus algorithms. Only blocks validated in this way become part of the blockchain sequentially, chronologically, and adding a cryptographic function that links them to their previous blocks.

Three Distinct Uses for Blockchain Technology

Digital PPAs

One of the first things blockchain technology is used for is to create a digital PPA. PPA stands for Power Purchase Agreement: an agreement to purchase energy. The owner of an electricity generation plant, which is usually renewable technology, such as solar or wind, agrees to sell the energy it produces to another company that needs it for its activity. The largest companies in the world, such as Google and Amazon, have incorporated PPAs into energy management for buildings, warehouses and offices.

If the parties contracting a PPA agree to settle their financial positions during the validity of the PPA via blockchain, the buyer of the energy can set up the blockchain account so that each month the energy meter provides blockchain with information on the amount of kilowatt hours consumed, valued at the contract price, and the necessary monetary units to pay for the energy consumed in the previous month are automatically transferred. This makes transactions so much easier and as there are no intermediaries, administrative costs are reduced.

We could even go further, since this exchange of transactions could be monthly, daily or hourly. Paying so quickly should provide a financial incentive for the electricity producer, based on the liquidity granted. This would probably involve it being willing to sell energy cheaper in exchange for this liquidity, and it would make the supply cheaper for the buyer connected to blockchain.

Electric mobility in cities

A second case for use is for mobility within cities. Currently, there are already several clean solutions for citizen electric mobility, such as electric scooters, electric motorcycles and electric cars, which are distributed throughout all the neighbourhoods and this enables inhabitants to move to the city centre or any other point easily.

If these means of mobility are connected to a blockchain, users who also have the blockchain system could connect via mobile phone and use the vehicle, paying immediately by means of blockchain transactions, in accordance with the corresponding tariff (by kilometre, by kilowatt, by areas of the city, etc.).

Energy-Smart Homes

A third use case could occur in homes, with the possibility of obtaining savings via blockchain in exchange for implementing energy efficiency measures at home. For example, a household could take advantage of a public savings scheme, and receive discounts on their energy bill in their blockchain account based on the savings achieved.

For example, a household that is connected to the Internet and regularly informs with regard to its electricity and gas consumption to a public savings scheme. It also declares the implementation of efficiency measures through the invoices for the installation, and in the following months, the data show that consumption is gradually reduced. Its utility company issues a new invoice for the monthly cost it declares on the interconnected network, and the public authority automatically issues a credit to the blockchain account to offset part of the cost and to reward efficiency.

This is just a small example, but this type of public schemes with automated blockchain technology could radically change public incentive policies for energy efficiency and transformation.