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In 2019, a new blockchain will fix how we buy and sell green energy

In the second quarter of 2019, we will get one step closer to a smarter electricity grid when the Energy Web Foundation’s (EWF) energy-sector blockchain goes live. The EWF, which promotes the use of blockchain in energy management, has raised over $20m in funding since its 2017 launch, and its 79 strategic partners include 12 of the world’s biggest energy companies, including Shell, Centrica and E.ON.

For most of the grid’s existence, all energy companies needed to do was generate electricity at a central power station and pump it out to customers with as few interruptions as possible. But now the grid is under pressure to become more intelligent, because the situation is more complex.

It has to incorporate intermittent energy sources such as wind turbines, plus an increasing number of consumer-owned power generation and storage devices. It has to manage significant extra demand from electric cars. And it has to meet customer desires for real-time energy-use data. In short, the system is decentralising, and the number of transactions it will have to process quickly, cheaply and securely is increasing. Many argue that the best way to handle this new paradigm is blockchain.

Like bitcoin, the EWF blockchain is a distributed ledger. Unlike bitcoin, that ledger is not just for tracking payments; users can also code applications that run on top of it. That’s why the foundation prefers to think about their blockchain as “a globally decentralised computer” for the energy industry.

This “computer” will be open-source and maintained by energy-market participants around the world – a platform with which they can innovate as they see fit. Initially, the EWF estimates that 70 per cent of its affiliate companies are waiting to see how others use the tech, while 20 per cent are building pilots. Ten percent, however, will be developing products to sell into the marketplace after the blockchain is live. This group includes nimble startups as well as major entities such as Singapore Power.

According to Jesse Morris, the EWF’s chief commercial officer, the immediate raft of applications will be mainly to do with improving traceability. Right now, when a solar power plant produces a unit of renewable energy, a second organisation processes that information and produces a certificate that is traded in the marketplace and later verified by a third party. It’s a complex system that is vulnerable to error.

If green energy sources automatically wrote their electricity production to the blockchain, however, it would bring greater transparency and reliability. More significantly, it would also bring nuance. Right now, green energy certificates are not differentiated – one unit of green energy is treated in the same way as any other. But a wind-power plant in an area where the grid is predominantly powered by coal or gas is worth more in terms of carbon offset than a wind-power plant in an area saturated with wind power. The architecture that the EWF is developing includes an algorithm that estimates actual carbon offset depending on location and certifies accordingly.

The next wave of applications, approximately five years from now in Morris’ estimation, will most likely concern electric vehicles (EVs). Today, if you own an EV, you have to set up different accounts with different charging providers using different apps and different payment methods.

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In a blockchain-based architecture, every EV would have a digital ID with a wallet attached to it, and every charging station would have an ID as well. So when you want to charge your car, you would simply hook up to a charging point and all of the processes would happen in the background without the customer having to think about it. That also means that anyone who owns a charging station can connect it to that blockchain-based marketplace, enabling other people to use it, and making money in return.

In the longer term, the blockchain may also open up the possibility of peer-to-peer energy trading. As consumers increasingly start to produce their own power with, for example, rooftop solar panels, the blockchain’s ability to process a large volume of transactions cheaply and securely could open up local-level markets in which we will be able to buy and sell energy to each other based on real-time price data.

Consumers are currently only able to “sell” electricity back to their suppliers in the form of reduced bills. There’s a possible future, according to Morris (although he notes he’s being bullish), where “every single electricity-using, storing or producing device – batteries, air conditioning units, solar panels – [will be] able to trade energy with other devices, and then with other buildings and then between entire utility distribution networks.”

While there is undeniable momentum in the energy blockchain space – startups in the field raised over $300m in funding in 2017 – there will be obstacles to realising that future. It will depend on the wider penetration of technologies such as smart meters, which only slightly more than a fifth of UK homes currently have, although the EU intends to replace 80 per cent of traditional electricity meters with smart meters by 2020. And blockchain has had some bad press recently for the amount of energy it uses – the bitcoin network, for example, was, at time of writing, on track to use as much energy in 2018 as the whole of Austria.

But these issues are fixable. The EWF, for instance, says that its blockchain at commercial scale will only use the same amount of energy as a medium-sized office building. That’s because the algorithm that verifies information being added to their blockchain uses much less computational power.

What may prove the most significant bottleneck is simply the energy industry’s aversion to risk.

“Innovation in the energy sector is like open heart surgery on a living patient,” says Joanna Hubbard, chief commercial officer of energy-blockchain startup Electron. “It goes a bit slower than anything else because we’re looking at critical national infrastructure.”

In 2019, blockchain will provide a way to bring about that innovation while keeping the patient alive and healthy.

Charlie Burton is senior commissioning editor at GQ

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