Blockchain? It’s been a while since this technology first associated with cryptocurrencies, especially Bitcoin (BTC) (if you still don’t know the basics of this technology, here we explain it in detail) is no longer sounding like Chinese in the renewable energy sector.
Looking back exactly to 2016 according to a World Economic Forum report, wind and solar energy production had already become cheaper than fossil fuels and up to 47 different countries across the globe had updated their energy plans so that 100% of their energy came from these reusable sources.
So much so that entrepreneurs and leaders such as Mark Zuckerberg (Facebook), Jeff Bezos (Amazon) or Bill Gates (Microsoft) decided to invest a billion dollars in the fund for research into emerging energy sources Breakthrough Energy Ventures.
The World Economic Forum report also noted that much of today’s investment in the energy infrastructure market is in renewables. This objective is also pursued by most large multinationals, to cover 100% of their operations with renewables.
The largest investments come from Asia, where China and India develop gigantic solar energy projects, given their return and cost.
Weren’t we going to talk about blockchain?
That’s right. Because it is the key technology that can be pursued to bring this global challenge to fruition.
Blockchain technology and its associated protocols use decentralized data storage to record and verify digital transactions.
Thus, instead of having to go to a central administrator, such as the current data centres controlled by government agencies, banks or other control entities, blockchain has a network of replicated databases, synchronized between them through the Internet and visible to everyone via the web.
Ok, now think about the growing concern about the negative impacts of fossil-based energy sources, increasingly looking for ways to buy renewable generation “green” as solar and wind energy.
Smart contract blockchains could simplify and radically reduce the cost of the certificate of origin systems by allowing renewable energy generators and certificate purchasers to interact directly through smart contracts, a code chain, shared among participants, that executes an action to streamline the overall process through the automation of certificate issuance, tracking, and retrieval.
This peer-to-peer trading system would also improve the process by enabling real-time settlement, eliminating the need for intermediaries and process-related steps, reducing internal administration and audit costs, and increasing confidence in the traceability of renewable energy generation.
The “immutability” of data in a blockchain-based system makes data difficult to manipulate due to a combination of solid cryptography. Also, smart contracts can eliminate the risk of double counting by automating certificate retirement and making retirement “events” public in real-time.
An open-source global blockchain infrastructure can help foster standardization across geographies, enabling the frictionless buying and selling of certificates of origin globally, allowing many more renewable generators and buyers to participate in the market, especially those currently excluded from the market due to high transaction costs and the complications associated with participation.
Therefore, blockchain can turn a market that today is too complicated and expensive into something more elegant and efficient as represented, respectively, in images 1 and 2 below:
The technology drastically simplifies the green certificate system, bringing transparency and confidence to the market. The meters are connected directly to a chain of blocks that acts as a common public ledger. Market intermediaries disappear as accreditation and validation functions.
Decentralized processing and storage protect data from attack and manipulation. Online transactions settle instantly, with little need for working capital or counterparty credit. Reports are automated, verifiable, and immediate. Aggregation and disaggregation of customers and products run smoothly according to expressed preferences and target markets. Reduced costs and easy access to improve market share.
As illustrated in Figure 3 below, all these functions can be integrated into a simplified system.
This is a trend within the energy sector that has also seen a useful tool in blockchain technology. And apart from the green energy certificates, the marketers are already beginning their accreditation:
Iberdrola and renewable energy accreditation
Iberdrola has used blockchain to prove the renewable origin of energy. The experience with Kutxabank has allowed us to trace in real-time the energy supply from the generation asset to the customer. “There are more transparency and security in the transaction, which is registered in the platform in an immovable way”, they explain in Iberdrola, which is part of both the European Enerchain project and the Spanish Alastria network.
Endesa and wholesale buying and selling
Endesa has already proven its use in the purchase and sale of wholesale energy within the European Enerchain platform. Here, block technology allows trading operations directly between energy companies, without intermediaries. Besides, the company is working on the certification of energy generation through a platform that will enter production in the short term.
Repsol certifies its products
Repsol, hand in hand with the Fibot startup, has tested block technology to improve the certification processes for its refining and petrochemical products. This type of procedure is subject to many incidences due to bad labelling, loss or incorrect connection of the information. As Tomás M. Malango, Repsol’s Tech Lab experimentation manager, explains, with the blockchain it is possible “to identify the sample unequivocally throughout its life cycle”. The estimated savings thanks to the use of the blockchain is around 400,000 euros per year.
Acciona and energy traceability
Acciona Energy announced in December a project to implement traceability of the renewable origin of its electricity generation with ‘blockchain’. As a result of this collaboration, a commercial demonstrator has been created that has enabled the traceability of renewable energy generation from five wind and hydraulic installations in Spain to four corporate clients in Portugal.
Much remains to be discovered, especially the implications of a protocol to create trust through incorruptible algorithms. The key is to see if it is scalable and that solutions based on blockchain technology will drive the transition to what the energy industry calls “a distributed world”.
We must overcome a paradigm shift that requires a specific framework that we do not yet have and many years of work, to allow us to continue changing and evolving under a new model.
When this happens, the blockchain will quickly cast off its image as an environmental villain to reappear as a clean energy superhero.