Is Blockchain a Key to Distributed Energy and Grid Modernization?

Could the software technology that is the backbone behind the cryptocurrency Bitcoin provide a path for electric utilities to accommodate the swirling financial transactions that accompany distributed generation and micogrids? The software technology is “blockchain,” a transaction recording software that, according to its advocates, provides “an incorrubtible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtual everything of value.”

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The Harvard Business Review last month said that blockchain “could offer a reliable, low-cost way for financial or operational transactions to be recorded and validated across a distributed network with no central point of authority.” Blockchain ultimately could offer a revolutionary way to transform energy consumer and provider transactions, eliminating the central utility as a middleman.

The HBR analysis says that’s unlikely. More likely, says the article by James Basden and Michael Cottrell of the London-based management consulting firm Oliver Wyman, blockchain “will become part of the answer to updating and improving centralized, legacy systems with a distributed hybrid system made up of a patchwork of both large power plants and microgrids powered by distributed energy resources such as solar power.”

What is blockchain technology? According to the arstechnica.com website, blockchain is “kinda like a database.” But more, says arstechnica. “A blockchain is a ledger of records arranged in data batches called blocks that use cryptographic validation to link themselves together. Put simply, each block references and identifies the previous block by a hashing function, forming an unbroken chain, hence the name.”

Says the arstechnica article, “The clever bit is that the ledger is not stored in a master location or managed by any particular body. Instead, it is said to be distributed, existing on multiple computers at the same time in such a way that anybody with an interest can maintain a copy of it.”

According to the HBR article, any party on a block chain has access to the entire database and no single party controls the information. Communication is peer-to-peer and every transaction is visible to anyone on the system. Once a transaction has occurred, the records can’t be altered.

What does this mean for electricity transactions? According to Basden and Cottrell in HBR, blockchain technology “may one day enable the development of an integrated trading system that would permit businesses to trade their option to use electricity during a given time frame. For example, a factory could sell five minutes of unused power during a down time to a different factory that needs the additional power. Trading grid flexibility in this way could provide large efficiency benefits for grid operators.”

Venture capitalists are putting significant investments into blockchain developers. According to the Venture Scanner website, blockchain technology startups in 2016 raised total funding in 2016 of about $775 million, compared to around $600 million in 2015, and negligible amounts seven years ago.

Will blockchains revolutionize the electricity business? Nobody can answer that question for sure. But several years ago, when cloud computing made its appearance, there was a lot discussion whether the cloud was a real breakthrough or just a geeky fad. Today, cloud computing dominates the marketplace.