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Blockchain’s role in the energy transition: improving renewable energy adoption through distributed solutions

Photo credit: iStock/monsitj

The Asia-Pacific region accounts for over half of total final global energy consumption, 85 per cent of which comes from fossil fuels. The associated emissions are expected to increase as the region struggles to meet its renewable energy (RE) targets and decrease its energy intensity.

One factor that contributes to the region’s dependence on fossil fuels is technological, infrastructural, institutional and behavioural lock-ins, which make the entire sector subject to a strong path dependence. Once a country takes an energy-intensive pathway, it becomes challenging to shift to a more sustainable energy system. Despite this tendency, subsidising policies (for example, feed-in-tariffs) and decreases in the price of renewable energy sources have incentivised the emergence of distributed energy resources (DER) solutions. Such policies that provide local grid solutions have the energy production located near the site of consumption.

However, the volatility of energy production by DERs from RE creates some supply and demand management challenges.

The main issues include intermittent energy supply as well as multi-directional energy flows (as opposed to traditional, unilateral flows), causing disruptions in grid capacity and challenges in setting prices that reflect the real-time conditions of the grid. Peer-to-Peer (P2P) market mechanisms address these issues by allowing prosumers/consumers to purchase energy based on their demand. This creates an energy trading platform adaptable to the flexible demand and supply from grid participants.

P2P energy trading platforms empower participants to take an active role in the management of their local energy systems - managing their energy consumption based on their preferences and aligned with their sustainability pathways - without third party interventions absorbing marginal trade benefits. Adding battery storage solutions to these P2P energy trading platforms further enhances energy management over time, making communities less dependent on central grid energy and more autonomous.

P2P-enabled DERs also bring other benefits, such as solving last-mile problems by providing energy access where the main grid cannot reach, improving grid resiliency by reducing the risk of whole grid shutdowns due to single points of failure, democratizing grid systems in allowing local agents to have a greater say on their energy production, and providing solutions adapted to the local context at lower costs. Such P2P energy trading platforms require secure and transparent technologies.

Blockchain-based energy trading solutions

Blockchain technology, used for recording information on a digital ledger, is a promising emerging and enabling technology for P2P energy trading platforms that enhances the security, transparency and traceability of data. By encrypting the data through a series of time-stamped, secure information nodes (known as blocks), blockchain provides a secure public database. As a result, anchoring energy ownership on a blockchain makes it tradeable in a secure manner. The transparency aspect of this enables real-time decision-making, which reduces information asymmetry between producers and consumers. Moreover, adding smart contracts to these solutions creates the potential to automate data collection, energy transactions and price settlements - reducing transaction costs and enabling decentralized coordination between participants.

As highlighted in a previous blog, T77 in Thailand has been an exemplar for P2P and blockchain-based solutions. Another inspiring project in Thailand is the Chiang Mai University P2P system, which includes 12 MW of rooftop solar panels (PVs) on the university buildings. Generated solar energy can be traded between the buildings within the network to manage demand loads. The P2P trading takes place on a blockchain platform developed by an Australian company, Power Ledger. Power Ledger has been working on a number of blockchain-based energy projects worldwide, one of which is the ReNew Nexus  project in Australia, which confirmed that a blockchain-enabled platform allows real-time pricing of energy between prosumers and consumers.

Other applications of blockchain-based solutions

The benefits of blockchain-enabled solutions can also be used in renewable energy certificates (REC) trading platforms. For example, the Energy Web Foundation (EWF) - a non-profit foundation that provides an open-source blockchain network for the energy industry - launched a blockchain-based REC trading platform with a Thai energy conglomerate PTT. Here, blockchain technology provides more robust traceability features to comply with the International REC Standard.

These examples demonstrate that the technological dimension of blockchain-based solutions is relatively well established and ready for implementation, while the development of enabling and supporting regulatory and market mechanisms is lagging. Current infrastructural and institutional systems face challenges regarding laws on data privacy, prosumer rights, business models, validity of smart contracts and installation of new technologies such as smart meters and more, before being able to adopt blockchain-based solutions. Additionally, since the P2P market supports bottom-up and decentralized structures, incumbents, building business models around centralized systems, face challenges adapting to the changes.

Improvements in economic activities and regulations relating to P2P and blockchain solutions signal to governments and economic actors that the transition is effectively progressing. To support this transition, regulatory sandboxes are important tools to enable capacity building and joint learning between governments and businesses to test new products and services.

Blockchain applications offer promising solutions to address some of the current challenges in the energy sector by enabling and supporting the development of DERs to accelerate the sustainable energy transition. However, the application of blockchain technology in the energy sector still faces issues related to uncertainty and grey areas in regulatory and economic landscapes. Once trials and demonstrations through regulatory sandboxes, start-ups and pilot projects are more widely accepted, blockchain’s contribution to accelerating the sustainable energy transition has a significant potential to increase.

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Michael Williamson
Chief of Sustainable Energy Development Section
Energy +66 2 288-1234 [email protected]