Energy companies are starting to look at how the technology has the potential to optimise their processes and facilitate energy transactions.
With the help of Blockchain, small scale energy generators known as prosumers (producers/consumers) can sell excess generation direct to other consumers by way of micro grids. This is just one of the applications for smart contracts powered by blockchain technology in the energy sector.
This model gives scope for more consumer choice as they can designate certain criteria for their energy purchase and the smart contract will only complete the transaction when these criteria are met. So the consumer could designate the specific price they would like to pay or the renewable energy source they would like the energy to come from. Smart contracts also decrease transaction costs as manual tasks can be carried out automatically, allowing users to trade energy amongst themselves.
Currently a wholesale energy transaction requires a range of inter-connected processes to occur. Costly intermediaries such as online exchanges or brokers are used to initiate a trade, index agencies are used to assess pricing, trades are confirmed by automated systems such as EFETnet in Europe or traditional methods such as email and fax – and this is all powered by the energy firm’s own IT systems. This approach is costly, time consuming and vulnerable to human error.
A blockchain solution here could cut out unnecessary bureaucracy and inefficiency. A shared ledger of information could be created so both parties have transparency and work flow can be accelerated.
The ability to carry out transactions securely, traceably and without the use of a central authority (with the help of Blockchain technology) could make wholesale energy trade more efficient, secure and cost effective.
When Blockchain is combined with other technologies such as sensors, mobile apps and smart financing - real opportunities can be seen in the developing world where there is limited access to energy. A renewable energy feature such as solar panels could be installed on credit, with excess energy being sold to the local community in quantities via a mobile phone app linked to the blockchain. Once the excess energy has paid off the initial installation costs the owner is left with a self-sustaining energy source for themselves and cost effective energy for their community, something that may not have been possible with traditional infrastructure. Blockchain will also work to cut out the middleman and potential for corruption where customers don’t have a bank account.
One of the best applications of flexible energy is electric vehicle charging. One major hurdle to the wider use of electric cars is the lack of charging points, meaningthey are still not considered ‘the norm’. In this context Blockchain can be used to optimise the communication between charging stations and electric vehicles as well as the handling of charging processes and transactions. By making vehicle charging smarter and more economically viable, Blockchain could accelerate the transition from traditional ‘fuel’ stations.
The handling of existing processes can be carried out more efficiently and, in some cases, at lower cost by using Blockchain technology. This option is particularly interesting for energy suppliers. They can, for example, optimize processes in connection with the change of a power supplier or the administration of master data, in a way that is both tamper-proof and traceable.
This is just the tip of the iceberg with regards to Blockchain and the energy sector, we have not even begun to discuss the impact of cryptocurrencies and the ‘tokenisation’ of energy finances. Blockchain will no doubt change the way we use and distribute energy, and it has already begun to disrupt the traditional energy market. It makes delivering cleaner, faster energy more accessible and a more realistic alternative to traditional fuel sources.
Blockchain will also encourage us to manage our energy more smartly, giving consumers more choice. The decentralization of the energy market will strengthen the market role of individual consumers and producers. In turn, large energy suppliers will be forced to reassess their offering, and may tap into the concept of ‘demand response’. More energy companies will be looking at this as Blockchain gains momentum.
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DWF’s market leading energy experts have come together to explore how Blockchain is disrupting the industry. We understand this complex technology and its legal ramifications and our energy sector experts are here to guide you through what the changes may mean for your business.