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Reinventing Energy Consumption with Blockchain

June 18, 2019
Blockchain integration to benefit the energy industry via decentralization for a more resilient power grid.

The world we live in is changing rapidly. Accelerated by technological progress, sometimes it can feel like the world is spinning faster, with not enough hours in the day, or days in the year. Industrial application of technologies has not only sped up our lives, but has also led to an increase in the pace of climate change, and this trend is only set to continue. The International Energy Agency, for example, forecasted a 27% rise in the demand for energy between 2017 and 2040, intensifying the need to push towards more sustainable, decarbonized energy sources. However, as society advances, so do the technologies that power it, and this provides us with opportunities to make good on promises to slow down the negative impacts of climate change.

Making a Difference

Climate change has transformed from being a questioned theory to a commonly accepted fact of life. As the globe comes to terms with this reality and world leaders scramble to implement policies to curb greenhouse gas emissions, we must think of new, innovative solutions which can decelerate the pace of change. As a highly politicized debate and theme, it is on everyone’s radar, no matter which corner of the globe they come from or which cross-section of society they belong to. Citizens of more advanced economies are being forced to switch the way they use energy, whether by adding incentives for using certain forms of green transport (for example, bicycles), being provided litter bins for recyclable and non-recyclable waste, or disincentives for polluting the planet. Slowly but surely, we are starting to recalize that with each and every one of us doing their bit, we can slow down the negative impact of climate change.

Diversification with the Help of Technology

As energy consumption continues to rise, countries are diversifying their energy sources and looking toward more renewable sources such as solar and wind powered energy. At the same time, consumption of fossil fuels increases, with reserves depleting rapidly. Luckily, there are novel solutions on the horizon that pair green energy sources with pioneering technology.

Power Waste and Outages

Not only is using renewable energy a good way to decrease harmful impact on the environment, but it also helps reduce energy consumption and wastage. It is becoming ever-more necessary to improve energy system efficiency and sustainability, and to do so, we need power grids that are flexible, low-carbon, and resilient in the face of power outages. However, like many aspects of modern society, power systems remain centralized and unidirectional, making them susceptible to climate change-driven extreme weather events that lead to power outages. A point of note here is that a massive 78% of the total U.S. power outages are related to extreme weather events, at a cost of US$20 billion per year.

Distributed Energy Resources

Recent years have witnessed a move towards decentralization in the form of distributed energy resources (DERs). Decentralized power generation via solar panels and wind turbines are typically coupled with energy storage systems. This leads to a reduction in demand on the power grid, while also providing a source of backup power when necessary. In addition to this, the gradual increase in electric vehicles (EVs) on our roads has the potential to offset greenhouse gas emissions. However, the DERs mentioned above are usually not owned by power system operators, but by end consumers. This has resulted in the transformation of consumers into prosumers, who can buy and sell energy to and from the grid. But, this in itself presents its own challenges.

Grid decentralization means the responsibility of improving grid reliability is the shared responsibility of all stakeholders in the energy sector, not just the power system operator.

Management and coordination of DERs connected to the grid-edge cannot be handled by legacy control room software that is centralized and outdated. Furthermore, unilateral control is not possible because the DERs are owned and operated to satisfy prosumer objectives and not those of the power system. This means that for power systems to embrace DERs, a decentralized, non-discriminatory, and incentive-based system needs to be implemented.

Main Problems in Modern Energy Systems

  1. No common control/communication infrastructure at the grid-edge (intersection between the distribution/utility grid and where prosumer DERs interconnect).
  2. Consumer owned DERs, when left uncontrolled, can cause damage to grid assets and interfere with legacy power system operation.

Need for Coordination

The system, although decentralized, needs to be highly coordinated so that aggregated DERs (virtual power plants) can trade both energy and services with the grid and other virtual power plants. The result of this is an ultra-modern power system that is capable of organizing service-oriented, local energy trading markets that seek to optimize power flow and provide grid reliability services. This requires trust and automation, which is challenging because present stakeholders take the most economically profitable course of action for themselves. However, there is a new technology on the block that has emerged as a candidate for the implementation of transactive energy systems (TES).

TES are a “combination of economic and control techniques to improve grid reliability and efficiency.” They provide a framework for the coordinated control of all DERs such that their actions can be controlled to optimize the overall grid, including the local optimization of customer owned assets.


Blockchain uses a shared, distributed ledger that requires consensus to ensure that all peers accessing the ledger have a single, consistent version of truth. Smart contracts can be used to automate grid services and energy trading, meaning the system does not need a centralized service provider. As such, the implementation of blockchain can create a service-oriented power system that is auditable, accountable, and automated as is required by TES.

Benefits of a Blockchain-Based Transactive Energy System

  • Increases renewable energy usage via peer-to-peer (P2P) electricity markets in which green energy is produced and consumed locally.
  • Aggregates prosumers into virtual power plants which provide ancillary services to the grid, meaning power system operators don’t have to invest in new infrastructure.
  • Provides auditable information on the source of electricity.
  • Provides multiple sources of backup power for energy security and resiliency.
  • Acts as a transactive layer that all service providers can use to provide charging services to EV owners.

TES in Practice: Three Examples

Transactive energy system based on blockchain

A TES is able to establish P2P electricity markets to further encourage local, renewable energy generation. Because this energy is consumed locally, it greatly reduces energy losses that are typically associated with conventional, long-distance energy transmissions. This results in an increased penetration of renewables, while also opening up revenue streams for prosumers of energy. As such, the reliable coordination of energy transfers creates a community of self-sufficient, sustainable microgrids that significantly reduces energy dependency on foreign countries. This means that mission critical infrastructure such as government buildings, school campuses, and hospitals can be powered locally.

In practice: If we take a large city such as Toronto, for example, owners of buildings can place solar panels on their premises to generate power from themselves. However, they can also link up to the main power grid in which they sell their excess power to the grid as a whole. This helps balance energy provision during times of peak demand and reduces grid dependency, which is a win-win for the building owners, those consuming the excess power generated, as well as for grid operators.

A second use case for a TES would be the intelligent coordination of EV charging in accordance with power supply and demand on the grid. When renewable power generation exceeds demand, EVs could be charged by using the surplus at cheaper rates. At times of peak demand, the vehicle owners could be incentivized to either slow down the rate of charge or contribute idle energy on their batteries to ease the strain on the grid. This model works well since EVs spend most of their time in a stationary state, whether parked at home, or at the workplace. An aggregation of tens or hundreds of EVs can therefore be dispatched to deliver grid reliability services. This would provide power system operators with more flexible control, and unlock new revenue streams for EV owners.

In practice: Let’s assume that EV owners are working individuals that ascribe to 9 a.m. to 5 p.m. working hours. This means that a majority of users arrive home in the evening and place their vehicles on charge at around 6 p.m. If we assume that charging to full power from zero power takes eight hours and each EV owner needs to leave home at 8 a.m., the workers who charge their vehicles overnight as they arrive home have a surplus of six hours when the vehicle is connected to the charging station but doesn’t necessarily need to be. Peak demand for power surges in the evening between 6 p.m. and 10 p.m. During this time, any power left in the vehicles could be directed back to the grid to balance supply and demand, as the vehicles would only begin charging once demand falls after 10 p.m. This would improve grid reliability, whilst also incentivizing EV owners with cheaper rates.

The third use case is smart demand response, which allows prosumer owned DERs to provide ancillary services to energy stakeholders. In this case, incentives may be awarded for delivering services such as voltage regulation, peak shaving, and load shifting. The use of ancillary services provided by DERs allows power system operators to defer capital investment for building new substations and upgrading critical infrastructure in order to keep pace with the growing demand, potentially saving millions of dollars.

In practice: It is an especially hot summer in Paris and portions of the main grid are experiencing peak demand and insufficient supply because of the air conditioning units running at maximum, day and night. This leads to excessive heat building up in the transmission lines and thus, to power losses and outages. As a result of these events, power system operators have been spending millions of euros upgrading infrastructure — building new substations to satisfy peak demand. While these events typically occur for only for a few hours on a few days per year, equipping the congested areas with locally deployed energy storage mechanisms that discharge energy at peak times replaces the need to build and upgrade infrastructure. Moreover, grid-tied energy storage systems can also offer additional services to stabilize voltage and frequency when there is a high penetration of renewable energy output.

The application of technology has been changing society for decades and this is an inevitable consequence of civilizational development. In order to continue living in the world as we know it, we need radical solutions that enable us to overcome the hurdles in this uphill battle against climate change. Blockchain integration can benefit the energy industry via decentralization for a more resilient power grid. Although just one initiative, if adopted on a large scale, blockchain-based transactive energy systems could have a massive impact in helping reduce the pace at which our climate is changing. Let’s embrace decentralized technologies to create a more sustainable future.

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