In 2017, startups raised over $300 million to apply blockchain technology to energy, and deal flow has only ballooned in 2018. Although evangelists herald blockchain as the new internet, capable of upending mainstays of the energy sector like the centralized power grid, many applications have created more hype than value.
The big picture: There has been a dearth of straightforward, publicly accessible data on blockchain experiments in the energy sector, but that’s starting to change. What we’ve seen so far makes clear that some of the humbler initiatives — those that work within the existing system and partner with incumbent utilities and regulators — are likely to have the greatest impact.
The details: Within the electric power sector, there are five major categories of blockchain applications.
- Electricity trading markets: Some of these aim to upend the centralized electric power system by introducing peer-to-peer transactions (such as trading rooftop solar power), while others seek to incrementally improve it through grid transactions (such as enhancing existing wholesale energy markets).
- Energy financing: Startups have proposed using cryptocurrencies to raise funds for energy projects, overwhelmingly in the clean energy space.
- Sustainability attribution: Blockchain could be used to record and trade attributes of sustainability, including whether a unit of electricity is renewable and how much emissions resulted from its production.
- Electric vehicles: Blockchain networks could enable private owners of electric vehicle charging infrastructure to sell charging services, enabling greater electric vehicle adoption and helping to stabilize the grid through smart charging.
- Others: Less common applications include orchestrating customers' internet-connected appliances to help balance the grid and enhancing the grid's cybersecurity.
Although the largest number of blockchain ventures aim to replace the centralized grid with peer-to-peer electricity networks, the electric power sector is slow to change and has powerful incumbents, making a radical transformation unlikely.
Instead, the most promising applications — such as making existing trading markets more efficient and orchestrating far-flung networks of customer appliances — seek to manage the increasing complexity of the electric power system, which is under strain as intermittent solar and wind generators, power-hungry electric vehicles and decentralized electrical equipment connect to the grid.
What’s next: Because the electric power sector is highly regulated, policymakers will play a crucial role in determining how much of blockchain’s potential can be realized. An important first step is understanding what blockchain is and what it can and cannot do. One strategy, which energy regulators in the U.K. have tried, is to create a "sandbox" that relaxes regulations in a limited section of the grid so that entrepreneurs can experiment with blockchain and other new technologies.
David Livingston is deputy director for climate and advanced energy at the Atlantic Council’s Global Energy Center. Varun Sivaram is the Philip D. Reed Fellow for Science and Technology at the Council on Foreign Relations.
Go deeper: "Applying blockchain technology to the electric power sector" at CFR.org