How Blockchain is Driving the Energy Innovation?

The blockchain is transforming the energy sector with possibilities and challenges strewn on the pathway.
Blockchain is Driving

The blockchains distributed ledger technology has a potential to transform various industries from the financial sector to health care, insurance, transport, logistics, media and communication, the energy industry, and more.

The technology is still in its early stages but already being extensively tested by various groups, companies, banks, and even the government institutions.

Last year, start-up companies reportedly raised over $300 million[1] , for the blockchain technology applied to the energy sector.

In this article, we will take a look at the ways blockchain projects could transform the power industry.

The Energy Sector Problems and Challenges

Before we dive into solutions, let’s take a look at problems that blockchain could solve for the energy producers, suppliers, and consumers.

Power is a physical commodity that requires an extensive infrastructure of power grids to transfer electrons from where they are produced to where they can be used.

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This global machine includes many intermediaries like the grid operators, energy managers, power off-takers, payment companies, logistics and documentation systems, etc. This creates a global network that’s often inefficient, costly, and slow.

For consumers, it results in higher prices and the lack of choice and transparency about where their energy is coming from.

For producers, it means they might be less competitive and suffer losses from inefficiencies in energy management, power grid transmissions (approx. 8.2%), and congestions (7-10%).

For the planet and all of us, it equals inefficient energy production, management, and storage that ads to power losses and the world’s carbon footprint.

Energy Sector Problems

How is Blockchain Solving Energy Issues?

There are many ideas on how to apply blockchain technology to solve the issues plaguing the energy sector.

  • Using cryptocurrencies for instant payments and transactions between multiple parties.
  • Creating smart contracts for selling energy peer-2-peer, directly between the producers and the consumers.
  • Applying the ledger technology to documentation, accounting, and logistics, for example, to store energy’s origin certificates and emission allowances.
  • Introducing IoT smart meters, grid trackers, and even ‘Smart Grids’ to improve transmission, management, and transparency for all the interested parties.
  • Financing clean energy projects using ICOs and crowd sales.
  • Replacing large power factories and centralized systems with decentralized microgrids.

Some of those ideas are more difficult to implement than others. The adoption would require the help of governments and regulators, as well as the transformation of the industry structure and infrastructure.

First steps are already being taken by multiple energy companies as well as the independent start-ups, guaranteeing that at least some of the innovations will enter the niche in the years to come.

Financing, Trading and Buying Energy Using Crypto

The usage of cryptocurrencies as means of payments is perhaps the most basic and straightforward to apply.

Tokens or coins could be used as means of payment for energy by the Electric Vehicle (EV) drivers, households, the whole communities, and even cities.

Transactions, currently managed by payment companies and banks, could be processed by the decentralized networks, improving the speed and lowering the cost of global transfers.

Power units could also be turned into digital assets and traded on cryptocurrencies exchanges, or used to organize crowd sales and funds for local clean energy projects.

The challenge lies in creating simple apps and user interfaces that would increase adoption of crypto as the means of payment.

The energy pre-paid system based on smartphone apps are already popular in some developing countries where the native currencies are unstable, and energy needs to be purchased on the week to week basis.

If cryptocurrencies were integrated into existing systems, adoption could be faster.

Transmission Documentation

Facilitating Energy Transmission and Documentation

Distributed ledger technologies allow for immutable storage of critical data, for example, proof of ownership, certificates of origin, and emission allowances.

Recently, the Australian Commonwealth Bank (CBA) has used the blockchain platform to complete global trade and transport of 17 tons of almonds. It served as a proof of concept that DLT can be successfully used for trading goods and commodities.

Similarly, when applied to power sector it can be used to create smart contracts between all the parties, keep track of transport documentation, and help in auditing when goods are shipped between countries with different legislation.

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The adoption resistance is also minimal, as the solution improves transfers for both producers and suppliers, without disrupting the system as a whole.

Improving the Energy Management

When paired with innovative smart gadgets and IoT (Internet of Things), blockchain could become an important monitoring and management tool to improve energy generations, transmission, and storage.

Smart meters and sensors could track energy from the moment of production right to the final consumer.

The trackers would recognize the regions and period of higher energy demand vs. supply and the smart contract based algorithms could automatically transfer excess energy where it’s most needed while cutting the quantity where the current demand is small, in real time.

This kind of smart grid would improve transparency for the consumers, and give energy companies and investors insights into the market patterns.

It would also remedy some of the technical and non-technical energy losses due to inefficient transmission and congestions that together amount to almost 20% of the global energy production.

The Decentralization of Energy with Microgrid Infrastructure

Decentralization Energy

The most exciting and disruptive projects involve the creation of decentralized microgrid network that would produce clean energy for local communities and divert the excess to the neighbors or the central providers.

In April 2016, LO2 Energy and ConsensSys run a first successful pilot to test if decentralized microgrid technology built on blockchain could be used to produce and sell renewable, solar power between neighbors, with peer-2-peer transactions.

Microgrids are small energy generators that can create clean energy using solar panels, bio-waste, or wind turbines. The power can then be stored and used by a household or the local community.

The microgrid technology is still quite expensive, but some towns and companies invest in generators to gain an independent, stable, and renewable power source and save on the energy bills in the long-run.

Wider application of microgrids together with changes in local legislation and energy management is creating a new population of ‘prosumers.’ – consumers of energy who are also producers and can sell their excess power to neighboring communities and companies.

Decentralization of power infrastructure could also, in the long run, save billions of dollars needed to update current macro-grids.

But, the shift would also cut out many intermediaries and their monopoly on energy so it would be up to local governments and laws to facilitate the difficult transition period.

Read Next: Is It Worth Worrying About Crypto Energy Consumption?


If realized, the dream of decentralized, blockchain and micro-grid driven, smart energy would improve inefficiencies, dramatically lower the power prices, promote reliable, clean energy and significantly decrease the global carbon footprint.

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The writer’s views are expressed as a personal opinion and are for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

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