Blockchain’s role in an energy revolution

February 16th, 2018, Published in Articles: Energize

The international energy industry is about to go through another major revolution. Blockchain will change the way energy systems operate, offering new ways for private financiers to invest in distributed energy generation with a low-cost, secure payment mechanism.

Paul Mitchell

Speaking at the recent South African National Energy Association’s (SANEA’s) Energy Rendezvous event, PwC’s Paul Mitchell said that Blockchain technology will offer new ways for electricity from distributed energy generation to be traded.

What is Blockchain?

Mitchell defined a Blockchain as a decentralised ledger of all transactions in a network. Using Blockchain technology, he said, allows participants in a network to confirm transactions without the need for a trusted third-party intermediary.

Typical benefits include anonymity, built-in trust, replication, cost-saving and error elimination.  Blockchain enables contracts between parties to be automated, secure and inexpensive.

How Blockchain works

Blockchain relies on a very complex security algorithm known as public key infrastructure (PKI), or asymmetric cryptography. PKI ensures the security of transactions by creating, managing, distributing, using, storing, and revoking digital certificates, while managing public-key cryptography (PKC).

PKC is not a new invention. It was invented in England in the 1970s, with subsequent developments having taken place in the US and elsewhere. PKC is used widely in applications including Smartcards for Pay-TV encryption, chip-based credit cards and identification systems, electronic (chip-equipped) passports, health cards, and SIM cards for mobile phones.

Blockchain in a Bitcoin application

In Bitcoin, the most prominent applications of PKC are wallet creation, transaction generation and verification. To generate a Bitcoin wallet, one must first use a particular type of PKC known as an Elliptic Curve Digital Signature Algorithm (ECDSA) to create a new private key and a corresponding public key. This algorithm employs the calculations behind elliptic curves to create an asymmetric key pair (public/private keys). These keys are later used by the owner of the wallet to interact with the network to send and receive tokens.

According to Leon Di, a product marketer at WeTrust, when someone sends you cryptocoins over the Blockchain, they are actually sending them to a hashed version of the public key. There is another key which is hidden from them, which is known as the private key. This private key is used to derive the public key. You can know your own private key, and the private key should not be shared with outsiders. Both the private key and the public key are large integer numbers, but since these numbers are so large, they are usually represented using a separate Wallet Import Format (WIF) consisting of letters and numbers.

PKC is often used to secure electronic communication over open networks such as the Internet, without relying on a hidden or covert channel, even for key exchange. The nature of the Internet – an open network – makes it susceptible to a variety of communication security problems.

Communication security typically includes requirements that the communication must not be readable during transit (preserving confidentiality), the communication must not be modified during transit (preserving the integrity of the communication), the communication must originate from an identified party (sender authenticity), and the recipient must not be able to repudiate or deny receiving the communication.

Using Blockchain in energy

In the case of energy applications, the use of Blockchain technology can reduce energy companies’ administration costs by reducing the number of accounts it holds. As described earlier, energy users can obtain prepaid tokens from energy suppliers without the need for an account with the supplier.

Citing the Enerchain project, Mitchell said that energy trades, executed via a Blockchain technology in a proof-of-concept environment, were used for trading physical power and gas products in Europe. Ernesto Ciorra, the head of innovation at ENEL, says Enerchain is probably the most innovative project in the energy space today.

The concept is simple enough, says Mitchell. Investors build a solar farm and sell the electricity to energy users. The use of Blockchain ensures financial security without the need for complex accounting systems.

The energy user buys “tokens” which equate to a number of kWh units according to a preset tariff. As different energy companies vary their tariffs, users can buy their energy from their supplier of choice without having to set up profiles and accounts with the new supplier.

Another use for Blockchain in the energy sector is in peer-to-peer energy systems where “prosumers” (i.e. those who produce and consume electricity) can share their surplus energy with another user, such as a neighbour or tenant, and be paid quickly, simply and efficiently.

An example of a peer-to-peer energy system is the Brooklyn microgrid, where some home-owners in New York City’s suburb of Brooklyn install PV panels on the roofs of their homes and sell excess electricity to their neighbours.

Benefits

The project achieves a number of goals: a reduction in demand on the city’s power grid saves the user money, a lighter load on the city’s grid reduces generation demand which helps the environment, while the system offers some backup in the case of a power supply failure. Sharing the excess electricity also helps the owner of the PV installation to recover the cost of the installation.

Another example is Sun Exchange. This organisation allows investers to buy solar panels and lease them to schools and businesses in the sunniest places on Earth.

According to the company’s website, Sun Exchange arranges a monthly lease, rental, collection and distribution. The says it accepts and pays in local currency or Bitcoin. A typical example of a Sun Exchange project is the 60 kW solar park in Knysna’s Elephant Park, where a system comprising 13 248 PV panels is fully subscribed.

Investors in such private energy-generating schemes can expect to receive rental income wherever they are in the world through a Blockchain-based payment system. The solar cells, which are insured for fire, damage and theft, are expected to generate an income for 20 years, providing an effortless and secure source of sustainable income for those who invest in them.

This development changes the way in which energy will be traded in future. The traditional concept of resellers buying electricity from state-owned or independent power producers for mass distribution is likely to change, making Blockchain a major disruptor in the energy sector.

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