Researchers David Livingston, Varun Sivaram, Madison Freeman, and Maximilian Fiege from the Council on Foreign Relations (CFR), an independent, nonpartisan US think tank focused on foreign policy, published a July discussion paper titled Applying Blockchain Technology to Electric Power Systems that highlights blockchain technology's application to the electric power sector. The paper covers three energy use cases and offers recommendations for policymakers.
Due to various changes in the sector, complexities have been introduced into electric power systems, namely, an increase in distributed power generation, a different approach to grid management, and the digitalization of electric power sources. According to the researchers, blockchain could "be a tool for managing" such complexities.
The report goes on to note that startups are the main players spearheading blockchain-based energy solutions; in fact, they raised over $300 million from March 2017 to March 2018 for this purpose. However, there are numerous utility-sponsored initiatives, from the Tokyo Electric Power Company (TEPCO) to Germany's E.ON, that are also participating in the space. All these organizations are "harness[ing] blockchain in myriad ways."
The researchers then evaluate three recent examples of blockchain's application to the energy sector. One use case is the Brooklyn Microgrid, which is a project from startup LO3 Energy "to network thousands of Brooklyn residents in a self-sufficient microgrid, which is a small electricity network with its own sources of supply that can function independently of the main grid."
However, the paper indicates that the first iteration of the project does not fulfill the startup's goals – it "does not provide resilience, cost, or sustainability benefits." The researchers suggest that LO3 collaborate with utilities and regulators to better achieve its vision.
Another example is Grid+, a Texas-based startup with the aim to provide residential energy customers with access to wholesale markets. Grid+ sells participants tokens that can be used to purchase electricity at wholesale rates, which are typically only available to power plants, utilities, and large retailers.
Although the project is on the Ethereum network, the researchers mention that the blockchain itself "is likely less important to holding down costs than the prepayment scheme that Grid+ uses." They also note the infancy of the project, as customers currently can only save money on the supply component but not the delivery charge aspect.
The last project is Electron, a UK-based startup hoping to create a flexible electric power marketplace. Blockchain comes into play through the quick, transparent, and inexpensive processing of transactions. The researchers describe the startup's progress as incremental – for the "marketplace to succeed," they note, "Electron will need to develop technologies beyond just the underlying blockchain platform."
The final substantive section of the report details the CFR's recommendations to policymakers. The paper provides three suggestions:
- "Invest in understanding blockchain and its regulatory intersections."
- "Support the development of blockchain standards in the electricity sector."
- "Set up regulatory sandboxes to enable demonstration projects."
Considering these propositions, respectively, the CFR states that the intersection of blockchain and privacy is important, various proprietary platforms could act as a roadblock in achieving scalability, and regulatory sandboxes would allow businesses to test their projects "without affecting the bulk of the electricity system."
Despite the assorted developments and advancements of blockchain-based energy applications, the think tank remains critical. The organization notes that "blockchain's potential in the electric power sector should not be overstated," especially considering the radical nature of many blockchain projects. Additionally, the researchers mention that incremental improvements and partnerships with incumbent players in the energy market point toward greater commercial traction concerning the technology's adoption.
The paper concludes with a recommendation that policymakers pay attention to the evolving blockchain field and keep apprised of the technology's continued application to the electric power sector.
The report's publication arrives amid a flurry of blockchain ventures in the energy sector – and not just those detailed in the paper. Australian-based Power Ledger, the US Department of Energy, and the United Nations Development Programme have all recently thrown their hats into the blockchain energy ring.