Blockchain Coming to Energy Markets, Faster Than You Think

At the Texas Renewable Energy Industries Alliance (TREIA) conference in Georgetown, Texas last week, one of the major changes I observed over the last year is that people are talking about the inevitable evolution of electricity markets being "digitized" and becoming a "platform." This was coupled with a discussion of future widespread installation of solar panels and batteries at homes and businesses--known as Distributed Energy Resources (DERs). The Electric Reliability Council of Texas or "ERCOT" which manages most of the electric grid in Texas, has been speaking of the rapid growth of not only renewables and storage at the utility scale, but the rapid growth in Texas of distributed generation and storage.

But with this hardware change there is a coming software change. What is occurring is a major shift to blockchain, the technology underlying as most people know it Bitcoin. But it is not just so-called "crytocurrency" but a new form of managing, tracking, and verifying transactions on a distributed platform that replaces the "middleman." Where this fits well is in electricity markets. New companies are moving forward with disrupting old utilities and retail electric providers with cutting edge blockchain technology. And it will happen very fast.

Electricity markets and technology have until recently been very old and lacking in innovation. Today, there is rapid change and new technology hitting the electricity markets on a daily basis. Solar and batteries are just two technologies that are revolutionizing electricity markets. The growth around the world is massive.

But the more important and more disruptive change that is and will occur much over the next couple of years is through digital technology. Artificial intelligence, machine learning, or deep learning is coming along with blockchain. There has been a lot of discussion of artificial intelligence (AI), where computers analyze data and make decisions much faster than humans. One frequently mentioned event has involved replacing humans, and even financial analysts and traders, with computers. All of this "fintech" will invade electricity markets as well with dramatic disruption.

The fintech revolution for energy will involve the introduction of blockhain with AI. So what is blockchain. In simplest forms it is a digital ledger, that tracks transactions and information related to those transactions in digital blocks. "Rather than having a central administrator like a traditional database, (think banks, governments & accountants), a distributed ledger has a network of replicated databases, synchronized via the internet and visible to anyone within the network. Blockchain networks can be private with restricted membership similar to an intranet, or public, like the Internet, accessible to any person in the world." How does the Blockchain Work? (Part 1)

A blockchain technology that many ledgers are being constructed upon is Ethereum. Banks and other financial companies are developing ways of tracking various types of transactions on this platform. Ethereum is also the platform that many energy blockchain technology companies are using.

The electricity markets are good candidates for this technology, as there are millions of transactions where electricity is bought and sold every day at the wholesale level, and individual buyers, whether businesses or individuals, will soon have the opportunity to purchase power in a way that cuts out the "middleman," allowing lower prices and greater efficiency in electricity markets. "Advocates say the technology could be especially promising in industries where networks of peers—electricity producers and consumers, connected via the grid, for instance—depend on shared sets of data." How Blockchain Could Give Us a Smarter Energy Grid.

Without going into the complexity of all this, with the application of blockchain and AI, consumers, businesses and individuals, will be empowered to purchase power closer to wholesale prices. In a sort of second phase, as more power generation and storage is distributed to the consumers, blockchain and AI will allow consumers to buy and sell power from their homes, offices, and factories. This will require "smart contracts' that allow computer algorithms pre-set by the consumer to buy and sell power in certain market conditions. So when the sun is shining and the homeowner is at work, they can sell excess generation to another homeowner or business. On a windy night when wind generation may pay people to take power because of over production, a consumer can switch use to that time or charge batteries so she can make money using or storing electricity. With this ability, consumers can pay for their batteries very quickly, or share the value with companies that install them for free or a low monthly rental cost.

You might guess that this distributed power to the energy user or consumer will greatly disrupt the traditional utility model, where large regulated generators, transmission and distribution, and retail electric providers use large transmission sources, such as large coal and natural gas plants, to sell power to consumers. Now the REP may be replaced by a blockchain company. The cost difference between wholesale and retail prices will drop.

Smaller generation closer to cities and users, what is called "load" in electrical market parlance, and distribution to individual users of generation will occur. Another huge change will be, as mentioned above, the ability to store energy. Under existing models there is no storage. generation must meet use exactly or the grid becomes unstable. With distributed generation and storage, users can "play' the electricity markets, choosing to buy or sell from the grid depending on conditions of their energy generation and amount of energy stored, and the market as a whole.

The buying and selling will be done with AI. As the AI learns the markets and learns the habits and energy use of the consumer, the technology will be able to buy and sell power accordingly to produce the best economics for that consumer.

It may seem like a long way off, but it is going to happen very soon. Companies are already enveloping this technology. Like the Internet and smart phones, blockchain and AI in the electricity market will take off at a hockey stick rate, bringing more control to the user and saving and making money off of the grid and distributed generation and storage. It will happen much faster than you think.