Combined Values and Scenarios of IoT and Blockchain

Introduction

IoT and Blockchain are two of the most innovative technologies in recent years. I have been asked, time to time, the scenarios of putting them together and the value of the synergy would be greater than the total sum if we use them separately. Since I have spent almost 5 years in the energy sector by now, I plan to answer this question in the context of digitalization of renewables and decarbonization, the future trends of the energy sector.

Commonality and difference of these two technologies

In context, both blockchain technology and IoT technology focus on collecting and managing data, which includes bits of information extracted from physical or biological entities. 

Similarly, both technologies enable information of the physical world to be digitized on a platform where multiple parties can access and share such information in a secure and transparent manner.

Specifically, IoT refers to the vast array of intelligent devices that are able to bridge the gap between the physical and the digital world: environmental, biological, and chemically-based sensors can be attached to any particular process or product. These sensors/devices collect information about the product they are attached to and transmit the real-time conditions to either another device or a central gateway connected to a larger network.

These devices/sensors are very diversified. Connecting the devices/sensors, managing their lifecycle such as activating, deactivating and firmware upgrade is only the first step of getting the value from the IoT technology and a lot of other capabilities are needed. Thus an IoT Platform typically has many capabilities, layer by layer, including connectivity management, device management, data storage and management, data analytics services including machine learning, and application enablement to decide the actions based on analytics on data from the devices/sensors and from integration of existing systems through API or data collections.

Figure -1 , a design diagram of IoT platform

An IoT platform is usually centralized for an Enterprise or a business operator. It acts as an aggregator/manager of many devices and convert data into insights and then actions. A few typical applications built on top of an IoT platform include monitoring and controls, performance management and predictive maintenance. With an IoT platform, applications are hosted and managed in a well-organized and self-contained way until suddenly data exchange and transactions between devices from different enterprises/business operators are needed in a large scale, distributed and autonomous way. A centralized IoT platform apparently does not fit well in the decentralized world.

Then here comes the Blockchain for decentralized, transparent and autonomous transactions and contracts. One may argue that it is also possible to build an IoT Platform on top of the Blockchain fabric layer and leverage its distributed messaging and storage capabilities . First, this is a very inefficient way to achieve that goal technically. Secondly, the majority of the existing devices/sensors are not capable of communicating with the Blockchain fabric directly due to a few limitations, for example, these devices either do not have a security chip containing the identity to authenticate itself to the fabric or they, such as a Solar inverter, do not have a TCP/IP communication channel at all. The third challenge is that the OEM of the devices such as Tesla does not allow the device such as an EV to directly communicate to a third party interface (blockchain in this case) without passing through its own device management platform for security or competition reasons. All above make it difficult for the Blockchain technology to fly in the physical world alone without an IoT Platform.

The best usage of Blockchain is to have blockchain as an autonomous data exchange platform with security ID management, transaction validation and transparent and auditable data trails capabilities built-in for a large scale of participants that could be managed by many IoT platforms. In this case, a blockchain functions as a distributed ledger that is capable of receiving information from the IoT platforms that in turn acting as a representative/proxy of the devices. This information is then publicly verified and stored in a manner that ensures that no data can be modified with strong traceability. A typical type of applications (known as dApps) on top of blockchain are exchanges, which we will discuss further in this article.

Figure -2 , Strengths and Weaknesses of IoT Platform and Blockchain

Best way to put them together

When you put two things together, it is always good to leverage their strengths and avoid their weaknesses. When applied together properly, blockchain and IoT are able to ensure the secure, end-to-end collection, transmission, validation, and storage of data about products in the physical world and enable cross-platform autonomous transactions. With IoT, a number of external variables and internal variables surrounding a device become digitized for the first time. With blockchain, the possibility of securely and transparently storing and sharing data and having autonomous transactions between devices without an arbiter becomes a reality.

The combined solutions actually create two values – deeper understanding the devices and broader exchange between centralized systems. This is especially important in circumstances where individual device behavior will impact the global marketplace.

Figure 3， Integration of IoT Platforms and Blockchain

How do they play out in the emerging energy world

Digitalization and Decarbonization are the mainstreams of the emerging energy world.

On one hand, the IoT platform is the first step to digitalize the energy assets, such as Wind Turbines, Solar Inverters, Energy Storages, Charging Stations and Piles, Electric Vehicles, HVAC, Lifts, Lights, and electric powered machineries in plants. We already see software products on top of the IoT platform to manage the efficiency and the health of these devices through data analytics and machine learning. The IoT platform can further orchestrate these devices in response to external factors such as security, price or context update based on optimization framework.

On the other hand, there are growing trends toward dynamic retail tariffs, local electricity markets, exposing retail customers to wholesale markets, and even “peer-to-peer” or other types of transative energy markets that clear from the bottom up. With this context, there is a clear and urgent need to transition customers—and their energy assets—from being a passive “end point” to becoming active participants in a dynamic energy system. Novel market designs and regulations are a necessary step towards achieving the energy transition. Even in instances where Distributed Energy Resource (DER) market participation is allowed, established processes that grid operators use to integrate large-scale resources simply don’t scale to customer-owned DERs. The root cause is: most DERs are a) too small individually for large grid operators to care about, b) not worth the expense to justify traditional processes for enrolling, and/or c) simply invisible to local grid operators. As a result, there is a high barrier to entry for integrating DERs to the grid and operating them to achieve a net benefit for all system participants. Blockchain technology is the solution for the fundamental issue of onboarding, vetting, and sharing key information about DER attributes, capabilities, relationships, and behaviors that allows system-wide optimization or P2P trading in the first place.

Each distributed energy resource would have a digital identity (may be proxied through the IoT platform if it is not technically capable) linked to its corresponding information, such as capacity, real-time measurements and consumer preference. Using these identities, each device’s actions can be transparently tracked on the blockchain, and revenues can be divided and distributed automatically via smart contracts.

Typical Scenarios

Let us go through two typical scenarios for IoT + Blockchain in the Energy Domain.

Tracking Renewable Energy Origin

In response to commercial interest and government regulation, renewable energy certificates (REC) and guarantees markets have emerged in the United States, Asia, Europe, Australia, and elsewhere. While these markets have noble intentions, their administration is highly manual and costly, rendering the markets opaque, high-cost, and inaccessible for most smaller participants. In addition, these analog, largely manual markets are not able to support any higher-level functionality such as consumption-linked purchasing, carbon-impact selective purchasing, or renewable generator aggregation.

We want to make REC trading as straightforward as we do in eCommerce. Renewables such as Wind and Solar asset are mostly managed by an IoT Platform the owner of the asset has selected. For example, Envision’s EnOS IoT Platform has managed over 80GW renewables asset. In a blockchain-based renewable energy credit market, each asset would receive a digital identity through a channel between the IoT platform and the blockchain that links to all production of that asset and subsequently associates with each owner of the credit. This record of identities and ownership would reside on the blockchain for all market participants to use.

Smart contracts could then provide automated additional functionality such as mapping kWh production to carbon offset or automating credit purchasing based on a consumption profile. By digitizing identities, records, ownership, and contracts, blockchain can make renewable energy purchasing transparent, highly functional, and low cost.

But perhaps more significantly, for the first time in over a century individuals, companies, and communities can switch to local, independently-produced power at prices competitive with grid supply by investing in a mix of large-scale renewables and distributed energy resources (DERs, including distributed solar PV, energy storage, electric mobility, combined heat and power, energy management systems, and smart appliances such as thermostats). This solution gives market participants the ability purchase a variety of digitalized, attribute-based green commodities.

While the IoT platform provides the asset attributes and power production readings to the blockchain on behalf of each asset, the blockchain platform provides software modules designed to support provenance and traceability use cases, including digital renewable energy marketplaces, certificate issuance, tracking, and reporting systems.

Envision and T-RECs.ai have been running a pilot to allow the renewables (wind and solar) asset owners who managing their asset management task on EnOS to easily apply for RECs from certification bodies and trade them through an exchange.

The entire process is streamlined and no human intervention is required. The Qualified Reporting Entity (QRE) would have every trusted data at his finger tips to validate the origins and productions of the renewables production. The certification body would have strong confidence on the eligibility of the applicants based on identity, validation and traceability. This autonomous process would significantly reduce the barrier for renewables asset owners to receive rewards from the platform and also enables many other interesting scenarios such as 24X7 matching, hourly matching of renewables generation and consumption.

Figure 4， REC Validation and Trading

Onboarding DERs with Flexibility Hub

Customers are making the switch quickly. In the next ten years, electricity end-users will spend a cumulative $830B on DERs and $7T on electric mobility. By 2030, roughly a third of global installed capacity will reside “behind the meter” . Along with this massive investment shift is a coming tsunami of device interconnections: an estimated 3.5 billion IoT managed DERs are expected to integrate with existing electric grids by 2030.

Taken together, these assets have the potential to form the basis of decarbonized, flexible, resilient energy systems the world-over. In this environment, asset and customer information is fragmented across multiple siloed systems and is often invisible to grid operators. Consequently, many assets remain largely isolated from core system planning and operation functions, and DERs in particular are chronically underutilized and frequently fail to capture their full potential value.

The Flexibility Hub solution built on IoT + Blockchain unlocks deep demand-side flexibility, enabling grid operators to tap into the vast technical potential of customer-owned distributed energy resources in a trustworthy, low-cost, scalable way.

Instead of a central entity being in charge of verifying credentials and issuing the passport itself, any individual can create a passport and establish verified credentials over time through interactions with peers or various authorities.

Every claim is authenticated through bilateral transactions, in which the “claimer” (i.e., identity owner that can be represented by the IoT Platform) provides a “verifier” (e.g., a DER installer) with agreed-upon documentation or data to prove a given credential. As claims are verified, the underlying digital identity becomes richer and more trusted. Identity owners can also use claims to delegate other entities including the IoT Platform to perform transactions or claims on their behalf.

Figure 5, A Flexibility Hub Implementation

Envision has partnered with other companies to enable devices on the EnOS platform to be able to aggregated into flexibility bundle and participate into trading with digital identities and trustworthy readings on the blockchain.

A series of software modules are designed to support grid balancing and demand flexibility use cases in a variety of regulatory environments. Examples include enabling vertically integrated utilities to launch device-agnostic “bring-your-own-device” demand response platforms to helping DERs participate in a variety of wholesale electricity markets such as a two-second balancing / frequency response market.

Conclusion

When technologies reach their hype, they will fall back to value based solutions and then fly much higher, just like Internet, Online to Offline, Augmented Reality and Artificial Intelligence. The same applies to IoT and Blockchain, the two innovative technologies to convert the physical world into digital world and orchestrate them through the magic of the market.

If we take advantage of the strengths of IoT and Blockchain, the combined values is tremendous in certain scenarios in some sectors. The Energy Sector is going through digitalization and decarbonization. Chasing the Origin of Renewables and Onboarding Distributed Energy Resources for Flexibility Market Places are definitely the ones we can clearly see the combined values of IoT and Blockchain is great than the total sum if we use them separately.