Blockchain is hot right now, perhaps at the peak of its hype cycle, perhaps not. It is the underpinning of bitcoin, but also has the promise to be a disruptive technology in multiple sectors. I started my exploration of how it will impact electricity’s transmission, distribution and sale in Bitcoin’s Hot But Blockchain For Cleantech Is Interesting, and continued in a 3-part series of articles on the nature of smart contracts based on blockchain technology and their applicability to electrical generation and distribution.
This article will look 5 different examples which highlight different use cases for blockchain and cryptocurrencies in clean energy:
- buying electricity
- selling electricity
- raising capital
- grid security
Check out all articles in our Cleantech Blockchain section for more along these lines.
Unsurprisingly, in a world where mining for bitcoin is by one analysis consuming more electricity annually than 159 countries, there are several utilities which accept bitcoin as a payment option. The first was Bas Nederland in 2014 when bitcoin was fluctuating in the $300 to $800 range. Assuming a couple of people took Bas Nederland up on this offer and they received say 10 bitcoins worth $5,000 at the time and that the company held onto them, they’d be worth $183,000 USD right now, about 37 times as much. Lucky or prescient?
They were followed by other utilities directly following in Bas Nederland’s footsteps in several European countries and Japan. More interestingly, intermediary payment services have sprung up globally, allowing you to pay multiple types of bills from your electronic wallet. They include Bylls in Canada, Volabit in Mexico, and Paybill in Malaysia and Pakistan. These services take a transaction fee to pay the bills on your behalf, presumably turning a tidy profit. While cryptocurrencies and blockchain continue to assert that they are removing bank intermediaries and their transaction fees from processes, the reality is that new intermediaries with higher fees have simply sprung up, a common pattern across the space.
Individual consumers paying directly or through an intermediary for electricity is a fairly established space, with a set of vendors in multiple countries around the world. But wholesaling electricity or sourcing it locally from nearby micro-generators is still in its infancy. There are a couple of well-publicized ventures starting up, including a microgrid in Brooklyn, which I’m sure only sells authentic electricity and requires that customers ride fixies.
I’ll focus instead on Australia. The federal government and a group of partners have granted $8 million AUD to a project which will trial blockchain-enabled electricity and water utilities in Fremantle, a small city in the west. They will tie together municipal and commercial, solar, storage, EV charging, and water treatment with blockchain approaches, then use analytics to optimize the mix.
The system uses the Power Ledger peer-to-peer blockchain system. They raised $34 million AUD in 2016, some of which is flowing into the Fremantle project.
There are a couple of interesting pieces here. One is that one of the partners wants to develop smart metering approaches off the back of this project. Given that there are multiple, commercially available smart metering solutions in existence for homes, businesses, and the like, presumably this is specifically a blockchain-enabled solution.
Analytics with blockchains are problematic, as the underpinning technologies are very poorly structured for fast or large-scale analysis. Performant solutions against larger solutions will undoubtedly extract data from the blockchain into data warehouses and use traditional analytics approaches in that centralized environment. Given that the entirety of bitcoin’s blockchain is only 80 gigabytes, big data is perhaps a misnomer too. When larger numbers of endpoint devices start being attached, data volumes increase rapidly, and useful real-world data about performance of blockchain will start emerging.
As Power Ledger’s example points out, one of the emerging uses of the cryptocurrency and blockchain is in raising capital. Initial coin offerings (ICOs) are increasingly being used to raise capital for cleantech-related ventures. Grid+ went this route instead of an IPO. It sold 39 million tokens with a value of $32 million. It didn’t hit its target of $89 million, but 36% is reasonable. Of course, ether was at $306 on November 12, 2017 when it closed its ICO, and as of the time of writing it’s at $812, which means that if they cashed out to USD they would be almost exactly at their initial funding target.
Sidebar: A future article will go into more depth, but for now it’s worth taking a minute and explaining what an ICO is. When raising money through a coin offering, most people don’t create their own version of bitcoin or Ethereum. Instead, they typically leverage Ethereum’s blockchain and smart contract programming language to create something referred to as tokens. A token is like a share. Ethereum isn’t the only blockchain platform around, but it is the most widely used. They write a whitepaper articulating exactly what the new coin is supposed to do, what the money will go toward, and how the ICO will be executed. The smartest ones translate the whitepaper into multiple languages, as Power Ledger did. They leave the ICO open for periods from a week to a month and individuals ‘invest’ by purchasing tokens. There are a handful of models for recouping the investment, but the primary two are increases in the market value of the tokens and dividend approaches which return a fraction of the profit from the business venture back to token holders.
Grid+ created a token called Bolt, ran its ICO, and did quite well for themselves. As always, the company had a whitepaper explaining its value proposition and approach. It’s worth quoting a portion of it and teasing out a couple of lessons.
The ConsenSys energy team has several years of experience building and demonstrating proof-of-concept blockchain-based distributed energy resource management solutions. Through this experience, ConsenSys identified the opportunity to form Grid+, which will build natively Ethereum-based utilities in deregulated markets. Grid+ will demonstrate production ready blockchain-based energy solutions at scale in competitive commercial environments in order to enable the transactive grid of the future and prove the advantages of Ethereum over incumbent technologies.
The first is that this isn’t a team which came together to run an ICO, this was an existing team which used the new vehicle of ICOs to raise capital. The second is a recurring theme in the blockchain for the grid series, which is that deregulation is critical to its success. The third is that blockchain solutions on the grid so far continue to have a strong assumption that a decentralized grid with many peer-to-peer interactions, something Grid+ refers to as the transactive grid, is the future. This flies in the face of modern experiences of building continent-scale grids and delivering effective and reliable amounts of renewable energy hundreds and potentially thousands of miles to major urban centers, but it does underpin a lot of the early ventures with cryptocurrency funding schemes. Early adopters of cryptocurrencies chafed under banking regulation and having single intermediaries, so having the same mindset of utility electricity is a to-be-expected extension.
One of the more interesting uses of blockchain is for security. One underpinning component of blockchain is a strong and unique identity secured with public-private key encryption and verifiable through interactions through time. Applying this to automated devices with SCADA- or more generic IOT-interfaces leads to a component of an identity and authentication technology for the Internet of Things, and hence for grid components at multiple scales. It’s insufficient in itself requiring additional identity providers and an authorization mechanism, but the premise is being explored in multiple domains, from immutable federal citizen identification to health care identity to weapon systems.
Sidebar: There are two major conceptual elements to deal with. Authentication is validation that the person or entity is who they claim to be. You experience this daily with passwords, using your Facebook or Google credentials to sign on to other websites and perhaps having security personnel compare your face to your picture ID. Authorization is the validation that the unique person or entity is allowed to do something. If you haven’t paid for the premium services in a product like LinkedIn, you can’t get to them. You may have access to a building, but not to secure rooms for servers or networking components inside of the building. Blockchain is mostly being looked at for identity and authentication, not authorization.
US researchers did something interesting recently. They picked the lock on a wind turbine door, walked inside, installed a cheap Raspberry pi device and locked the door on their way out. Then they hacked the turbine and other turbines in the wind farm remotely. And shut down one of the wind turbines entirely. This was white hat hacking undertaken with full permission of the owners of the wind farm, so don’t be too alarmed.
Grid cybersecurity is an increasing concern. There are more and more smart-ish devices on the grid, from wind and solar farms and their various devices, to autonomous distribution grid management devices from GE, to emerging grid storage batteries from Tesla and others, to emerging vehicle-to-grid solutions which turn electric cars into grid demand and supply management devices. Each of these devices must be addressable remotely in order to inter-operate effectively.
And blockchain is emerging in this space. The US Department of Energy has engaged a consortium of companies, research institutes and security organizations including Guardtime, Pacific Northwest National Labs, Washington State University, Tennessee Valley Authority, Siemens and the Department of Defense Homeland Defense. Guardtime is the blockchain security provider with its KSI product set. Just as Ethereum and proof-of-stake evolved from proof-of-work and bitcoin, KSI is one of the technologies that’s emerging from explorations on the identity side.
It’s early days for blockchain for grid security, but Guardtime isn’t alone in the space. A small Silicon valley startup, Xage, is claiming to have grid heavyweight ABB as a client for its blockchain solution.
Last, but not least, there’s an emerging target of using blockchain and cryptocurrencies directly to manage carbon emissions. As always in a new space, there are competitive intellectual approaches. A Chinese startup, Energy Blockchain Labs, is using IBM’s Blockchain Hyperledger implementation to provide a carbon ledger for the Chinese government’s cap-and-trade carbon market.
But the firm I’ll focus on for this use case is commoditizing carbon removal directly. Nori, a company which just emerged from stealth, is creating the Noriton. It’s a cryptocurrency token that represents a ton of CO2 removed from the atmosphere and sequestered in one of a number of potential ways. The key there is that this isn’t a cap-and-trade or carbon tax system, but a system which values removed tons of CO2 explicitly. Like carbon offset programs for fliers and drivers, it allows individuals and businesses to offset their CO2 emissions with guaranteed removal of CO2 from the atmosphere.
The principals both have experience in this space. Christophe Jospe worked under Dr. Klaus Lackner at Arizona State University on air carbon capture solutions. Paul Gambill created an early iteration of this carbon market specific to regenerative agriculture at a hackathon in early 2017 and started a community group focused on carbon removal. They have a methodology and approach to validating sequestration which is based on rigorous academic, technical and experiential knowledge and Lackner is a formal advisor to Nori.
Full disclosure: I was involved with Jospe in his early days of determining how he would establish his entrepreneurial path prior to the blockchain pivot, and continue to communicate with Jospe and Gambill. I have no financial stake in Nori of any kind.
So far, five different use cases have emerged which use blockchain in different parts of the value chains related to the ongoing electrification of society and decarbonizing the grid. From buying and selling electricity to raising capital for new ventures to securing the grid and valuing decarbonization directly, innumerable innovators from tiny startups to the largest technology firms and governments in the world are exploring how blockchain technologies can be a transformative approach to grid challenges.
Do you know of other examples? Have I made any mistakes? Let me know in the comments, which I’ll be watching closely as always.
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