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Beyond Bitcoin: Blockchain and Utilities

Blockchains.  The intangible ledgers distributed over the web in chains of blocks of data that make bitcoins – the imaginary money that can be really valuable – possible.  Of all the mysterious crypto technology, blockchains would seem irrelevant to the massive electric utility industry.  In fact, blockchains could be as transformative to the utility industry as they could be to the banking system.

The province of cryptographers, the concept of the blockchain is obscure to the rest of us, as obscure as its inventor, Satoshi Nakamoto , clearly a pseudonym, but  its basic principles are not.  At its core, a blockchain is a digitized, decentralized ledger.  Each party has access to the entire database and its complete history, and no single party controls the data or information.  Each party of the database can verify the records of its transaction partners directly, without the need for a third-party intermediary.  There is no central node and each node stores and forwards information to all the other nodes.  Once a transaction is entered, the records cannot be altered because they are linked to all the transaction records that preceded them, the “chain” part of blockchain. 

Blockchain enables peer-to-peer transactions and each node stores and forwards information to all other nodes.  Transactions are totally transparent because the database is permanent, chronologically ordered and available to everyone on the network.  Because no centralized version of the database exists, it’s virtually immune to hacking.  Users can establish algorithms and rules that automatically trigger transactions between nodes.  In other words, blockchain makes possible transactions between participants without the need for a third party; the transactions can be instantaneous, variable, and absolutely secure.

It hardly takes a wild imagination to see how blockchain technology can fundamentally disrupt the traditional model of the utility industry when it comes to distributed generation.  Rooftop solar has already altered the single-seller, multiple-customer model of the centralized utility.   Now, with net metering, homes and businesses with rooftop solar can generate their own power and sell excess power back to the grid, which then redistributes the energy to other users or uses it to cut generation.  Blockchain allows these rooftop generators to sell directly to neighbors who are part of the blockchain ledger, skipping the grid altogether.  By utilizing prepackaged algorithms, a participant can search the members and make the purchase from the party offering the best price at that particular moment.

There are many ways in which blockchain technology could impact the utility business.  It could facilitate machine-to-machine interactions, so that smart appliances could continuously look for the best or greenest offer in states that allow customers to choose among different energy sources.  It could address one of the challenges hampering electronic vehicles by making it possible for utilities to collaborate with a broad-based charging infrastructure so that EV charging costs can be instantly tracked and billed.  It could become an integral part of a smart grid management system to automatically diagnose network emergencies and problems and instantaneously reconfigure the grid to deal with them.

While most of the impact of blockchain on utilities remains hypothetical, its use for peer-to-peer energy trading, allowing households and small businesses to trade electricity without the need for a third party (read utility), is already up and running in demo mode in a Brooklyn neighborhood.   LO3 Energy, a Brooklyn-based startup, has created Brooklyn Microgrid, a project designed to create a peer-to-peer trading system built on blockchain.  Siemens is partnering with LO3, which seriously boosts the credibility of the still experimental project, in which people with solar panels on their rooftops will be selling excess power from one building to people in nearby buildings using an app with which members will say that they are willing to buy power at a given price for a certain amount of time.  These transactions will eliminate any third party, meaning the local utility.

Because state regulations currently require that excess power be sold back to the grid, Brooklyn Microgrid is still in demonstration mode, but Lawrence Orsini, the founder and CEO of LO3, says hundreds of people have signed up to participate, and he is confident that regulatory reform, driven by New York state’s commitment to energy innovation, embodied in the Reforming the Energy Vision (REV) program, will soon make actual trading a reality.  Such microgrids will power fundamental changes in the energy system.  While they will, at least in part, bypass the third-party utility, utilities will still charge for services, including maintaining and upgrading the grid.  But microgrids will add a new layer of stability in the case of area outages.

Blockchain is obviously poised to transform a number of industries, and its most immediate impact will be on the financial and power sectors.  While it presents a certain threat to the traditional role of third parties in both of these industries, it offers tremendous opportunities for innovation.  From integrating distributed generation to freeing EV charging from geographic restrictions, from facilitating the use of smart home appliances to enhancing the reliability of the grid, blockchain offers significant advantages to electric companies.  Ignoring its potential is simply not an option.

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