The explosive rise in the interest of blockchain
Blockchain technology was developed in 2009 to support the use of Bitcoin, a cryptocurrency, that has dominated headlines since.
However, blockchain is an underlying system that has the ability to disrupt traditional business models across all sectors of the economy.
Since 2015 over £1 billion has been invested in blockchain related start-ups and in a global survey 77% of business leaders believe they will lose their competitive advantage if they don’t adopt blockchain.
Understanding the blockchain process
Blockchain is a digital database that can be used to store information. On the surface this may not sound all that transformational, but as anyone who was an early adopter of Bitcoin knows, the rise of blockchain technology has been nothing short of meteoric.
The difference between blockchain and normal digital databases is how information is stored. Instead of having one central authority that controls and validates the information, blockchain distributes this responsibility to everyone in the community.
In essence, it works like this:
- All members of the community hold a copy of the ‘ledger’ (file of all transactions) and when a transaction is made it is added to a block.
- Once the block is complete, individuals in the community will be sent a copy of the new block and asked to validate all the transactions within it.
- This validation process is based on ‘distributed consensus algorithms’. Put simply, individuals (also known as miners) in the community will take time, effort and computational energy to provide their logic for what the valid state of the ledger is.
- As this work takes time, effort and energy to complete the individuals completing the work are rewarded.
- Every member then compares their work and consensus is reached on the new valid state of the ledger.
How a blockchain can facilitate 'smart contracts'
Smart contracts is a decentralized application that has the ability to turn blockchain into an operational reality.
Currently, there is no direct interaction with a computer when forming a contract between multiple parties. Instead, the paper or online version of the contract is often archived and the contract is then executed via computer software.
What a smart contract does is allow users to set predetermined terms and conditions. When these terms are met contracts are automatically executed and recorded on the blockchain for all users to view.
This means that the process of enacting a contract can be streamlined and various intermediaries can be removed as trust is maintained between users within the blockchain system.
Whilst this application remains in its infancy the potential benefits will be:
- Increased trust
- Improved speed and accuracy
- Enhanced security
- Additional cost savings
Opening up the market; Blockchain's potential to have a revolutionary impact on the energy sector
In a blockchain enabled system we can all become ‘prosumers’, whereby a connected world between producers and consumers is created.
It will remove established intermediaries as well as reducing the burden for investment in our ageing energy transmission infrastructure.
By removing entry barriers for renewable energy producers you can make renewable energy investments more lucrative and also reduce energy costs for consumers.
We believe this will lead to a knock on effect in terms of greater investments in renewable infrastructure that is desperately required.
Blockchains and Smart Homes
A ‘Smart Home’ is a domestic property where devices such as washing machines, fridges, solar panels, battery storage and heating, ventilation and cooling systems are all connected.
This will enable the devices in your home to automatically trade electricity between themselves and the main grid. Records of all these interactions are then recorded on the blockchain ledger.
Smart homes will be able to match our energy consumption to our energy production. When our production is higher than our consumption the smart system can use remote batteries in EV’s as a store of that electricity or choose to sell it back to the network or our neighbours.
Blockchains and Microgrids
A microgrid is a decentralized system that can operate in autonomy or synchronization with the main electrical grid. They allow for the community to produce, trade and consume energy within a localized structure.
This has the potential for cost savings, higher returns and a greater level of investment in renewable infrastructure.
Through blockchain enabled platforms smart contracts can be automatically completed when predetermined terms and conditions are met. For example, energy generators could decide to sell their excess electricity only at peak demand times, or consumers could set their washing machine to only turn on when electricity prices fall below a certain value.
Transactions would then be subsequently recorded in a public or private ledger for all users to view.
BHESCo and blockchains
We believe that blockchain technology will have a vital role to play in the democratisation of our energy system in the UK.
It is our hope that we will be able to utilise blockchain technology to enable peer-to-peer energy sales within a local microgrid scenario. For example, instead of a homeowner selling any electricity produced by their solar panels to the National Grid in exchange for the Feed-in-Tariff, they could sell their excess electricity to local neighbours and businesses.
As well as reducing transmission losses and making the electricity network much more efficient, this could also provide an opportunity for homeowners to reap greater financial rewards for the energy they export.
At the time that it was withdrawn the Feed-In-Tariff was only paying 4 pence per kilowatt hour of electricity exported. Using microgrid and peer-to-peer trading, homeowners could potentially sell their excess electricity for say 10 or 15 pence or more depending on demand at peak times.
BHESCo will be following the evolution of this technology and its emerging possibilities as they develop, so make sure to keep up with our blog and our newsletter for our latest commentary and insight.