Earlier this year, Saudi headquartered power and water developer, ACWA Power, said it would be adopting SolarCoin, the global reward program for solar electricity generation, marking the first time a utility-scale generator joins the SolarCoin ecosystem.
SolarCoin adoption is expected to provide digital tokens to ACWA Power for every MWh of solar energy produced and also offer a supplementary means of payment for goods and services than conventional currency.
SolarCoin is a blockchain-based digital asset and currency designed to accelerate the transition to clean energy technology. The product seems to provide an answer to growing concerns about Bitcoin and other cryptocurrencies regarding the massive amount of power required for “mining” of the coins, which threats to undermine their success.
The energy-referenced crypto currency aims to incentivise global solar energy production by disbursing digital coins to verifiably produced solar energy, rewarding energy producers with digital tokens at the rate of 1 SolarCoin (SLR) per 1 MWh of solar energy produced.
SolarCoin is global, decentralised and independent of any government. By leveraging SolarCoin, ACWA Power will be rewarded for helping build a more sustainable future. SolarCoin is a cryptocurrency, like Bitcoin, which in this case specifically links the disbursement of digital coins to solar energy produced and therefore, uniquely, has a positive actionable impact on environmental sustainability.
SolarCoin uses an ultra-low carbon blockchain technology called proof of stake time to maintain the open source ledger system. The proof of stake algorithm is significantly less energy intensive than methods used by other cryptocurrencies (e.g. proof-of-work).
As the price of solar coins appreciate, through more users agreeing to accept SolarCoin for value representation and transactions, claiming SolarCoins can become an additional and relevant revenue stream for solar power producers, resulting in an incentive for solar energy investors to install more generation capacity. -
“We are always looking for ways to adopt new technologies to add value and reduce cost in all that we do and blockchain technology in our view offers a yet untapped opportunity for the power generation sector,” says Paddy Padmanathan, President and CEO of ACWA Power.
“Now through SolarCoin, we are able to utilise blockchain technology in one way to create value to renewable energy generation. Being early utility-scale adopters of SolarCoin, ACWA Power is proud to leverage our rapidly growing solar energy generation capacity to accelerate the utilization of SolarCoins to in time further reduce the cost of solar energy through the supplementary value being created.”
Awarding coins to solar energy producers, such as ACWA Power, provides an incentive to continue to invest in solar capacity, according to Nicholas Gogerty, Founder of SolarCoin Foundation. “We hope to see further adoption of SolarCoin in the region, with the aim of building a strong community and spurring a global market for renewable energy investment.”
ACWA Power operates in ten countries and has deployed a variety of technology solutions to support governments in reliably supplying desalinated water and power at the lowest possible cost. The 50MW Bokpoort CSP project in South Africa and the 50MW Karadzhalovo PV plant in Bulgaria are already generating SolarCoins, while other projects, will in time also benefit from the SolarCoin incentive programme.
David Schatsky and Craig Muraskin of management consultancy Deloitte warned a few years ago that blockchain technology “is coming to disrupt your industry” - and it seems that, in relation to energy, they may be right.
Taking off from the financial sector, where blockchain is already being used for money transfers, digital currency exchanges, cross-border payments, smart contracts and more, the term has become the latest buzzword for energy players seeking to avoid pitfalls and find new revenue streams in a changing business landscape.
Blockchain technology, which underpins the bitcoin virtual currency, is a secure digital mechanism that enables transactions through peer-to-peer networks. Through a distributed database, or ‘ledger’ of ‘blocks’, or timestamped transaction records, a blockchain can operate autonomously and initiate transactions automatically. And, crucially, proponents say its distributed storage feature as well as its security algorithms make it almost unhackable.
For the energy sector, blockchain can allow devices such as electric vehicles, HVAC systems, water heaters, batteries and solar photovoltaic (PV) systems to transact with each other at the distribution edge. It could speed the transition to a low-carbon economy; it could even prove to be the magic bullet that can help integrate ever-growing numbers of decentralized and renewable sources with the grid while keeping costs in check.
Among the companies that have noted this potential and are working on energy blockchain pilot projects or preparing to test the technology are heavy hitters like Siemens, Vattenfall, Enel, Fortum, Innogy, TenneT and Austrian utility Wien Energie, as well as a number of startups worldwide.
One pilot project, a collaboration between Siemens and US-based startup LO3 Energy, aims to develop microgrids that allow local energy trading based on blockchain technology. The companies are working on combining Siemens’ microgrid control software with LO3’s peer-to-peer trading platform.
It shows that the platform can enable local trading between producers and consumers of PV power as well as balance out local production and consumption.
Australian startup Power Ledger, working with blockchain firm Ledger Assets, ran a similar pilot project in 2016 for 10 households in Perth. Residents of the National Lifestyle Villages housing development could trade, sell or give PV power ‘units’ to other participating households during the eight-week trial.
A second trial is planned to include about 80 households, some with battery energy storage systems, and Power Ledger said the companies aim to conduct further trials aimed at devising business models for peer-to-peer energy trading.
Meanwhile, Austrian startup Grid Singularity is using blockchain technology to develop a decentralised energy exchange platform that can host applications ranging from validating electricity trades to monitoring grid equipment. The firm says such a platform has the potential to prolong equipment life, improving both large and small power generation system operators’ earnings.
And a crowdfunding platform called The Sun Exchange is using blockchain technology to enable people anywhere in the world to buy in to commercial and industrial solar schemes in Africa, such as a 65 kW solar microgrid in Lesotho, South Africa which will provide power for a mountain community.
In this business model, the buyer purchases any number of solar cells and then leases them for use in a project somewhere in the world, with the project only going ahead once all the solar cells are sold.
New business models
Unlike the financial services sector’s embrace of blockchain, with 30 of the world’s largest banks joining a consortium to design and build blockchain solutions, most energy sector players are still wondering how the technology might help them in adapting to the changing energy landscape.
And there is risk involved, as blockchain could potentially disrupt many market segments. UK-based startup Electron is developing a blockchain platform that could allow customers to switch power suppliers within one day, a potential customer service headache for utilities.
Although Paul Massara, the former head of RWE npower, recently joined Electron’s board, and the company says it “recognizes the potential for blockchain to transform the shared virtual infrastructure of the energy industry” and “is taking a top-down, collaborative approach to platform development by working with various key stakeholders across the energy industry”, utilities could still be understandably nervous about its impacts.
Compounding this, the blockchain technology itself is not yet mature, with no industry standards yet established and few use cases available to present to governments and regulators. The timescale for scalability is not yet known. And, according to Deloitte, risk-averse industries such as energy could prove cautious about adopting such a fundamental change to the way they do business, even where it is necessary in order to survive and grow.
To speed things up, a new non-profit organisation aims to accelerate commercial deployment of blockchain technology in the energy sector. To date, firms from nine countries have joined the Energy Web Foundation (EWF), a joint initiative of Grid Singularity and US-based sustainability consultancy the Rocky Mountain Institute (RMI). Member companies include Centrica, Elia, Engie, Royal Dutch Shell, Sempra Energy, Tokyo Electric Power Co (Tepco), SP Group, Statoil, Stedin and Technical Works Ludwigshafen (TWL).
EWF says it has identified multiple potential use cases for blockchain technology in the energy sector and, after securing $2.5mn in an initial funding round, the group plans to develop a commercial version of a blockchain software platform within two years.
The 14 use cases the group says it has identified are aimed at “tackling existing pain points” in the energy sector, such as reducing high administration and transaction costs. A simplified process could lead to new large and small market entrants, EWF says, and offers economic potential of at least $1 billion per year.
One example is certificate of origin (CO) tracking. COs are credits or other digital trackers that are attached to units of renewable energy. Blockchain technology can streamline and enhance the transparency of CO issuance, purchasing, trading and retirement, while reducing the transaction costs associated with intermediaries. EWF says this will lead to simplified and enhanced traceability of electricity generation for renewable generators and buyers.
Regarding the risk-averse nature of the energy sector, EWF notes that utility companies “are already getting serious about finding ways to integrate blockchain technology into their operations - as indicated by, for example, the companies who joined EWF as corporate affiliates”.
The group also believes that risk-averse industries should be particularly attracted to blockchain as it offers the ability to enhance both system security and system resilience, especially for utilities. It can support key goals for these firms such as reducing transaction and administration costs, improving efficiency and increasing demand-side flexibility.
EWF says, rather than put utilities out of business, blockchain “can enable new utility business models that promote the deployment of renewables and distributed energy resources across the grid”.
Herve Touati, president of the EWF and a managing director at RMI, says the biggest impact blockchain can have on the energy sector is in the area of decentralised energy. Although what blockchain can do for the distributed sector is “less interesting” than in other areas because it simply “captures existing processes more effectively”, Touati says blockchain could make wholesale energy trading “much easier”.
“One of the difficulties is verification and reconciliation,” he explains. “You and I exchange electricity on the block, we need to verify on both sides, and this takes time - maybe a week/month/year, which costs time and money.
“With blockchain technology and a common ledger, there is no notion of reconciliation because there is only one thing. This will not be revolutionary, it will just be about making the existing system more cost-effective, faster, higher quality and with fewer mistakes.”
“A more effective way of doing things is to adjust demand. We need a system architecture whereby the demand side can adjust itself dynamically to reflect what the supply can do. It’s not realistic for demand to perfectly match supply, but the more we can do to at least partially match supply, the cheaper the system will be for us.”
Touati also believes that blockchain can reduce the need for new spending on grid infrastructure. “The biggest source of cost by far is CAPEX,” he says. “The more we move into renewable energy, the more this is the case. When there is no fuel cost anymore, 80-90% of the expenditure is CAPEX.
“For the grid, you gain control of distributed energy resources - not individually, but you give them information so they can make the right decision and use the system more efficiently. Instead of a system managed for high peaks, you decrease the peaks.”
He offers the example of electric vehicles (EVs) as an area where blockchain can help to avoid large capital expenditures on grid infrastructure.
“Imagine that we bring more and more EVs onto the grid,” he says. “To integrate these EVs we can do it the ‘traditional’ way: you buy a car, and you charge it whenever you want, so people will charge it when they come home from work, around 6 pm. In this case the grid will need to be expanded.
“If instead you put some intelligence on the system, it can, on a daily basis, decide when to charge the car between 6 pm and 6 am, and the grid doesn’t need to be extended in size. So you have not only more decentralised generation and more renewable energy, but also a lower-cost grid.”
But how can this ‘intelligent grid’, incorporating large numbers of new devices, be achieved without opening the sector to growing cybersecurity risks? “We clearly need to adjust for a very large number of devices,” says Touati. “We could do this with a centralised unit, but this is unsafe for cybersecurity.
As with other new and potentially disruptive technologies, blockchain will need to be overseen by governments and energy regulators. Are they ready for the challenge? Touati says energy regulators in Europe, Middle East and the US show different levels of readiness.