Why do we need blockchain in the power sector

Why do we need blockchain in the power sector

Power sector and its challenges

Blockchain technology is often associated with cryptocurrencies, but it could have a much broader impact on our lives. One sector that stands to gain from the distinctive distributed ledger technology is the power sector. 

The power sector is one of the most critical sectors in any country. It is the backbone of the economies that sit on conventional power resources such as coal, oil, and gas. However, owing to the limited supply of non-renewables and toxic gas emissions, leading to the inevitability of severe climate change, the global power sector is desperately looking to reduce dependency on conventional sources of energy with renewables. Therefore, enormous investments have been made in renewable energy sources over the years. In addition, most of the technological innovations in the energy sector are a consequence of the world turning to renewable sources of energy. These innovations include solar power, biomass gasification technology, electric vehicles, smart meters, etc. The said technologies have helped bring efficiency and reduce associated costs over the years.

The annual investments increase at a massive rate annually owing to the surging demand for power and energy worldwide. According to the IEA (International Energy Agency) 2021 report, USA investments in the energy sector were $530 billion, out of which 70% were dedicated to renewable energy generation and the remaining 30% to grids and storage. The Indian energy sector plans to scale upto 500 GW by 2030 using non-conventional resources such as solar, wind, water, and biomass. The huge investments correlate with other bottlenecks of the power sector, such as:

  • non-interoperability between various energy networks
  • presence of third-party intermediaries
  • increased costs due to price fluctuations
  • complexities of new technologies
  • encouraging transparency without compromising the privacy of data, and so on. 

How can the power sector benefit from blockchain?

Blockchain technology has already seen a vast and varied adoption in various industries, and the energy sector is no exception. The emergence of blockchain in the power sector has given rise to the concept of “smart energy”. According to a study by the World Economic Forum, there are at least 65 use cases of blockchain in the environment sector, compiled based on data sourced through various associated members from energy sectors and government authorities. Such anticipated uses can pave the way for technological expansion and continued innovation of renewables, scalability of the energy sector, managing supply and demand of non-conventional resources, reducing environmental pollution, and reaching the unreached.

Implementing the mentioned use cases makes sense to shift onto the peer-to-peer network. Its unmatched features such as transparency, immutability, interoperability, decentralisation, and encrypted data security make them feasible and a natural repeller to cyber-attacks and energy frauds. Adding smart contracts and IoT devices to the fold and energy sector stands to gain and reap undisputed benefits from the blockchain. 

Use cases of blockchain in the power sector

Let’s elucidate the why’s and the wherefores of implementing blockchain and understand the in-use examples of blockchain in the power sector.

  • Reducing carbon footprint: For years, we have been hearing world economies stressing achieving “net zero” in terms of carbon footprinting. The energy sector, being the biggest contributor to GHG ( greenhouse gas emission), is seeking to switch to renewables completely. In fact, India aims to attain net-zero by 2050 by switching completely to renewable resources of energy. The dream is appreciable; however, achieving it requires tracing gas emissions at every step of energy production. The data will have to be scrutinised by downstream, midstream, and upstream energy suppliers. Thanks to blockchain’s transparent and decentralised nature, accurate and authenticated data on the network could be viewed, shared, and verified amongst various stakeholders.

Smart contracts can help uphold the commitments made on climate change. An example to explore this possibility could be as such – Imagine legally binding the countries present in Parios summit 2015 by incorporating monetary compensations. Any country backtracking on its commitment will be penalised automatically by enforcing smart contact preset terms and conditions. Such a penalty could also be viewed as “co2 tax” on violations of protocols. 

  • Transferring carbon credits to blockchain:  Kyoto protocol suggested the idea of carbon credits and issuing certificates. A carbon credit is a unit of measure to reduce greenhouse gas emissions. It is a form of carbon pricing that provides economic incentives for emitters to reduce their emissions. According to the proposal, carbon dioxide emissions will be viewed as commodities, generating a carbon trading system in the process. However, creating such an ecosystem remains challenging due to defective and poor execution, wrong crediting, and high transaction costs. Such issues ultimately give benefits to brokers and agents in the supply chain. A tokenisation mechanism could be introduced by incorporating smart contracts combined with blockchain technology and IoT devices. Such a mechanism will create a carbon credit system that will ensure transparency, obtainability, fluidity, and standardisation in the energy sector among all power players.

State of California, USA, has taken the initiative by introducing a Cap-and-trade program that aims to lower carbon emissions upto 40% by 2030 that will take the emission levels before1990. The program has coverage of at least 80% of greenhouse gas emissions. Companies in California can now purchase carbon credits and maintain the status quo in the percentage of emissions.

Use case of blockchain in Peer to peer power trading :

Peer to peer power trading is a form of energy trading that allows consumers to trade surplus solar power with each other. P2P trading via blockchain has mobilised thanks to more and more energy users investing in installing solar panels, effectively cutting down the role of intermediating distributors. In addition, prosumers (slang for consumers who purchase and consume energy) can avoid the high costs associated with traditional energy companies and reduce their carbon footprint by opting for renewable energy sources. They are free to sell to buy energy from the microgrid of their choice. 

Microgrids are small scale, decentralised and autonomous power grids that work either independently or in collaboration with centrally based power grids. Microgrids have many advantages as users can avail energy without depending upon central power plants and considerably decrease electricity transit costs. There are approximately 101 microgrid companies globally. Some prominent names are Powehive, Sepisolar, General Microgrids, Heila technologies, and others. India based SELCO foundation has installed solar microgrids to power up smaller districts in the state of Maharashtra. 

The blockchain stores and executes information are termed “power assets”. The assets are essentially renewable energy credits that are tradeable via blockchain. For example, consumers who don’t own solar panels can purchase from their neighbours at a reasonable price, while sellers who own surplus energy can sell it at a profitable price. Furthermore, any data on the blockchain is unalterable, giving full access to all parties associated. 

Blockchain benefits electric vehicles: The increased use of electric vehicles can benefit immensely from distributed ledger technology. The EV sector was born out of the necessity of cutting down carbon emissions. Since its conception, this sector has seen major success as more and more companies are now investing in producing and distributing electric vehicles for mass consumption. Tesla is a leading example of how the EV sector has boomed over time. Electric vehicles run on electricity, thereby magnifying the use of power and creating demand for the same. As more and more EV’s are being introduced in markets, users and suppliers can benefit from implementing blockchain in the EV sector.

Here too, smart contracts can be deployed to initiate automatic payments that can be verified, sent, and received instantly with on-the-spot confirmation of the transactions. Blockchain will also allow users to double-check if their source of electricity is renewable while charging their vehicles at charging points. Everyone from electric vehicle producers to distributors, EV charging manufacturers, owners of EV charge centers, transport departments, and electricity regulatory boards stand to benefit from blockchain technology. The data on the blockchain is shared and tamper-proof. Moreover, the execution of smart contracts will enthuse understanding between associated parties and instil trust among various stakeholders of the EV industry.


Wholesale distribution of electricity: Companies in the power sector can also look to wholesale electricity distribution to connect grids with end consumers. With help from IoT apparatus, blockchain empowers consumers to purchase electricity straight from the grid of their choice and eliminates their dependence on third-party retailers.

Retailers only act as intermediaries; they don’t own the grids. Their services can easily be replicated through blockchain. Such a move can considerably decrease electricity bills, enabling long-term benefits for end-users. Wholesale distribution through blockchain will solidify and stabilise the energy sector and reduce electricity costs.

Grid+ is a leading wholesale energy distribution company that uses the Ethereum blockchain to lower energy costs, create a balance in demand and supply and encourage the use of clean energy.

Blockchain in commodity trading: Gas and oil are viewed as commodities in the energy sector, with million-dollar investments tied up maintaining the trading platforms. The numerous inefficiencies in the current system and the presence of intermediaries makes the information flow between various parties difficult and liable to err. In addition, high maintenance and transaction costs, disorganised backend processes, sluggish deliveries act as major deterrents in the flawless execution of trading commodities. 

Blockchain can efficiently and effectively counter above mentioned issues and then some. Blockchain can store mammoth commodities data such as trade records and ever-fluctuating commodity prices. The interoperability of blockchains will make data verifiable and quickly accessible, removing doubts and discrepancies. They will eliminate the need for redundant intermediaries from the system in the process.

Quick data flow will also solve settlement issues and stimulate the movement of commodities. Smart contracts will also enable speedy transactions and allow dispute settlements between stakeholders. Ingenious execution in energy trading commodities will improve gas and oil supply, bringing stability to the market. 

Use case of blockchain in the power sector for data management

The energy data includes information about fuel and market rates, commodity prices, power generation volumes, laws compliance that ensure renewable shares in total electricity generation, marginal costs, and so on. Such humongous data needs blockchain capabilities to make it traceable, immutable, shareable, and ensure real-time data visibility.

Chile became the first Latin country to introduce a platform “Renova” based on Ethereum blockchain. This platform is a public ledger that stores data on renewable sources of energy pertaining to total production and consumption. The blockchain stores traceable and immutable renewables records from their point of origin to supply and ensure compliance of commitments through smart contracts. 

Blockchain use in smart meters and smart grids: Smart meters are one of many technological innovations in the energy sector that enable companies to bill based on daily energy usage instead of monthly usage. Doing so helps to calculate energy costs based on the real-time energy price on a daily and hourly basis. Implementing blockchain to smart meters will ensure more accurate data to the energy providers and undisrupted energy flow. 

Bankymoon startup based in South Africa introduced blockchain-enabled smart meters while using bitcoins as payment methods. This move enabled crash-strapped electricity companies to receive secure and timely payment. On the other hand, consumers could make payments through bitcoins and get an uninterrupted power supply. All around a win-win scenario.

Smart grids :  The energy sector has introduced various technological innovations over the time to combat the ever-increasing demand for electricity. Smart grids are one such concept that was introduced to deploy equal distribution of electricity across demographics, keep a check on losses, ensure high quality and security. 

The idea was to enable electricity generation in small-scale sectors and supply it to the grid. But the system added complications to transaction execution between generators and energy users as to how those transactions were recorded and verified and verified. To enable a fluid transactional process, blockchain could play an important role. All dealings would be implemented through smart contracts. The immutability of blockchain would ensure that all transactions go through. Additionally, the data history will be available for auditory and dispute settlement purposes.  

Future of blockchain in the power sector 

We are in industrial revolution phase 4.0, which requires immediate and authentic access to data. The current industry principles are based on the transparency of data that benefits all players in the energy chain, such as suppliers, distributors, producers, energy compliance machinery, government, and end consumers. There is a need to bridge the gaps in the supply chain by cutting out third parties by ensuring flawless data processing and data flow. Then the power industry is looking to switch over to renewables and reduce dependency on non-renewables. All requirements are necessary and should be in place for better decision-making and growth of the energy sector. In addition, we have net-zero targets to achieve in record time to halt drastic climate changes.

A Infographic of top 5 companies using Blockchain in Power sector

On top of that, prices need to be regulated while maintaining lower costs. Last but not least, global energy supply management faces bottlenecks due to uneven distribution, lack of data automation, and inefficient supply networks. To tackle such issues, blockchain technology becomes a probable answer. Although many companies have started introducing blockchain in the power sector, we still have a long road ahead.

Probable real case scenario

Let’s understand from an example of India’s ambitious “One Sun One World” project where there is the possible use of blockchain. It is a “ Green Grid” initiative of the Indian Government in collaboration with various countries to meet net-zero targets. It is based on the concept of “sun never sets” and uses solar power to generate electricity simultaneously in different countries. The idea is to install a gigantic grid in various countries that will be interconnected and work as one entity. In addition, as solar energy is available in the daytime and keeping in mind the weather conditions of a particular country, solar energy could be transmitted anywhere, anytime. Such large-scale installation requires high-tech technology that can store enormous data to ensure synchronisation, viewability, immutability, transparency, shareability, and most importantly, grid security and interoperability. No technology other than blockchain has all the required features and can handle large amounts of data. The use case of blockchain in the power sector presents enormous possibilities, and we are already moving in the right direction. 

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Sofocle is a leading blockchain development company and we are determined to empower their clients with the best blockchain solutions in the power sector. The energy market is at the apex of a major technological paradigm shift that can benefit from applying remedial features of distributed ledger technology. We at Sofocle recognise the use case of blockchain in the power sector and present comprehensive and advanced energy-based solutions with our cutting blockchain technology. We are just a call away as we strive to answer all your queries to our best capabilities.