Blockchain and the Solar Industry
Energy grids have always been centralized. They have been owned by governments or big companies that have had complete control over the price, the source and the distribution of energy. These organizations have done a great job distributing terawatts of energy to millions of people simultaneously. They also have taken care of the grid, repairing infrastructure and building extensions to expand to more people. Solar power is expanding, creating a decentralized network of energy producers. Energy grids, however, are still centralized networks.
Blockchain will allow for decentralization, and doing so, will it change the grid as we know it?
Blockchain is mainstream
2018 has been a big year for cryptocurrencies. With the huge explosion of blockchain-based cryptocurrencies in 2017, the word Blockchain has become more and more relevant. It has become the biggest buzzword in tech this year second to Artificial Intelligence. Companies are heavily investing in this technology making blockchain-related jobs in demand and highly paid.
Creating a company on a public blockchain is getting easier and easier thanks to projects like the Ethereum Network and it’s smart-contracts. This allows companies to raise money with decentralized crowdsourcing using Initial Coin Offering (ICOs). Regardless of the numerous scams that were caused by ICOs, these coin offerings are still a great way to promote projects and to create a following.
Up until today, we have seen many big named projects claiming to revolutionize banking, currency transactions and trading. These projects (Bitcoin, ripple, IOTA, Litecoin etc…) will make a difference in the way we deal with money, there is no doubt. However, the cryptocurrency market is saturated with “Bitcoin clones” and projects that do not immediately solve anything that hasn’t already been solved. It is as if we are trying to put the word Blockchain in everything we develop these days. These “new currencies” however only scratch the surface of what blockchain technology has to offer. Blockchain has great potential to transform many industries in ways we cannot even imagine starting with the Energy market.
I will take the example of solar energy to illustrate how Blockchain can help solve some of the issues and bottlenecks linked to generalizing renewable energy. First, I will describe the main challenges and opportunities offered by solar energy and I will then move on to describe how Blockchain can help develop a seamless solar energy market
We are progressively creating a decentralized power grid
Before the first industrial revolution, firewood was the primary source of energy. With the advent of the steam engine in the 1920s, coal was used to generate 62% of all energy, marking the beginning of the Coal Age.
In 1965, petroleum surpassed coal as the most consumed energy, ending the coal dependency and starting the “petroleum age” (in 1979, petroleum represented 54% of all energy generated). Up until now, fossil fuels have continued to be our primary energy resource.
Today, renewable energy is starting to change the picture, as solar and wind-generated energy are becoming more efficiently produced and affordable.
A “bullish” 2015 projection by expert analyst Jenny Chase, of Bloomberg New Energy Finance, predicted that solar modules would drop from 62¢/watt in 2015 to 21¢/watt by 2040. We are already seeing prices below 38¢/watt in 2018.
Gradually these prices are starting to attract homeowners and businesses located in areas with optimal solar conditions.
A study conducted by the National Renewable Energy Laboratory (NREL) found that of the 116.9 million residential buildings in the US, 57% (67.2 million buildings) are suitable for solar installations. If all suitable residential buildings were fitted, the total energy generated would approximate 1,000 terawatt-hour, which is about 75% of residential consumption. With increased panel efficiency, these figures have the potential to double.
We are heading towards a future where most homes will be predominantly powered by solar and wind.
There is no doubt that solar will power more and more homes around the world providing clean energy production without too much space or noise. There are downsides, however, that come with solar.
First of all, solar panels only generate energy during the day. This means that if you have a solar installation producing a sufficient amount of energy, you can live completely off-grid during the day. However, when night falls, your panels will generate no energy. Therefore you cannot live fully off-grid with just solar panels, and at some point, you will need to either buy energy from the grid or store excess energy during the day for nocturnal use.
Solar panels are becoming so efficient that most solar installations are producing more energy than the average house consumes. This creates an overproduction problem and eats away at solar panel profitability. Solar panels on a roof are a symbol of clean energy and environmentally-minded people. When you see solar panels on a roof, the first thing that you could think is “Oh look! they are saving the environment for everybody”. But what if I told you that many installations are probably wasting more energy than the neighbor who leaves his lights on all the time.
Energy is energy. If there is no way to use excess solar energy, solar panels will become the biggest energy wasters.
How can we store or distribute this energy to reduce losses?
Energy dissipation and loss is very inconvenient and is something that buyers consider first before going solar. Solutions exist, which aim to reduce waste.
Option 1: Storing energy for personal use. Batteries are an obvious solution. Tesla’s PowerWall (PW) is a good example. With Elon Musk’s new PW 2 one can store 7KWh of excess solar energy (enough to go through 1–2 days for a single family household). This solution is good for personal use and acts as a buffer during energy production spikes and dips. This solution also comes at a cost: currently an extra $4000 per battery, to be added to the cost of solar panels.
However, with the multiplication of solar units, the PW does not seem sustainable, in reality, it provides a temporary fix to the problem. The issue still remains. What happens after you fill up your PW’s capacity?
In such case you could opt for Option 2: Selling to the grid. Every country has its own version of this, although the different systems work according to the same principles.
When you sell to the grid, you provide your excess energy to the local centralized grid provider. This provider is usually the local government or a big company that sells energy to every peer on the grid.
Selling energy should be like selling any other commodity. It should be a contract between a buyer and a seller. This contract should have a price, a date with an agreed amount of the commodity traded. And at least both parties should have a logged copy of the transaction. When selling to the grid, the price per MWh is not a joint decision between both parties, rather it is set by the seller, and in this case the grid provider. There is no competition, the seller doesn’t have the choice of who he/she is selling to. Nevertheless, energy transactions are usually logged, dated and the seller knows the amount and price of the energy he/she sold.
The only thing missing is competition. At any moment the buyer can change the price and take advantage of your solar investment.
In many countries, consumers are protected from unfair prices. Integrating solar panels is well supported and most often subsidized by governments. This is true now, but who knows how long governments will provide tax breaks and financing for future solar installations.
Nevada is a state with decentralized energy production on a centralized grid
Adopting solar energy too quickly can cause complications. We are at the beginning of this change and not many parts of the world have run into complications yet but there are a few regions that have. Nevada is a perfect example of a state with decentralized energy production on a centralized grid.
Nevada has the most solar capacity per capita in the United States. That is 1,240 MW of solar energy for its 2.84 million residents and enough to power 191,000 homes. This state is an extreme example of a grid that adopted solar too quickly without building a fair protocol for energy exchange. This is the cause of a few financial complications.
In 2015, Nevadan solar panel owners were hit with a nasty surprise. Nevada’s public utility commission (PUC) gave the state’s only power company, NV Energy, permission to charge higher rates and fees to solar panel users for grid maintenance and fair energy distribution. Fees then climbed from $12 to $40/month. Since savings from a solar installation range, on average, from $11 to $15/month, higher fees could actually mean losing money for the private solar energy generator.
“It’s simple math,” said Bryan Miller, president of the Alliance for Solar Choice. “The commission eliminated all solar savings. People would pay more for going solar rather than less. It has left companies with no choice but to stop doing business in the state.”
This also put the brakes on the whole solar industry in that region. A recent SolarCity news release announced a 550 job cut not long after.
“They created an incentive to bait people. That’s what jump-started the market. Then they switched the rules in the middle of the game.”
The real reason behind this drastic change is actually quite simple. If solar owners are making/saving money on electricity bills, energy companies are losing money selling less energy. If there is less demand for coal energy, the energy companies are making less money, and hence losing profitability. This is not a good thing. Energy companies need to stay profitable to maintain the grid and manage grid demand peaks.
Therefore, having centralized energy companies managing these tasks is not necessarily a bad thing, especially for a complicated system like an energy grid. A grid needs maintaining, regulation and governance.
In many other states, solar energy is bought back at a higher price than the “market” price. This is an incentive for homeowners to go solar, putting solar panel owners at an advantage. In Nevada, this isn’t the case.
NV Energy was acquired in late 2013 by a subsidiary of Berkshire Hathaway, and in 2014 it saw its net income rise 27%.
What was the reason for this increase?
The Duck Curve below illustrates how NV Energy is not only protecting itself from decentralized direct competition, but it is also altering energy prices to its advantage. During the day solar energy is abundant, and NV Energy buys the energy back for less than the average market price. However, at night when the solar energy starts to die down, the demand is higher, total energy generation is lower, therefore enabling NV Energy to sell its energy at a much higher price. With full power over the energy market, Nevada power has built a “communal” solar farm with 17,000 Nevada homeowners at its mercy.
Solar energy production peaks at mid-day which causes demand for other energy to drop off. Solar energy just happens to die down when the evening demand peak starts. This creates the duck's neck on the chart. The more solar energy capacity increases, the more the curve looks like the belly of a duck. The situation has been worsening, causing the belly to become more pronounced with time. Here is a chart that illustrates these phenomena:
Since energy producers need to keep their plants running at all times to be profitable, some of the solar energy at mid-day cannot be harvested. The figure below illustrates this phenomenon.
This is the problem that I described before. If there is no way to store this energy, solar panels will lose most of their profitability and energy will go wasted.
This is the problem that I described before. If there is no way to store this energy, solar panels will lose most of their profitability.
The issue with the Nevadan grid is that there isn’t a fair and open system that regulates the price of energy. There needs to be an understanding between parties that have a bigger stake in energy production (NV Nevada) and smaller stakeholders (small local production). On one hand, if NV Nevada accepts buying energy at lower prices they lose profitability and would go bankrupt over time. Then, who would take care of the grid? On the other hand, if NV Nevada decides to demand higher fees from solar contributors, more owners would not be profitable and some wouldn’t even be able to finance their panels. This could potentially destroy the solar industry in one of the most suitable regions in the world.
The energy market is not a free market today. This is because there never was the need to make it a free market. However, as the Grid itself is becoming more decentralized, the ecosystem also needs to become decentralized, creating a free energy market.
Blockchain can make energy production more efficient through decentralization
Energy transportation is very costly, as most of the energy sources (non-renewable sources and renewable solar farms) are located outside major cities and urban areas. In most cases, the energy that is consumed in households travels thousands of miles and crosses various conversion points (high tension to mid-tension to low household tension). Large distances and voltage conversion translate to more energy loss due to heat dissipation; sometimes more than 30% of all energy created is lost to this cause. A decentralized grid would resolve this issue.
A decentralized grid would allow efficient local energy generation and consumption by reducing the need for its ‘transport’. If energy transportation is minimized, locally produced energy doesn’t need to go through multiple tension conversion points and consequently, there are fewer losses.
Opting for a fully decentralized grid would eliminate costly losses and boost production efficiency.
A Fair Market
In order to exchange energy fairly, between the different stakeholders, a truly decentralized trading platform is needed. This platform will require a decentralized database that logs, checks and validates transactions continuously. Such a platform should not be owned by any one party, nor should it be easy to modify. This is where blockchain could come in. With a blockchain, it is possible to create an ecosystem with rules to make such a platform fair and trustworthy. This is because a public blockchain isn’t owned by an individual party. The rules are set in stone and no party can alter them without asking the whole network. Decisions are made by the community as a whole and changes are fairly voted in. This makes it difficult for fraudulent parties to take advantage of the ecosystem. If one tries to steal or sell energy at an unfair price, it would become known to the whole network and the buyer would be informed too. Blockchain will instore governance making fraud and corruption less likely for decentralized networks like the grid.
Blockchain is the missing piece to building a fully decentralized grid.
Users of the grid would be able to trade energy fearlessly and effortlessly trusting that their solar investment is profitable. Laws and fees would not be modified without the consent of the entire network, and situations like Nevada would never happen. This will also reassure early solar adopters and encourage more people to buy into solar.
An Energy Market
This brings up the idea of new energy market: a smart energy market, where appliances know how much energy they are using when to use it and how to use it efficiently. Appliances would send and validate transactions by themselves securely and monitor their energy usage. This would enable peer-to-peer energy sharing, transactions, energy consumption transparency, and much more.
Energy Supply chain
Thanks to a public ledger storing energy exchange transactions (via a blockchain), we could be able to track where the energy was generated, whether renewable, coal or nuclear energy sources. This would allow full transparency when one would want to sell or buy energy. The buyer would know what and where he is buying his energy from. Since such a ledger would be public, anyone could see how much energy has been consumed. There would also be a sense of responsibility, as consumers would be aware that others can see how much they are consuming and how much they are generating.
Solar Energy is becoming a significant player now and we need to be ready for this change. To avoid the Nevada experience, we need to develop an energy exchange solution that is free, fair and intelligent. Opening a way to exchange energy freely, between consumers can solve the centralized, non-efficient distribution issue described earlier.
If we able to sell our energy easily via a trustworthy platform, it opens the door to many possibilities and applications.
What applications will Blockchain unlock for the renewable energy industry?
Storing Energy to sell at high peaks
If a solar installation is producing excess energy with your solar panels, you can use a high capacity battery to store the excess energy for when energy costs are higher.
Decentralized energy storage
People who cannot install solar panels, or cannot afford the investment can still participate in the movement. They can minimize the effects of the duck curve by storing energy in high capacity batteries. They can then either sell or use their energy.
These two possibilities would trigger innovation to make energy storage more efficient. If we are able to create a decentralized, efficient energy bank, it would minimize the duck curve problem.
Energy security
Measuring and logging energy consumption would allow energy transactions to be more secure and regulated. Only registered devices using energy over a certain amount of power would be allowed to use your energy. If a big energy draining machine tried to access your energy without your consent, no energy would be consumed.
For example, a neighbor trying to take energy from your household and use it for his appliances, would not have access unless he has your authorization and enough funds to pay.
Decentralized car charging
One of the most interesting options would be opening up your own EV charging station. Imagine if you could sell your energy to passers-by with their electric vehicles without having to meet them. You would just need to install a charging station at the front of your house and advertise that you sell your excess energy. Buyers with funds stored virtually in their cars would just plug their vehicle in and the charging process would commence. No hassle for payments, no need to even to know your buyers, just a simple energy transaction. This would give more options for EV owners for charging, and ultimately it would bring down the cost to recharge their batteries.
For these applications, there needs to be logged interactions, secure transactions between parties, validated by consensus and unalterable after validation. In addition, there must be rules regulating production, buying and selling renewable energy. This is why the energy industry will soon be implementing Blockchain.
Current projects and examples
Here are some of the first projects that are trying to address this problem :
LO3Energy (Brooklyn project)
LO3 Energy is developing blockchain based innovations to revolutionize how energy can be generated, stored, bought, sold and used, all at the local level.
Green Power Exchange (“GPX”) is a blockchain based peer-to-peer power trading platform that focuses on renewable power in deregulated energy markets.
Grid+ uses technology and automation to offer you dramatic savings in home energy costs, all powered by a simple mobile app. Join us to save big and help make the grid where you live cheaper and greener.
In conclusion
The Solar energy market can become an open market and should be decentralized.
As evidence, solar panel prices are decreasing and the grid is allowing new individuals to join the production pool. Blockchain is a neutral platform that allows for the decentralization of energy production, trade, and governance. With Blockchain becoming more accessible and better understood, it is imaginable that the infrastructure of a decentralized grid can be developed and implemented on a public blockchain. On the long-term, decentralization and Blockchain governance will be a factor in keeping the solar industry alive.
Without decentralization, solar power is not sustainable.
Sources :
https://www.theguardian.com/environment/2016/jan/13/solar-panel-energy-power-company-nevada
