Paving the way for peer-to-peer autonomy

At a time when small scale distributed generation is gaining traction, some power-generating communities are banding together to create their own localised microgrids. These can operate autonomously and allow users to sell surplus energy to other members of a co- operative in a ‘peer-to-peer1 power model. Blockchain technology is a key enabler of the peer-to-peer power market; providing a secure means of validating, recording and settling energy transactions, in real time, across a localised and decentralised energy system. As a distributed ledger, the blockchain encodes and records the parameters of each transaction – time, energy units and parties – before bundling transactions together into a single block. The technology is relatively inexpensive and forgery-proof, as each computer with access to the peer-to-peer network has its own, regularly-updated copy of the ledger, which can validate other copies.

Blockchains can be used to implement ‘smart contracts’. These allow for conditional actions encoded in the blockchain to be executed automatically on the completion of some pre- defined action. For example, when the supply and demand of energy in a peer-to-peer network is balanced, transactions can be carried out at an automatically-determined price that is fair to all members. This additional layer of security ensures contracts are tamper-proof while remaining entirely transparent and open to inspection. Accordingly, it should be possible to create a microgrid in which the energy consumption and generation of each user is tracked, executed by smart contracts and recorded on the blockchain, without the need for external regulation.

Growing use of microgrids is further increasing demand for flexible energy supply. Users not only expect to pay for what energy they use, they also want to be able to specify energy from renewable sources only. Once again, blockchain technology can assist by allowing customers and energy companies to accurately share usage data, as well as track units of energy from generator to user.

Micro generation is not competition for existing, large-scale energy providers – rather it can bring advantages for all. For example, it could reduce fraudulent energy consumption, which is estimated to cost the industry billions of dollars each year.

Peer-to-peer autonomy

Distributed ledgers can keep a complete record of exactly how much electricity is being consumed, by whom and from where. That way, the operators of both the national grid and the microgrid can be paid accordingly. In addition, accurate, real-time record-keeping makes it easier to forecast peaks and troughs in demand; minimising the risk of power outages caused by breaks in supply.

Recognising these benefits, a number of major players in the energy sector are investing in microgrid projects to test the capabilities of blockchain technology and smart contracts.

The Brooklyn Microgrid project in New York City is one of the first local generator communities to use a blockchain-enabled transactive platform. Jointly run by LO3 Energy and Siemens, the latter is providing hardware support in the form of network control systems, switchgear, innovative battery solutions, and smart electric meters.

Another example of blockchain technology in action, EDF’s MASERA microgrid demonstration project in Singapore, is enabling remote rural communities to generate and distribute their own power supply, more cheaply than would be possible if they were connected to a main power grid.

While technology companies have been among the earliest to recognise the potential in blockchain – IBM has filed 140 related patent applications worldwide – a patent-mapping analysis of companies with a proprietary interest in blockchain technology reveals some from beyond the computing and energy sectors. A number of financial services companies have blockchain- related patent applications - Visa (74), Bank of America (61) and Mastercard (52). E-commerce companies such as Alibaba (47) and Amazon (45) also feature in the list. The data also shows a recent icrease in Chinese patent filings related to blockchain with China soon expected to topple the US in terms of overall portfolio size.

Going with the flow

Among their many benefits, microgrids are able to respond rapidly to changes in supply; reducing the need for back-up supplies. These cost savings are likely to increase further as more energy production shifts to renewable sources, which typically produce a more variable power output.

Decentralised systems are also more resilient to disruption caused by natural disasters. For example, when Hurricane Sandy hit parts of the Caribbean and the New Jersey coastline in 2012, several microgrid communities were able to continue distributing power to their members even after the major infrastructure had failed.

These self-sustaining communities should gain strength as advances in energy storage continue, enabling them to maintain or redistribute their own energy reserves. Moreover, these small-scale consortiums are better able to adopt, and in some cases trial, emerging technologies, where rollout cost and backward compatibility requirements are a hindrance to large-scale, older national infrastructures.

Indeed, a review of present trends in patent filings within the energy storage industry reveals a number of promising threads, with lithium-air and aluminium-ion batteries boasting an energy density similar to that of conventional fossil fuels. Redox-flow batteries also provide stable, low-loss, long-term energy storage. Similar advances in solid state devices such as nanowire and graphene- based batteries promise to increase capacity exponentially, as well as reduce charging times and extend life span – all without the need for complex or unstable chemistry – making them eminently suitable for microgrid communities.

The role of IP

Blockchain technology and wider use of smart contracts are already bringing major change to the global energy sector, allowing businesses to find new ways of managing and routing power within the larger energy ecosystem. This situation is opening up the market to new entrants, thereby increasing competition and allowing the introduction of peer-to-peer autonomy.

For technology-led businesses involved in the application of blockchain technologies there is clearly an opportunity to secure a foothold in this fast-developing area, either by licensing their patent-protected innovations to major players, in exchange of royalty payments, or by teaming up with others to develop solutions collaboratively. If opting to collaborate, it is important that businesses put in place robust agreements from the outset, which set out clearly who owns any existing intellectual property (IP) assets and who will own any that might be developed as a result of working together. This will minimise the risk of disputes and ensure the commercial interests of all parties are protected. With the introduction of blockchain, it is even possible that these agreements could be ratified in smart contracts.

With microgrid generation expected to become more widespread, there is also an opportunity for innovators to own technologies linked to its application that are regarded as ‘standard essential’ in the future. Patent protection will allow these companies to realise the value of their R&D investments.