The application of blockchain to energy systems remains speculative but it fits well with the expected evolution of the entire industry — a shift away from centralisation and one-way flows towards more decentralised and transactional management.

A number of vendors are experimenting with energy systems based on blockchain principles.

The most relevant of these are New York start-up LO3 Energy, Grid Singularity, and IBM, which is collaborating with Samsung to develop a trading system for smart appliances based on another blockchain-based currency, Ethereum.

Additionally, start ups like Wattcoin, and (a recent winner of the Dubai Hackathon) are also entering this market and experimenting with blockchain in the sector.

Choosing blockchain

The emergence of Bitcoin, the cryptocurrency based on blockchain, has demonstrated the potential of the technology in the financial sector, and has created significant innovation in that space.

The utilities industry, like many others, has become aware of the potential of blockchain in enabling new business models and industry structures and there is growing interest in applying the technology to energy trading.

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By enabling peer-to-peer transactions without the mediation of utilities or systems operators, blockchain can allow energy trading within the smallest microgrids and campus networks, and much larger regional or national systems.

Another advantage of using blockchain is that it has strong cryptography and is inherently more conducive to privacy and anonymity, benefiting consumers who connect to smart energy systems.

LO3 had been experimenting with using a blockchain-based system to sell distributed solar generation to users within the same grid, but in addition, its platform, dubbed TransActive Grid, sought to support other grid management objectives such as creating flexibility and reducing network faults in times of peak demand or generation.

With the help of Siemens, LO3 has expanded its trail, integrating blockchain technology into a microgrid controller in a large area with live customer connections.

This solution will enable blockchain-based local energy trading between producers and consumers and microgrid balancing across Boerum Hill, Park Slope, and Gowanus in Brooklyn.

From challenge to success

So far, trials that attempted to test these ideas in the real world have been thin on the ground, however, the joint trial run by Siemens and LO3 represents an interesting attempt to explore how these ideas can be applied concretely.

LO3 has been exploring these ideas for several months (with the first experimental peer-to-peer trades taking place in April 2016). The collaboration with Siemens will enable LO3 to scale up its trial and the involvement of a major provider of energy infrastructure will also give the trial greater legitimacy.

One of the main challenges to creating a more distributed smarter grid is that energy systems currently depend on highly centralised balancing and trading arrangements.

Essentially, most electricity systems will have a single systems operator and centrally managed transactions and price setting mechanisms.

This creates a significant difficulty in enabling peer-to-peer transactions within energy producers and users, within the same microgrid, or between microgrids, since such transactions need to be confirmed and policed by some centralised authority.

The challenge is also more complex than similar challenges in banking — whether blockchain can overcome these challenges and enable peer-to-peer energy systems remains an open question.