Power to Disrupt

Blockchain set to change renewable energy market dynamics

The Indian economy is at the cusp of an energy transition, moving from conventional systems to agile and smart systems. Given the addition of large volumes of intermittent and variable renewable energy, grid management has begun showing signs of stress. The deployment of decentralised energy resources and the emergence of prosumers have added to the challenges in managing energy systems and carrying out power transactions at the individual user level. Another challenge is the mammoth task of validating the authenticity of these transactions to avoid spurious dealings.

The application of blockchain, a distributed ledger technology wherein consecutive transactions are collected together in the form of coded values, in the renewable energy sector can have a significant impact on energy trading and management. In addition, the challenges resulting from the emergence of decentralised generation, especially in rural areas, can be mitigated with the help of blockchain. Smart Utilities analyses blockchain technology in the context of the Indian renewable energy sector, its application, challenges and outlook…

What is blockchain?

A specified number of transactions in highly cryptographic codes are collected to form a block. These are then interlocked with each other using hash values to form a chain, thus giving it the nomenclature of blockchain. The interwoven nature of the blockchain makes it immutable, as tampering with any one code will alter the entire blockchain from that point onward; to reverse the change will require the help of all stakeholders in the chain. There are systems in place to prevent a single user/ attacker from changing all the hashes in all the subsequent blocks, thus making the attack visible.

The most popular application of blockchain technology is for the digital currency bitcoin network. However, the potential of blockchain has been extended to several applications, including the power sector, primarily for grid management. While bitcoin is based on public blockchains, the technology has now transitioned into private and consortium-based permissioned blockchains. A private blockchain is owned and managed by an individual entity, while a permissioned blockchain is managed by users that have been verified or authorised by the owner consortium. The application in the power sector is based on the ability of the technology to replace the peer-to-business-to-peer framework that is typical of the business model of a utility. In addition, blockchain technology has the capability to use smart contracts, thereby altering the business processes by introducing specific contract-based transactions.

Application in renewable energy

Blockchain technology is designed to be a problem-solving solution, especially in the rapidly growing renewable energy sector in India. A major challenge facing the sector at present is having to deal with the impact of power supply from decentralised assets, prosumers and microsystems on the existing grid network.

Let us consider a solar-based microgrid system, with a number of consumers carrying out electricity transactions every day through an energy service provider. The primary challenge here is to manage and track the transactions to avoid duplication of contracts. Further, the accurate reading and billing of energy consumption is a matter of great importance. How can blockchain help resolve these issues? Blockchain, coupled with smart communication and metering technologies, would be able to facilitate secure transactions and payments among all stakeholders in the microgrid, thereby providing a decentralised marketplace. The microgrid could distribute power through smart contracts and could also procure additional power from other distributed energy generators. Smart meters would help provide consumption-related information that has been securely verified through the entire blockchain, while facilitating peer-to-peer energy transactions.

Considering that a large part of power distribution is expected to remain centralised in India over the next few years, the potential for blockchain technology is primarily in localised microgrids and off-grid rural areas. Blockchain technology could potentially lead to a change in the mindset in the Indian market, from centralised to distributed generation. Consumers, especially the commercial and industrial segments, could look at the localised generation of power, with transactions facilitated by this technology. With the advent of internet of things (IoT) and electric vehicles, the age of prosumers or distributed generation may not be too far away. Further, with better demand-side management or the reduction in  demand due to localised generation, grid reliability and resilience would improve significantly. This would lead to savings in capital spending on the expansion of transmission and distribution infrastructure.

Blockchain technology could also enable local generators such as rooftop solar plant owners to sell power through peer-to-peer transactions instead of feeding it back into the grid. This may also work to reduce the payment burden faced by discoms, a major factor in their opposition to the implementation of net metering, and may lead to better financial performance and increased operational efficiency.

Blockchain technology could also be used to improve the renewable energy certificate (REC) mechanism. At present, the process of generating RECs is cumbersome, requiring the filing of energy savings, justification of renewable purchase obligations (RPOs), tracking of unique RECs, and maintenance of databases. Blockchain could help manage these registers with minimal effort on the part of the authorities. The public nature of the technology means that  the data will be available to all concerned stakeholders while maintaining the uniqueness and tradability of the certificates.

Key challenges

The use of a technology that can potentially disrupt the business and structural processes of a market requires regulatory support. The application of blockchain in India will require significant and far-reaching regulatory and policy changes that will allow consumers, discoms, and all other stakeholders to adopt it seamlessly. The distribution of power and the operation of financial transactions through blockchain will require regulatory intervention to change the present mode of operations.

The smart and efficient application of blockchain in the renewable energy segment is crucially dependent on the availability of suitable technological infrastructure. From high speed communication to smart meters, the technology will have to be available to prosumers, generators, and authorities so they can carry out transactions at costs that are not prohibitive.

Since the application of blockchain is seen primarily in the distributed renewable energy generation and energy storage segments, there is bound to be some reluctance to adopt this technology  on the part of transmission and distribution companies, as the expansion of grid-connected business may be jeopardised. The limited growth of the rooftop solar market may serve as a reminder and a lesson on the reluctance of discoms in the renewable energy segment in India to adopt new technologies.

Blockchain technology faces another significant challenge in India because its adoption requires a shift in the attitude and mindset of consumers from being energy consumers to becoming revenue generators. Until then, the scaling up of distributed generation may not be  possible and blockchain technology may not grow beyond a few scattered cases. For it to become a norm, the seller’s mindset, energy usage patterns, and market dynamics will have to change. Although blockchain technology is claimed to be one of the safest technologies available at present given its complex architecture and immutability, there have been major attacks on bitcoins in the past, resulting in considerable financial losses. In a large distributed renewable energy generation network, a greater number of points may increase the vulnerability of the system. Hence, cybersecurity is a key challenge in the application of blockchain technology.

Conclusion

For an economy like India’s with a large power generation and consumption network, blockchain technology can help streamline the market and introduce significant efficiencies in the system. Its potential in a number of applications is huge, provided that proper regulatory changes are made to support it. The technology is indeed complex and its successful operation requires infrastructure in place that can enable high speed transactions. Therefore, it may take some time for the technology to be accepted and widely adopted in India. In addition, given that decentralisation of renewable energy generation is critical to the application of blockchain, it will take a considerable amount of time  for the general mindset of consumers, authorities, and other stakeholders to shift and evolve to accept this technology.

In conclusion, blockchain has the potential to disrupt the power and renewable energy market in India. Several examples of the successful application of the technology are found across the globe. India should seize the opportunity to deploy the learnings and best practices of these use cases and move towards a digitally driven future of distributed renewable energy generation and self-sufficient and sustainable power in off-grid rural areas.

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