The role of blockchain technology in the energy industry

Initially emerging as the underlying technology of Bitcoin, blockchain has gradually been introduced to different sectors, as a distributed ledger system to improve efficiency (Wang and Su 2020). With decentralization and persistence being some of its main advantages, blockchain technology can be applied in the energy sector, potentially improving energy utilization efficiency (Zhu, et al. 2020). Moreover, to meet climate targets, the global energy system needs to undergo a radical transformation: from a centralized, fossil fuel-based system to a distributed and volatile renewable-based one (Zade, et al. 2022).

What is blockchain?

Blockchain can be defined as a technology enabling the secure transmission of value in a distributed network, composed of multiple connected nodes (Ante, Steinmetz, and Fiedler, 2021; Wang and Su, 2020). The basic concept of this technology is the distributed information storage system, often described as a ledger: once added, the verified information is permanently saved in the blockchain, it can be viewed, tracked, and managed by all nodes, instead of a single organization. Consequently, it brings certain advantages, including decentralization, persistence, anonymity, and auditability, and can be applied in different fields to increase the efficiency, transparency, and convenience of transactions (Zhu, et al. 2020).

Application in the energy industry

Blockchain technology can have multiple applications in the energy sector, including energy trading and energy consumption (Zhu, et al. 2020). These applications are developed around blockchain technology’s main advantages, including high reliability and data integrity, automation, and transparency.

Energy trading

The global energy system is going through a necessary transformation, both from the supply and demand side, stemming from the urgent need to address climate change and meet the net-zero emissions targets. The development of renewable energy sources has brought certain challenges associated with their specific characteristics, including the volatility and uncertainty of wind and solar energy (Zhu, et al. 2020). In the context of growing energy demand and intermittent renewable energy supply, Noor, et al. (2018) introduced blockchain technology as a useful concept for the development of a demand-side management model. From the demand side, blockchain technology brings two important revolutions: firstly, it lowers the entrance barriers associated with high initial investment and limited transparency in asset information (Noor, et al. 2018). According to Zhu, et al. 2020, blockchain can be used in asset registration, traceability, and circulation, which can greatly improve efficiency and reduce transaction costs, eventually bringing more players to the market. Secondly, blockchain can help stakeholders to connect, enabling the creation of a secure and transparent peer-to-peer environment where a trustable transaction can be conducted by a well-designed digital system instead of a third-party intermediary (Noor, et al. 2018).

Energy consumption

The application of blockchain in the energy consumption side is related to its specific advantages, namely decentralization, persistence, anonymity, and auditability. Through the application of blockchain and the use of smart contracts, there is no longer the need for intermediaries for the consumption of energy. As a result, transaction costs are reduced and there is more transparency, allowing users to be informed about the available options. The application of blockchain in energy consumption is often associated with the efficient utilization of diverse energy sources, as users can cover their specific energy needs with the right energy suppliers (Zhu , et al. 2020). A usual application of blockchain in energy consumption is the charging of electric vehicles (EVs). Charging companies are facing certain challenges associated with complicated payment agreements, inaccurate measurement of charging costs, and scarce charging piles (Wang and Su 2020). Blockchain can increase the efficiency and security of EV charging and manage the infrastructure, allowing for the further adoption and development of EVs.

Challenges

The application of blockchain in the energy sector is facing several challenges that don’t allow its successful adoption at a large scale. Firstly, there are regulatory and legal challenges that need to be addressed, related to data protection and energy law. Secondly, there are certain technical challenges, such as vulnerability to attacks and scalability and performance, with regard to protecting the network’s integrity while maintaining its performance. Another important challenge is the energy consumption required for every transaction on the blockchain. The transition to more efficient transaction methods needs to be addressed before blockchain’s broader adoption in the energy system. Lastly, the adoption of energy blockchain mainly appears in developed countries, due to the complete and mature energy infrastructure they have developed. In developing countries, the challenge of building a complete distributed power system for the application of blockchain energy remains (Teufel, Sentic and Barmet 2019).

Blockchain technology is often suggested as an important step in the much-needed energy transition, as its adoption can increase the efficiency of energy systems. Its potential to support the energy transition by facilitating transparent, disintermediated, and distributed transactions has been extensively explored in the literature. However, for the energy blockchain to be adopted at a large scale, certain technical and legal challenges need to be addressed.

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Sources

• Wang , Qiang , και Min Su. 2020. «Integrating blockchain technology into the energy sector — from theory of blockchain to research and application of energy blockchain.» Computer Science Review. 

• Zhu , Shuai , Malin Song , Ming Kim Lim , Jianlin Wang , και Jiajia Zhao. 2020. «The development of energy blockchain and its implications for China’s energy sector.» Resources Policy. 

• Zade , Michel, Marcello Feroce , Arturo Guridi , Sebastian Dirk Lumpp, και Peter Tzscheutschler. 2022. «Evaluating the added value of blockchains to local energy markets—Comparing the performance of blockchain‐based and centralised implementations.» IET Smart Grid.

• Ante, L. , F. Steinmetz, και I. Fiedler. 2021. «Blockchain and energy: A bibliometric analysis and review.» Renewable and Sustainable Energy Reviews.

• Noor , Sana , Wentao Yang , Miao Guo, Koen H. van Dam , και Xiaonan Wang. 2018. «Energy Demand Side Management within micro-grid networks enhanced by blockchain.» Applied Energy.

• Teufel , Bernd , Anton Sentic, και Mathias Barmet. 2019. «Blockchain energy: Blockchain in future energy systems.» Journal of Electronic Science and Technology.