In the same week that Libra, a cryptocurrency launched by Facebook was officially announced for the financial sector in partnership with 27 other companies, blockchain technology also once again caught the energy industry’s attention by launching the Energy Web Chain (EW Chain). Created by the Energy Web Foundation (EWF), a consortium of more than 100 companies, EW Chain is the first public open-source blockchain solution for the energy industry.
Blockchain is a technology that allows the registration of transactions in distributed form in the computers that are part of the system. The information is stored in this distributed infrastructure as chained blocks (so the name, blockchain) so that the registration of a new block can only be validated if all other records in the chain are intact. This block chain validation is also done by the computers that are part of the network.
The distributed and secure structure of the blockchain enables the migration of traditionally centralized business models (controlled by a few intermediary institutions) to new decentralized business arrangements (with the direct participation of the various players in the industry). Just like Bitcoin (one of the best-known blockchain applications) has been transforming the financial sector through decentralization, other blockchain-based solutions can also profoundly modify other sectors.
In the electric power sector, blockchain technology has been seen as one of the factors that can further accelerate other strong industry trends related to decarbonization (generated from the entry of new sources of clean and renewable energy such as solar and decentralization (promoted by the evolution of distributed generation) and digitalisation (caused by the introduction of technological solutions such as smart meters).
Studies and projects have been developed in recent years exploring the benefits of using blockchain in applications for the energy sector. One of the most well-known and referenced projects is the so-called “Brooklyn Microgrid,” where LO3 Energy has created a blockchain-based platform that allows solar energy generated by residents of a region to market the excess energy generated (not consumed by them) directly with its neighbors, connected to the same microgrid.
In addition to promoting solar power generation, the “Brooklyn Microgrid” project shows the potential of blockchain technology to create new business models that can boost the innovation in this area.
The use of smart contracts, distributed applications that can be executed on the infrastructure of a blockchain network, also enables the automation of processes and operations (such as charging, negotiating power or even recharging of electric vehicles) that can increase the efficiency of the companies of the sector and, ultimately, reduce the cost of energy for the final consumer.
Another application of blockchain in the energy sector is related to its use for the registration of renewable energy, which is currently made through Renewable Energy Certificates (or REC, “Renewable Energy Certificates”). The use of blockchain and smart-contracts could make registration and traceability of renewable energy more automated, reducing the costs associated with the process.
There are several cases of use of blockchain in the power sector, but of course the technology has also undergone several criticisms pointing out problems that need to be solved for its commercial viability. Two negative points often mentioned are the long time needed for the validation of the transactions and the large amount of energy spent by the network in this validation process.
As an example, some studies indicate that the energy spent worldwide for Bitcoins mining has reached levels of concern, which, in the eyes of many, could even pose a threat to the environment. Thus, a lack of confidence about the use of blockchain for the energy sector naturally arises, since one of the expectations in this case is that technology brings better energy efficiency.
The EW Chain emerges in this context as a solution able to exploit the benefits of blockchain technology without running into the limitations of time and energy consumption presented by other solutions. Created by the Energy Web Foundation (EWF), a consortium of more than 100 companies, EW Chain is the first public open-source blockchain solution for the energy industry. It uses a Proof-of-Authority (PoA) consensus mechanism that reduces both transaction validation time and power consumption compared to other blockchain solutions.
The consensus mechanism used by Bitcoin and other blockchain solutions, known as Proof-of-Work (PoW), requires consensus among most network nodes for a transaction to be approved. Although this mechanism is considered to be highly secure and reliable, it may present performance problems regarding the number of transactions per second (TPS), since the validation time of the transactions may increase as the network grows, also impacting the scalability of the network.
The PoA mechanism establishes consensus through a finite set of entities, or network nodes, that are selected to perform the validation process because they are considered reliable. For example, EW Coin has around 10 entities that are authorized to perform the transaction validation process. These entities include concessionaires, operators and developer companies that are part of the EWF consortium. Thus, the validation time of the transactions may be lower, increasing the network performance and its scalability.
The EWF also had the merit of adding significant players to the consortium of more than 100 companies in the energy sector, with names such as Shell, GE, Siemens, AES and Centrica. The consortium’s support can help in a possible consolidation of the EW Chain as a standard to be adopted for energy block block solutions.
The source code for the project is available in the group’s Github (https://github.com/energywebfoundation) which includes some reference applications such as EW Origin (an application for renewable energy source certification) and EW Link (a set of specifications and standards for connecting physical devices to the blockchain). According to the EWF there are already more than 17 distributed applications (dApps) running on technology test networks that must be put into production in the coming weeks.
It will take some time for EW Chain (or some other blockchain solution) to mature and really consolidate itself as an energy industry standard, but the positioning of EWF group companies, composed of several players in this segment, represents an important energy sector towards the adoption of blockchain technology.