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World Changing Ideas

How Blockchain Technology Could Decentralize The Energy Grid

Electricity will soon be made by the people and for the people—and the technology behind Bitcoin can help.

How Blockchain Technology Could Decentralize The Energy Grid

One day, the energy grid could look completely different than it does today. Instead of big power plants sending electrons over long distances to people's homes, we might generate more power locally using solar panels, and homeowners might become makers and traders of power as well as passive consumers.

If so, blockchain technology could help keep track of electrons flowing through the system, energy futurists say. Just as the blockchain has allowed people to track and authenticate Bitcoin transactions, it could help mediate transactions of energy units through a cooperative, decentralized network, they believe.

That's the vision painted by Mike Mihaylov, a researcher with the EU-funded Scanergy project. Based at the Vrije Universiteit Brussel (VUB), a university in Belgium, Mihaylov sees "prosumers" buying and selling home-generated power using an alternative currency called NRGcoin, and he's already set up a prototype of what an eventual system might look like.

Whenever someone has excess power they don't need, they inject it into a local smart grid, generating one NRGcoin for each kilowatt-hour. If, for some reason, they need more power than their solar panel can produce—perhaps it's a cloudy day—they can buy back one kilowatt-hour at the same price from another actor in the network. If not, they can also sell the NRGcoin on a separate exchange, generating traditional money.

The advantage of using NRGcoin is threefold, Mihaylov says. First, it incentivizes people to participate, as there's a ready-made market for whatever power they produce. Second, the price is fixed and baked into the protocol underlying the system; it's not subject to change if a government decides to stop incentivizing renewable energy, or an energy retailer opts to pay people less money for what they produce (as is happening in states like Nevada). And, third, energy retailers don't have to pay households in real money: They can use the dedicated currency instead.

"NRGcoin gives you protection against policy change because now the payment is built into the protocol, which is decentralized. One kilowatt-hour always equals one NRGcoin—nobody can change it," Mihaylov says. The biggest disincentive to getting solar panels today is that regulatory conditions in the market might change. For example, a government might decide in the future that it no longer wants to subsidize solar power, so a homeowner's payback period could lengthen from, say, 10 years to 20.

Scanergy has used real-world data from the Belgian energy grid to simulate how the system would work in real life. And it has set up a demonstration model village with miniaturized wooden homes, Raspberry Pi-based smart meters, tiny solar panels, and a spotlight projector shining light from above. "I've already done the simulations and the theoretical part. Now it's time to put it into practice," Mihaylov says. He's looking for grant funding and project partners to build a full-scale prototype.

Although there's a lot interest in using blockchain for energy trading (and one well-known pilot in Brooklyn), it may be some time before we see the technology at scale. The energy market is highly regulated and change is slow. However, it seems like all the building blocks are in place for a completely different sort of power system to emerge. In the future, we could really be transacting electrons with our neighbors.

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