SAFER, SMARTER, GREENER
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ENERGY
BLOCKCHAIN FOR ENERGY & WATER EFFICIENCY SAVINGS The energy landscape is changing dramatically and so are people’s understanding of the nuances and opportunities that come with energy savings. For many businesses energy savings used to be about the cost of their supply. But today energy impacts so much more than the bottom-line. Getting your energy strategy right opens broad business benefits which go beyond cost savings. An energy savings review or audit allows business to truly understand their energy use and make changes to their operations accordingly. However, the current process of obtaining an energy performance contract can be time consuming, involving an intensive calculation approach using audits, baseline measurements and meter readings. This approach can also cause disagreements on the extent of the energy savings as several factors within a building, facility or site are subject to constant change. At DNV GL, we believe blockchain technology has the potential to simplify the process and reduce the cost of verification significantly. By installing sensors in the facilities with sub metering devices, it would be possible to measure the energy savings resulting from various retrofit initiatives.
Based on pre-set rules and measurements the blockchain ledger would record energy consumption from devices, include sensor information and calculate the amount of savings. These would be converted automatically to energy savings coins and distributed according to the contractual split. This would remove the detailed verification required, avoid disputes and aim for automatic settlement based on pre-defined formulas. The verification of energy against the contractual baseline can be assisted by IoT devices (sensors) as well as submetering technology which automatically transfers data to a platform where settlement can be automated without any human intervention, measurement, verification or transfer. It is crucial that the algorithms, sensors, and settlement is fully automated and that the energy savings coins are issued upon sensor verification. This paper discusses these issues in more detail and explores our vision for the use of blockchain in the energy or water savings industry.
Demand Side Efficiency Worldwide there is an amplified focus on demand side energy and water efficiency measures. A demand side management savings industry based on energy performance contracting is proliferating across the globe.
transaction records, attributes of transactions and other credentials. The ledger is often secured through a combination of cryptography and economics. This is what allows bitcoin to transfer value across the globe without resorting to traditional intermediaries such as banks.
One of the challenges in the energy performance contracting industry, is that energy savings need to be monetized; however, it’s not possible to measure, by use of an energy or water meter, for something that is not actually consumed. Hence, energy or water savings contracts have to be based on a measure of ‘deemed savings’ that are monetized after checking actual consumption with a baseline consumption.
On a blockchain, transactions are recorded chronologically, forming an immutable chain, and can be private or anonymous depending on how the technology is implemented. The ledger is distributed across many participants in the network; copies exist and are simultaneously updated with every fully participating node in the ecosystem.
A key challenge in the settlement process is that many external factors must be taken account to quantifying the savings. However, this process of measurement and verification is problematic. It is possible, for example to make savings with respect to a baseline but perhaps due to increased humidity or temperature energy consumption is higher than normal. This results in a consumer paying a higher bill and simultaneously having to pay for deemed energy savings, which they typically do not see. This can result in mistrust, disputes and costly verification schemes. What is Blockchain? Blockchain technology is a General-Purpose Technology (GPT) which has the ability to catalyse ecosystem transformations. Entries on a distributed ledger can represent ownership in currency, intellectual property, equity, information, contracts and more. At a high level, blockchain technology allows a network of computers to agree at regular intervals on the true state of a distributed ledger. Such ledgers contain shared data such as
Blockchain Applied to an Efficiency Context DNV GL’s vision for a blockchain based solution is focused on reducing the cost of verification, increasing trust and enhancing networking. Blockchain can enable a vibrant industry which allows ‘saved energy’ to be stored as digital tokens and traded peer-to-peer again. This will help facilitate the expansion of energy efficiency and demand side savings measures resulting in lower CO2 emissions and more efficient use of the energy system. A problem the industry faces are the contested disputes that arise from the difference between the estimated baseline relative to the actual estimated savings, based on detailed verification audits and changing circumstances. Introducing blockchain into the industry’s ecosystem will have a positive impact as savings can better be expressed in terms of tokens backed by smart contracts; a far more tangible concept than just savings. The settlement processes and verification processes will also be far simpler, further encouraging market development.
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Blockchain Technology Solution In a distributed energy network, the customers are households and buildings (schools, community centres, hospitals etc), industrial facilities and also distribution companies who buy excess power from ‘prosumers’. Electric vehicles are also distributed prosumers, trading energy through charging and discharging points. The key trading proposition is normally referred to as peer-to-peer trading from buildings to cars to other generating or storage technologies and vehicle charging infrastructure in the electricity sector. Blockchain will enable us to turn what have traditionally been consumers of electricity into prosumers of green electricity. Once a baseline consumption is set, energy savings can be measured based on active demand side initiatives. The identity is a power coin unit which could be a generated per kWh of solar PV or as a kWh of energy saved through an initiative using a smart meter and even a unit of saved energy in an EV battery which is then transferred back to a consumer. An interesting aspect of the power coin identity is the participation of Energy Service Companies which are contracted to demonstrate the saving of energy with respect to a baseline.
The savings in energy can be converted to tokens and traded as electricity coins/units; this concept can also be extended to water sector savings. The competition to this new distributed peer-to-peer trading is the established utility industry currently structured around large-scale generation, transmission and distribution assets. In addition to this there are retail companies who manage metering, billing and settlements. A blockchain system allows for a distributed ledger to enable peer-to-peer smart contracts and trading which would bypass the need for aggregators, retailers and traders of electricity. As more green energy is brought onto the system, generation from centralized thermal power plants could be reduced. Furthermore, distributed energy storage technologies could also compete with any centralized ancillary services market to help stabilize the power grid. As an example, the scaling model pioneered by Bitcoin has been adopted by open source projects interested in creating platforms for the exchange of other types of scarce, digital goods. For example, Ethereum used its own token, Ether, to bootstrap a decentralized marketplace for computing power and applications. These technologies are also the basis for creating power coins from energy savings.
In assessing the impact of the choices on the initiative, DNV GL deploys the entrepreneurial compass strategy approach by assessing intellectual property, architecture, value chain and disruption. For a system, the peer-to-peer trading platform could be patented for a particular jurisdiction with appropriate deals being made with the incumbent utility to enable value to be created within the existing marketplace.
Major obstacles to the adoption of blockchain is an insufficient regulatory framework and the lack of an appropriate ecosystem. However, with the right reforms, energy savings smart contracts and digital tokens can become a reality, eliminating the lack of trust and high verification costs which are currently impediments to wider market development.
Regarding the architecture, the creation of a peer-to-peer and peer-to-utility trading platform would allow for networking effects between for example vehicle charging points, different buildings, industrial sites and households and different locations of distributed generation resources. The value creation would extend throughout the utility industry allowing for the adaptation to a more distributed energy environment. From prosumers selling electricity to each other and back to the utility to trading with car charging points and distributed and autonomous electric vehicles in the future. Multiple additional revenue streams will be created for the localized energy services.
DNV GL, 30 Stamford Street, Vivo Building, 4th Floor, London, SE1 9LQ, UK, www.dnvgl.com/sustainable_use
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