Welcome to the age of energy prosumers

In the near future, citizens, small enterprises and even towns and cities will be the new producers of electrical energy for both their own consumption and for marketing the surplus. Technologies such as blockchain help consolidate this concept and protect the margins of the traditional players in the sector.

It will always be associated with bitcoin and the financial systems, but blockchain technology is far more than this. It can be implemented in a number of different ways and promises to revolutionise industries and various other sectors, functioning as a seal of digital trust. It is basically an open and transparent means of sharing data via the Internet, guaranteeing it can't be changed or adapted during the time it's in cyberspace. The use of this technology in the energy sector is also on the rise, and it is becoming an increasing popular option in projects geared to testing the decentralisation of the energy distribution model as we know it.

Energy transition is transforming the sector and introducing changes that open doors to the democratisation of the production of electrical energy, in addition to creating new challenges for traditional producers. The latter are currently facing a series of issues for which they need to provide a rapid and efficient response, subject to missing the ‘innovation train’. Decentralisation, digitisation and decarbonisation are the three Ds guiding the strategies of the major energy players, which are having to deal with an increasing number of competitors in the production of energy.

Start-ups, towns and cities and private citizens are the new pawns in the energy chess game, capable of producing electricity both for their own needs and for sale to third parties, both traditional producers and others. However, for a business model to be viable, all these players need to be part of the same community or microgrid, sustained by technologies such as blockchain.

In Portugal, the cities of Lisbon and Porto have already taken the first steps towards the creation of these ‘energy communities’. In the capital, for example, a project is in the pipeline for the installation of a 2 MW photovoltaic power plant on a piece of unused land in a cemetery, with a view to producing energy to be consumed by the city itself and sold to third parties. In Porto meanwhile, and with the support of the Porto Energy Agency, a photovoltaic power plant project is underway geared to schools and education, in addition to a tender for the installation of 34 power plants that will enable the city to save around 200,000 euros per year. Nevertheless, the energy community model and the legal framework for the topic will need to be defined before all this becomes operational.

WHY BLOCKCHAIN?

The great advantage of this technology applied to the energy sector is that it guarantees greater interoperability and security in relation to data and communications among the countless sources of energy, suppliers and clients comprising these ‘communities’. A far as traditional energy companies are concerned, this model provides advantages that range from a reduction in risks and costs to improvements in back-office processes, protection against cyber attacks and data coordination between different devices in residences. The use of blockchain will enable consumers to manage their invoices and bills in a more efficient manner, reducing acquisition costs, as well as serving as a platform for the purchase and sale of energy.

However, to ensure all this runs smoothly, we still need to respond to major issues such as who is going to finance the networks and who is responsible for guaranteeing supply. Legal and political issues, but which could be major business opportunities for traditional suppliers, provided they reposition their business in line with this goal.

Other opportunities traditional suppliers can take advantage of include a reduction in transaction costs due to the elimination of intermediaries, lower prices resulting from greater transparency in the market, simpler transactions (contracts, payments and documentation), greater transparency in processes, more flexible products and tariffs, among others. Furthermore, using a business model based on blockchain communities, energy companies can trade directly among themselves, buying and selling to the competition, eliminating intermediaries and reducing operational costs and the cost of the energy itself.

In Europe, a number of companies in the energy sector have been developing pilot projects in which blockchain technology is becoming increasingly popular. The exchange of information among themselves will be the first step, potentially followed by more complex operations and transactions in the future.