This is our third release in a series of articles exploring the use case of blockchain in the real world. Our research is focused on how blockchain can benefit the environment and help drive sustainability.
In this release, we are still taking a leaf from the last project article, to discuss extensively, the applications of blockchain in the energy sector. From oil and gas to electricity, the energy industry is the powerhouse of a burgeoning global economy and the force driving human civilization.
This sector is positioned at the center of a fast-evolving society, providing light for other sectors. It is important to note that the energy industry has evolved over the years to the tune of innovations and technological advancements. In the wake of blockchain, this sector is about to experience another shift that will transform the business processes and infrastructures in the sector. While decentralized ledger technology is still in its infancy, it has displayed possibilities for complex industries.
Introduce the Energy Sector and its Challenges
The energy sector is primarily concerned with producing and supplying energy, including fossil fuels and renewables. This industry supplies the energy that powers all other industries, making them an indispensable part of a modern economy.
From mining to refining, production, and distribution, the key players and shareholders of this industry exist in a rather complicated and interwoven structure. The miners may not be the refiners just like the producers may differ from the distributors. However, they play together to power the smooth running of the economy.
Nonetheless, it must be noted that the industry is not without its challenges. The complicated relationship of the actors in the sector, as well as the traditional infrastructures, creates a loophole for corruption and high-handedness in the industry.
Supply chain and logistics top the list of the challenges that slow down the energy sector. The long relay of exchanges that take place before the finished product gets to the consumers can be intriguing and difficult to track. A situation that favors dirty deals.
Centralization and regulatory oversight cannot be ignored as one of the lingering factors that impose friction on this sector. In what could be described as stifling, the energy industry suffers from the strong grasp of the government. By centralizing power in the hands of the government, the sector experiences difficulties.
Benefits of Blockchain in the Energy Sector
The energy sector is complicated. It involves heavy oversight by the government and is burdened by a long list of third-party contractors. Raw materials change hands as much as they transform from one finished product to another. In the course of this tortuous journey, loopholes are exploited in different forms by bad players in the sector. The effect includes the introduction of fake products and the theft of finished goods.
Blockchain, which is already getting deployed in the sector, will iron out these complexities by enabling a transparent infrastructure for monitoring, tracking, and regulating activities on the go.
Blockchain solutions can help reduce the cost of operations in the energy sector. By simplifying complexities found in the sector, blockchain makes it easier for energy producers to connect with their end users. More so regulatory agencies will save capital by migrating to blockchain solutions. Since the information of the blockchain is recorded on the go and verified by participants, regulatory agencies will have lesser work to do and this translates to saving costs.
Transparency for Stakeholders
Blockchain is transparent by design. The technology transfers this attribute to infrastructures deployed on it as well as processes running through it. The energy industry can benefit from this attribute by migrating to the decentralized ledger. For building energy infrastructures and managing data, blockchain will increase transparency in this industry when utilize for its solutions.
Applications of Blockchain in the Energy Industry
New Business Model for Energy Market
By laying the foundation for the development of new infrastructures, blockchain will trigger the displacement of the traditional business model of the energy sector. While there is no holistic view of what the industry will look like on the blockchain, it is poised to witness a fundamental shift in the structures setting the industry in place.
Carbon Credit Trading
The energy sector is one of the highest contributors to carbon emissions. From mining to manufacturing, electricity, and transportation, carbon is released into the atmosphere. It is only expected that the sector adopts a climate-friendly approach.
As one of the measures to contain climate change, the UN introduced the carbon credit market. Here institutions that are below the carbon limit sell their credit to institutions that have reached theirs. The sale of carbon credits presents a complicated market because of the complexities involved in monitoring the carbon expenditure of institutions. More so, the carbon credit market is not open to the public.
With blockchain, the carbon credit will not only become more transparent but new participants will also be onboarded. It will lower the playing field for participation and increase the trust among the shareholders of the market.
Smart Metering and Microgrid Management
Electricity generation and distribution are trapped in the hands of the government and third-party distributors. This arrangement requires electricity distribution through long transmission lines which leads to energy loss as power travels down to consumers. More so the national grid is not fault-tolerant as any damage will affect the users at the end of the transmission line.
Nonetheless, it is interesting to note that the increasing migration to renewable energy is triggering the individual generation of electricity. As domestic households and business premises learn to generate their own electricity, the oasis of power will generate an overflow effect from small to big consumers. In this scenario, the sprinkles of virtual power plants join the national grid, contributing to general electricity distribution.
Micro trading of electricity is inevitable as the big consumers pay to have access to the unused energy of the small consumers. More so, decentralized energy generation creates room for new business ventures like commercial solar plants and wind farms.
When everyone has the ability to generate and sell electricity, the power sector will be a mind-boggling combination of producers, consumers, and prosumers. It poses a challenge for the regulatory bodies to keep an oversight of the sector. Here blockchain presents a unique use case by streamlining the process, without undermining efficiency and transparency.
With a decentralized database, power consumption and production can easily be tracked and transmitted on-chain. More so, power could be traded seamlessly across the consumers on the blockchain.
Renewable Energy Certificate
Renewable energy certificate is proof that the bearer owns one megawatts hour of renewable energy. In the need to migrate to renewable energy sources, the renewable energy certificate was developed to differentiate the different sources of energy. The certificate also encourages the migration to renewable energy sources. Renewable energy can also be traded for a carbon credit.
Blockchain can be used to issue renewable energy certificates. Here it makes it more flexible to transfer from one person to another when traded in the energy market. More so, blockchain-based renewable energy certificates will help preserve the authenticity of the certificate and ensure transparency in the energy market. Indirectly, this will encourage migration to renewable energy usage as more energy producers clamour to possess this certificate.
Supply Chain and Logistics Optimization
Whether within the energy industry or outside its shores, the supply chain is poised to be transformed by blockchain technology. In each case, it means transparency and seamless hauling of goods from the producers to consumers. In the energy industry, there are complexities involved in moving raw materials to the refinery and then to the distributors before the finished product gets to the final consumers. Blockchain offers an efficient, transparent, and cost-efficient framework for managing complicated supply chain infrastructures.
Blockchain technology has come to stay. While it faces challenges of adoption and integration into real society, the nascent innovation possesses the potential that improves various sectors as well as society in general.
For the energy industry, there are a number of applications as seen above. There is also the possibility of more use cases as technology advances. Blockchain is especially important now more than ever, as our contemporary society is advancing at breathtaking speed. Blockchain will help to streamline processes and abstract out the complexities likely to be found in future society.
Amidst the yearning for a super-functioning interconnected society is the concern for climate change. Here blockchain offers yet again, a robust framework for integrating different aspects of society while accommodating climate change efforts directly or indirectly.
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