Light bulb moment: Neighbors selling neighbors excess energy on blockchain

It’s an idyllic vision for the future: houses across the land generate their own power through solar panels, and make a tidy profit by selling neighbors their excess energy.

Then reality kicks in. Executing all of these transactions at scale would be nothing short of nightmarish—potentially undermining the reliability and security of the power grid in the process.

As seems to be the case for many industries grappling with seemingly insurmountable challenges, it looks like all roads lead to blockchain.

“You and I are neighbors,” explained Karen Hsu, head of growth at blockchain infrastructure services firm BlockCypher. “You have energy to sell, and I have energy to buy—usually at peak hours, because it’s too expensive for me to buy it from the utilities. And so I’d love to buy it from you at a lower rate.”

The project’s purpose was to “figure out a way to incentivize people. And the best way to incentivize people is to pay them,” Hsu said.

But, getting homeowners to sign up for the extra work of managing their electricity costs is a concern.

Which is why BlockCypher has teamed up with the National Renewable Energy Laboratory (NREL), a government-owned facility, to test whether blockchain can enable such transactions to take place.

Smart home, smart finances

BlockCypher and the NREL relied on two different blockchains for this project, one to oversee smart meter readings and billing, and another to manage the smart contracts between homeowners.

“Using the blockchain, we were able to show not only how you could pay people, but you could also show how you can send the energy receipt to that person,” said Hsu. “So it’s not only paying, but it’s sending data over the blockchain.”

The project also relied on Foresee, a smart home technology developed by the NREL, the lab said in a video. “This application cryptographically signs meter readings to prove energy was generated, then embeds them into the blockchain,” it said. “This enables secure commodity tracking, with the smart meter providing the root of trust. Foresee controls the hardware… as the system finds the reduced pricing available through the peer-to-peer contract.”

Foresee also monitored the energy preferences of a homeowner—such as their electricity budget or the typical temperature of their home. Alerts were sent when it would be cheaper to purchase electricity from a neighbor than from the utility company, and digital currencies were used to seal the deal.

Then, the smart home technology managed appliances that draw power—a washer/dryer for example—and ran them at the most financially advantageous time.

To put things simply, it was proven on a small scale that it’s possible to match energy generation and demand between consumers.

Regulation free

The NREL brought more than just its renewable energy expertise and Foresee to the project, said Dylan Cutler, the lab’s principal investigator on the project.

Two accurate figures needed to be recorded on the blockchain for these transactions: secure information about the amount of excess energy being sold, and the value of the payment to the person selling it.

“What makes this lab unique for this project is the amount of hardware connected to actual electrical distribution inside the lab,” Cutler said in a May 14 article on the NREL site. “[T]hat allows us to test basically real-world home operations—all the appliances and devices in your house—but off the utility grid.”

That in turn means BlockCypher and the NREL could focus on the “technical issues without having to resolve all the policy and regulatory aspects,” Cutler said. “We can just test performance of this system in a lab environment.”

Those policy and regulatory issues will be coming in the next phase, said Cutler. He envisions a larger test using several hundred real homes “in the exact same peer-to-peer mechanism,” he said.

By integrating those results into an energy distribution model, the NREL and BlockCypher would be able to “test out kind of impacts on larger utility grid systems, and how that impacts the utilities,” Cutler added. “Look at kind of the whole value proposition of this system.

B-to-B and C-to-C

BlockCypher is hardly the only blockchain firm seeking to use the technology to eliminate middlemen and make energy transactions easier to track.

Fujitsu tested a business-to-business electricity trading blockchain model at the beginning of 2019, but that focused on reducing power consumption when local utilities are strained by high demand. It would use middlemen to match businesses that could reduce their electricity usage with companies willing to pay for more.

So would a pilot program by Brooklyn Microgrid, which is already helping people with solar panels sell affordable and clean energy directly to neighbors on a peer-to-peer platform.  

Other companies like Vakt are experimenting with blockchain technology, focusing on making the energy industry supply chain more efficient.

What the BlockCypher and the NREL are proposing is a more decentralized power grid available to individual homeowners. Thus, while the electricity would still be transferred over a utility’s power lines, the buying and selling would be done directly by neighbors. 

It would require a huge increase in the use of home-based renewable energy sources like solar panels, but could lead to both cost savings for buyers and income for generators that could offset the fixed cost of installing solar panels.

Trust remains an issue

According to an August 2019 report by the Congressional Research Service, which effectively serves as a think tank for U.S. lawmakers, blockchain technology “could alter the manner in which electricity customers and producers interact.”

But there’s big stumbling block: trust.

Achieving so-called “transactive energy” at scale is by no means easy because of the “significant trust challenge” that arises when thousands, if not millions of devices need to interact, according to the CRS.

The BlockCypher technology’s main selling point is that it can create a distributed digital record of transactions.

“Trust between devices can only be achieved through methods that verify and enable proof that each system does what it said it was going to do,” NREL senior engineer Tony Markel said. “With blockchain, we may have a path to achieve secure, trusted communications between players without a need for central control.”

If the technology is proven to be practical and economical, the CRS said, homeowners could buy electricity from a neighbor more transparently, and potentially more cheaply, instead of being stuck with the same-old utility provider which hikes up its bills every year .

Of course, future research is needed, and there are many questions unanswered. In the NREL’s view, this wouldn’t spell the end of utility companies altogether because they own the infrastructure underpinning these transactions. It could mean they would have to remain a middleman, and it’s possible that they would need to receive compensation for facilitating the sale.

Ultimately, we’re probably about five to 10 years away from seeing blockchain begin to play a meaningful role in the energy sector, the NREL says. After all, current systems have a lot of moving electrons.