Sustainable Finance: How Blockchain Can Be Applied to Renewable Energy

by | Oct 19, 2021 | Blog

A man standing in front of a futuristic screen displaying green energy icons.

Summary

  • While transitioning to a greener future is the goal, the world faces some limitations. For instance, carbon credits may present a promising system for high polluting companies; but how far are they actually removing carbon from the atmosphere? Blockchain may be the answer.
  • Blockchain may advance a digital energy grid, giving consumers control over where they source their energy. The blockchain can trace the history of a transaction, verifying its green status and calculating how much carbon is offset.
  • Utilizing the blockchain to create a digital energy grid may promote trust between people, build relationships and make renewables mainstream. If renewables like solar power become a standard, it could be the push the world needs.
  • This system is promising; however, it would require everyone to agree to share data—something many are reluctant to do.

Introduction

New technological advancements may lead to a virtual system where clean energy can be sold globally, while physical energy is supplied locally.

To reach a net-zero future, the world needs to switch to a low-carbon energy system. The rise in renewable energy is promising, as 2020 saw renewable power projects grow by 45%. Unfortunately, green energy isn’t where it needs to be to make a meaningful impact despite this encouraging increase.

For renewable power to become mainstream, it needs to be accessible for individuals and businesses. The low-carbon energy supply doesn’t meet the market requirements; however, local suppliers don’t have the local demand to establish themselves. New technology may lead to a virtual system where clean energy can be sold globally while physical power is supplied locally.

However, this concept faces some uncertainty. For instance, how clean is the electricity? Is hydrogen produced using renewable sources? Do carbon credits actually equate to less carbon in the atmosphere? These are the questions that blockchain may answer. This article will explore the possibility of using blockchain to facilitate smart energy grids.

What Is Blockchain?

Blockchain can track the entire lifecycle of a transaction, promoting transparency and trust.

Blockchain is a decentralized digital ledger that is most commonly known for facilitating cryptocurrency transactions. This system enables transactions without the need for a third party such as a bank. The network spreads across many computers and logs data, so it can’t be altered by anyone—making it highly reliable. Blockchain can track the entire lifecycle of a transaction, promoting transparency and trust.
An infographic depicting the uses of blockchain.

How Can Blockchain Aid the Clean Energy Transition?

Cryptocurrency uses Blockchain to aid transactions; however, the Blockchain system has the potential for more.

Although many people use the terms blockchain and cryptocurrency interchangeably, they are fundamentally different. Bitcoin is one form of cryptocurrency, and it’s known to be energy-intensive, creating barriers to reach a low-carbon future. Cryptocurrency uses blockchain to aid transactions; however, the system has the potential for more.

Consumer-Driven Smart Grids

By trialling tokenization, they hope to increase the capacity of renewable power, which is currently at 18%.

Due to the transparency that blockchain offers, it may facilitate consumer-driven smart grids. Hypothetically, consumers could compare data from various energy suppliers and choose where their energy comes from. In this way, blockchain would stabilize the grid—making it more accessible and sustainable through data sharing.

In Estonia, this is precisely what WePower is piloting. By collaborating with an independent energy provider, consumers have bought into the grid in return for credits. They can spend credits on the energy source of their choice, based on real-time power generation and costs. Estonia makes the ideal location to test the limits of blockchain and increase the power generated by renewable sources. Due to their 100% smart meter coverage, transitioning to this system was easier as it was already digital. Over a few months, WePower uploaded 26,000 hours and 24 TWh of energy data to the blockchain, creating 39 billion energy tokens.

By trialling tokenization, they hope to increase the capacity of renewable power, which is currently at 18% and make green energy accessible to small and medium-sized companies.

Blockchain Cuts Out the “Middle Man” When Trading Renewable Energy

[Blockchain] may increase investments and acceptance of renewables, as energy producers can connect with investors directly.

The prospect of consumer-led grids gives the customer greater control over their energy consumption. However, this could go a step further by letting individuals trade energy themselves. Removing the “middle man”—the energy providers—may increase investments and acceptance of renewables, as energy producers can connect with investors directly.

It may also provide grid stability as power can be exchanged between people; for example, trading power for electric vehicles (EV). Blockchain technology may allow EV users to pull up to a charging point, including privately-owned ones, and charge. People could trade energy without entering a prior contract with a local energy provider, creating a secure, efficient and cost-effective way to make renewables accessible.

Buyers will see how green the energy is, including if clean sources power the home. They will be empowered to choose cleaner electricity and be confident that they are reducing their carbon footprint.

An infographic showing various clean energy options.

Blockchain May Promote Trust Between Suppliers and Consumers

Using the blockchain can verify purchases, including carbon credits…a digital token purchased with the notion that it equals less carbon in the atmosphere.

Are ‘green’ investments and purchases actually doing good for the planet? Blockchain’s ability to trace the history of a transaction could help answer the confusion. The ability to track the entire history of a transaction and certificates will build trust between parties so that you can purchase with absolute confidence. As the world moves towards a cleaner future, many people criticize companies for greenwashing efforts to be environmentally friendly.

Using the blockchain can verify purchases, including carbon credits. An offset credit, also known as a carbon credit, is a digital token purchased with the notion that it equals less carbon in the atmosphere. For instance, a token may be awarded to a landowner who chooses not to use part of their land to harvest timber. The owner can sell the credits to other companies to offset emissions. Blockchain would verify the credibility of these tokens, ensuring they are actually contributing to a cleaner future by tracking carbon reduction.

Digital Smart Grids May Help Renewables Go Mainstream

Renewables like wind and solar are amongst the cheapest electricity to produce, helping it go mainstream and become a standard in more households.

A smart grid offers transparency and data in real-time, allowing consumers to compare energy and cost. Competitive pricing is a leading reason for someone to switch energy providers. Therefore, given a choice, they may choose green energy, such as wind and solar, because they are the cheapest electricity to produce. Renewable energy needs to gain momentum to increase the capacity needed for a cleaner future—going mainstream could be the push it needs.

Blockchain Technology May Help Reduce the Energy Divide

With this newfound control, more renewable energy companies will establish themselves, increasing access to electricity, reducing inequality and promoting sustainability.

As it becomes mainstream, renewable energy becomes more accessible to communities around the world. Smart grids give consumers the option of comparing data and choosing an energy provider based on their decision. With this newfound control, more renewable energy companies will establish themselves, increasing access to electricity, reducing inequality and promoting sustainability.

Tokenization offers an alternative to power purchase agreements (PPAs) which help companies transition to renewable energy. It may make greener energy available to small and medium-sized businesses that don’t have the funds for more significant investments.

Closing Thoughts

While blockchain may be notorious for facilitating cryptocurrency mining, a massive polluter of greenhouse gases, it may do some good in the energy sector. Through data-sharing and a smart grid, consumers have more control, building trust and transparency. Renewable energy becomes easier to distribute, helping it become a mainstream option. However, the system may not be feasible on a global scale due to one significant limitation. For it to be successful, smart grids require everyone to agree with sharing data. This means sharing energy information – which a lot of people are hesitant to do. Despite this, blockchain does show promise for aiding the clean energy transition.

Frequently Asked Questions (FAQs)

What is blockchain?

Blockchain is a decentralized ledger that aids transactions without a third party. Multiple computers store data to track the entire history of a transaction. Due to the multifaceted nature of this system, the data cannot be changed or altered.

 

What are the limitations of reaching net-zero?

Although solar power has become the cheapest energy to produce in history, oil and gas remain one of the largest polluters of greenhouse gases. Transitioning to a net-zero future has its limitations as fossil fuel dependency persists. Purchasing carbon credits is one way businesses may reduce their carbon footprint; however, it’s challenging to track exactly how it reduces carbon in the atmosphere. What’s more, the renewable energy capacity isn’t at a point where it can sustain the global demand.

 

What are carbon credits?

In theory, carbon credits are a way for businesses to offset their carbon emissions, lowering the amount of carbon in the atmosphere. For example, a landowner may decide not to use a section of land for a carbon-intensive activity, such as harvesting timber, for which they will receive an offset credit. The landowner could sell this to a business to reduce their carbon footprint. However, the limitation these credits face is how trustworthy are these transactions? Do they equate to less carbon in the atmosphere? This is where blockchain may play a role.

 

How is blockchain used in renewable energy?

Although blockchain is known for its role in cryptocurrency (a considerable contributor to climate change), it may aid the clean energy transition. By tracing the transaction history, blockchain could tell us if our purchase is green, including the validity of carbon credits. With blockchain, you’ll be able to see how the carbon credit is offsetting emissions and lowering carbon. The system could help build trust between individuals and businesses as they cannot alter the data.

 

Can renewable energy sustain bitcoin mining effectively?

Cryptocurrency mining is a massive polluter of greenhouse gases as miners seek the cheapest, most accessible energy source. To mine the remaining Bitcoin, for example, requires high-tech computer systems which use vast amounts of power. While fossil fuels have been the go-to source for the past decade, renewable energy may be on the rise for crypto-miners. With solar power now the cheapest electricity to produce, it’s opened up opportunities to make cryptocurrency cleaner. That said, the demand versus renewable capacity may not sustain the sheer size of this digital industry yet.