Over the past couple months, two pioneers in blockchain technology, LO3 Energy and the Energy Web Foundation (EWF), joined forces to create blockchain technology for managing our nation’s energy grid. These companies are trying to figure out how to make blockchain scalable and standardized across the energy industry.
LO3 Energy has been operating in the blockchain space since April 2016. At that time, LO3 Energy launched the Brooklyn Microgrid project. This project outfitted a row of homes in Brooklyn with rooftop solar panels and smart meters connected to a private blockchain. The solar panels collect solar energy and convert it into electricity. The smart meters, connected to the blockchain, allow the owners of these homes to trade electricity directly with each other. For example, if Neighbor A generates a surplus of solar-generated electricity on one day, and Neighbor B has a shortage of electricity, Neighbor A can sell her surplus of electricity to Neighbor B, and this transaction is executed and recorded over the blockchain.
These blockchain transactions are direct, automated, P2P transactions that do not involve any third-party intermediaries or third-party transaction costs. By using locally-generated electricity, the Brooklyn Microgrid reduces transmission costs and load on the city’s transmission lines.
The first major obstacle faced by the Brooklyn Microgrid and other similar blockchain projects is scalability. In order to scale a blockchain for mainstream electricity transactions, the blockchain must verify transactions extremely quickly. In the wholesale markets, electricity transactions happen at the millisecond level, verifying power quality and frequency in near real-time so that transmission lines are not over or under loaded. The original Brooklyn Microgrid project ran on the Ethereum blockchain, where transaction verification time can be anywhere from 13 to 30 seconds. The project then switched to a private distributed blockchain called Exergy, which was still slow by energy industry standards. As of 2018, Exergy has a verification time of one second, according to Scott Kessler, LO3’s Director of Business Development.
A second obstacle for energy blockchain projects is industry standardization. Currently, there is no standardized blockchain protocol for the energy industry. As a result, the Brooklyn Microgrid was forced to employ a private, customized blockchain solution. Lawrence Orsini, the CEO of LO3 Energy, said, “creating a data standard for transacting energy across projects is key to meeting blockchain’s potential.” At this time, “the data you have is not [at] the right intervals, it’s not the right type of data, it’s not standardized—every project you do you have to reinterpret the data,” said Orsini. Without an industry standard, energy blockchains are forced to operate in independent data silos and cannot share information with other blockchains to create a smarter blockchain network.
In order to overcome these obstacles, LO3 Energy recently joined forces with the Energy Web Foundation to develop a scalable, standardized blockchain for the energy industry. The Energy Web Foundation is a nonprofit that advocates for blockchain technology in energy applications. The Energy Web Foundation is already working with 30 other companies to test blockchain networks for the energy sector, including big companies like Duke Energy and Shell.
Through this union, LO3 and EWF aim to “pull more data into the blockchain” and decrease energy transaction times, all underpinned by a standard blockchain protocol that can be shared across various projects around the country. The union between EWF and LO3 Energy will begin with a “demonstration project” that combines LO3’s Exergy platform with an EWF affiliate’s technology. Both companies have not offered a timeline for the project.
GTM Research grid analyst Colleen Metelitsa said blockchain projects are realizing the value of collaboration to push the industry’s technology forward. “We’re starting to see companies really recognize that it’s in their best interest to work together to scale the industry as quickly as possible, and to standardize it as quickly as possible, so you can get beyond pilots and use cases,” said Metelitsa. Metelitsa believes that unions involving large organizations like LO3 Energy and EWF will accelerate the blockchain movement in the energy industry. “A lot of these companies that are joining [EWF], they aren’t just small startups that don’t also have their own connections. These are people that have their own consortia, have their own platforms, have their own goals,” said Metelisa. “EWF is gaining some traction.”
Orsini agrees that relationships like LO3 and EWF will propel energy blockchains forward. “To get through this energy transition, it is going to take a method to pull information from distributed resources . . . [This method] feels necessary and it feels a bit overdue.”
If LO3 Energy and EWF can make blockchain technology more scalable and standardized for the energy industry, we could live in a future where we buy a portion of our electricity directly from neighbors through a decentralized blockchain app, rather than from a public utility company.