Microgrids – localised, autonomous energy supply networks - are set to change the way we generate and distribute power. Blockchain can help this peer to peer energy trading model to provide a reliable, low-cost digital platform for making, validating, recording and settling energy transactions.

Blockchain technology is often attributed to applications within the Financial Services industry, but in reality, its potential is far wider reaching. For example, in the energy sector, blockchain investment is expected to reach $5.8 billion by 2025 and its uses in this industry range from optimising consumption and demand to managing the power itself. A portion of this investment is channelled towards microgrids, an emerging energy network model that brings energy supply and generation closer to the end user.

Microgrids – localised, autonomous energy supply networks - are set to change the way we generate and distribute power. Electricity supply is currently built on a centralised system operated by major energy and utility companies. The main energy grid is comprised of large power stations that distribute power to consumers across a network. In contrast, a microgrid is an ecosystem of connected ‘prosumer’ and consumer energy assets. Within this model, energy is generated, stored and transacted locally, creating more efficient, resilient and sustainable power for communities. 

Whilst the ability to generate power away from a centralised system helps ensure that energy is accessible even if the energy grid is damaged or not working, it also allows consumers to generate their own energy and sell their surplus back to peers in the microgrid. One such example is the Brooklyn Microgrid, a community-powered microgrid contributed to by the residents of a New York borough. As member Daniel Power states: “It's important to me that I'm involved with this Microgrid community because it's a ground level approach to establishing something that's gonna be much more common in years to come.”

As a decentralised, distributed and public digital ledger that is used to record transactions across a network, blockchain holds significant potential in the emerging trend of microgrids. This Distributed Ledger Technology (DLT) provides a reliable, low-cost digital platform for making, validating, recording and settling energy transactions and consequently it can be used to draw up details of members in a peer-to-peer microgrid. In addition, blockchain technology ensures that a set of transactions cannot be altered retroactively. 

As well as recording transactions, blockchain also allows members to set up ‘smart contracts’ – tamper proof, real time contracts that set out pre-determined requirements and suggest a price for each joule or watt of energy generated. Using smart contracts for microgrids provides a simple mechanism for balancing the services of the network with fair pricing models. In addition, blockchains allow grid operators greater knowledge of how it manages resources, the manager of the grid can make smarter choices about supply and demand systems based on real-time data. This reduces waste and improves overall efficiency of the grid. It is the combination of action these benefits that are likely to make microgrids the energy system of the future. 

For instance, future microgrid models will incorporate wider elements of fourth industrial revolution technology such as the Internet of Things (IoT) and Machine Learning or Artificial Intelligence to allow accurate tracking of energy consumption and ensure precise measurement of energy generated by ‘prosumers’. Blockchain enabled ‘smart contracts’ also minimise the administration needed to connect consumers to the grid, whilst allowing secure data collection and the ability to monitor infrastructure to spot issues before they harm the flow of energy.

As a result of their relative simplicity, the microgrid concept could lead to energy infrastructure reaching communities that are currently without power. For example, in remote or rural communities, microgrids could utilise renewable energy sources such as solar panels and batteries or generators to bring a basic amount of electricity to villages too far away from the national central grid to benefit from the power. Whilst the energy levels generated by these microgrids will not be high, they would facilitate enough energy to power stoves, lighting and the charging of mobile phones.

While microgrids are unlikely to replace the central power grid in developed countries, they could provide a way to decentralise power in the event of an outage at a central power stations, while also allowing lower energy costs. 

Microgrids create a new form of energy ecosystem that are likely to fundamentally change the energy sector as we know it. Utilising blockchain as part of the microgrid system brings about a new way of managing and routing power that opens up the market to new participants and introduces peer-to-peer trading. They also allow the potential for greener and more sustainable energy to be generated and distributed, reducing our reliance on rapidly depleting oil and gas supplies and paving the way for a smarter and more connected world.

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