Can blockchain make energy pricing more transparent?

Can blockchain make energy pricing more transparent?

As the grid digitises and evolves into a smarter grid, the accompanying digital technologies could be the key to its success. 

One key technology is blockchain, which could transform energy pricing by decentralising data, reducing inefficiencies, and increasing trust between consumers, utilities, and producers. 

Blockchain could hold the key to true transparency in what has become a very complex market due to automation, AI and carbon credit markets. It has the potential to improve the traceability of renewable energy, ensure fair pricing, and reduce market manipulation, while also addressing challenges such as scalability and regulation. We take a look at how blockchain can bring greater transparency to energy pricing as well as the potential benefits and risks for investors, regulators and energy consumers.

The challenges of traditional energy pricing

Blockchain is being heralded as one of the ways to bring clarity to energy trading and instil trust and reputation in the market for investors and consumers. Currently, there is a lack of transparency in price setting for new energy projects, particularly in the case of carbon credit schemes, which can be subject to greenwashing and double-counting, which can cause potential investors to hesitate to invest in some sustainable projects.

The influence of intermediaries, for example, utility companies can muddy the waters further, as consumers are at the mercy of pricing set by the utility providers, making it difficult to obtain affordable energy and leading to market inefficiencies. All of this combined can lead to limited data access, which breeds consumer distrust towards the traditional energy market. 

How does blockchain improve energy pricing transparency?

The key to energy pricing transparency could lie in blockchain, with real-time visibility of transactions made possible via the technology. The use of smart contracts gives energy market participants the ability to benefit from automated pricing. Blockchain can use smart contracts to measure the exact amount of energy being used by consumers, then automatically secure a desirable fixed Power Purchase Agreement (PPA) to reflect that energy usage. This is a benefit to both procurers and producers of energy as it becomes another crucial tool in streamlining the energy industry, making it more reactive and nimble.

Transparency and traceability are key for energy market participants, particularly in an industry where carbon credits and the nefarious double-counting of these credits can be murky to deal in. Blockchain makes transactions entirely transparent, recording them securely and quickly. This is a crucial element of PPA led smart contracts, which secures a fixed price for energy for the consumer. The source of the energy, when it was generated and by what method can be traced, leading to better clarity around energy transactions. 

Blockchain use cases in energy trading

Energy trading is another area that blockchain could be utilised. Peer-to-peer energy trading platforms utilise PPAs to distribute offtake energy to other consumers, and blockchain can help by safely storing the details of these smart contracts between consumers. Some regions are already integrating blockchain into energy trading Australian Blockchain provider Ethereum was included as part of a successful peer-to-peer-based solar project on a local energy market (LEM).

Combined with verification methods such as Guarantees of Origin, blockchain could also assist with the tracking and certification of renewable energy, with tracking so granular that the specific power plant that a parcel of energy is generated could be traced. 

Limitations and challenges of blockchain in energy

While blockchain could represent an innovative component of the smart grid, there are still challenges to the relatively new technology, such as regulatory uncertainty and compliance. As with much of the global energy market, there is a distinct lack of consistency around regulation and compliance when it comes to blockchain. Many regions don’t have clear policies on blockchain, meaning many potential users are cautious about adopting the technology. Technology adoption barriers also exist for both utility providers and consumers. Blockchain platforms are not standardised across the industry, making it difficult to integrate the method across all energy markets and making scalability and transaction costs a real problem. This unpredictability is in part due to the decentralised nature of blockchain. 

Future opportunities for blockchain in energy pricing

Blockchain represents connectivity between different technologies, shaking up the energy industry, we take a look at some of the ones to watch out for.

Integration with IoT and smart grids

The Internet of Things (IoT) is a vast network of tiny sensors spread throughout the energy grid, measuring the production and health of energy plants, output into the grid, distribution networks and the behaviours of the customers that consume the energy. This data can be used to monitor the health of the grid and adapt to the supply and demand of energy across the network. Blockchain and smart contracts can plug into this smart network, streamlining the purchasing side of the energy market, making energy transactions transparent and traceable, adding to the big data being gathered and analysed. 

Potential for decentralised energy markets

While fit-for-purpose, modernised national grids are a desirable concept, smaller grids decentralising the production and consumption of energy are also a smart and practical solution. For operations that cannot experience blackouts such as hospitals, decentralised grids provide energy stability when larger networks fail and are less susceptible to energy hacking. From the perspective of decentralised energy markets, decentralised networks give remote communities energy security away from the volatility of a wider national network. Small networks can generate and consume their energy allocations and create affordable energy markets away from the stronghold and price spikes of larger utility and energy providers. 

Blockchain can boost transparency in energy pricing by automating PPAs and tracing renewables. Success needs scalable technology, clear rules, and adoption now.