The global transition from fossil fuels to renewable energy must accelerate. Blockchain and other advanced digital technologies can support this change and make it smoother and less costly.
The global energy transition has already been accelerated
by subsidies and government programs that encourage investment in carbon-reduction and renewable energy projects. But the transition is still too slow, and complicated by inflationary pressures, the energy crisis, and worsening climate change. This is forcing energy leaders to look for more efficient solutions.
Renewable energy sources are generally less predictable because wind and solar are weather-dependent. Solar panels and wind turbines have become much more powerful
in recent years, and it's become cheaper to build small-scale green power plants.
However, energy management could still be improved, especially in terms of connecting numerous small power plants over long distances. Blockchain-based software can provide better management that smooths out fluctuations in power generation and automatically distributes power flows. At the same time, it supports grid scalability, the connection of new RES, distribution points, households, and production facilities.
Automation and decentralization mean that power distribution doesn’t have to be tied to a single control point but can be flexibly adapted. Monitoring devices can be connected at different points in the power grid and make the whole process transparent and automatic. This process is a stepping stone to Industry 4.0 in the energy sector, where smart technologies take into account statistics on electric vehicle purchases, housing construction, and road building to predict demand and balance grid expansion and upgrades, and when to renew aging infrastructure.
Underlying control systems need to be decentralized to become more resilient, flexible, and scalable. Blockchain can include links to historical data to make it inviolable, as well as smart contracts and agreements between network members whose execution is constantly verified automatically. Through such a system, it’s possible to jointly manage the entire power system, effectively balance the load, and monitor the state of the network. It also makes it easier to integrate prosumers, microgrids, aggregators, and peer-to-peer energy markets, and achieve overall balance and transparency of energy flows and financing.
In the energy industry, many stakeholders must constantly adhere to agreements to achieve common goals. Blockchain and smart contracts, along with additional software and devices, can automatically govern multilateral processes and monitor compliance as all the various parties interact. No additional paperwork or legal work is necessary: smart contracts take digital agreements to the official level through electronic signatures and identification tools.
Smart contracts can also connect government funding to the energy sector, reward users for sustainable consumption, and recognize electricity producers for implementing more sustainable and efficient practices. They would make it easy to track government support and measure its effectiveness measured.
The same tool is important for private-sector investment. Green investments are available for a few projects and are usually poorly tracked, so the success of such investments is often difficult to assess. We have already discussed
the complexity of the carbon credit market. Tokenization of carbon credits can make the carbon market a powerful tool for combating climate change, while tokenization of cash flows for renewable energy projects can boost this market and lead to radical short-term changes.
The energy market is a complex and poorly understood multi-level system. Bond and derivative markets, energy vouchers and carbon credits, and energy conversion contracts are now essentially disconnected from energy systems' actual outcomes and performance. Blockchain can unify this system of financial relationships and make it transparent. Based on metrics automatically collected by a network of sensors and continuously updated in blockchain, sustainability ratings can be established, and supply and demand flows can be managed to minimize overall greenhouse gas emissions.
It's also possible to incorporate the blockchain system into planning, insurance, scaling, and verification processes. More than ever, information must be available and transparent, as inflation and energy shortages can significantly lower living standards in Europe. The adoption of blockchain technology should help authorities make local decisions faster and meet the needs of the population, reducing the pressure on both citizens and the climate.