Freelance science journalist Kevin Begos reports from the U.S. Power and Renewable Summit in Austin, Texas, on the use of blockchain technology to make more efficient energy markets and distribution. Other participants include Jon Creyts of the Rocky Mountain Institute, Larry Temlock of the Sun Exchange and Brian Janous of Microsoft.

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Steve Mirsky:    Welcome to Scientific American "Science Talk," posted on February 28, 2018. I'm Steve Mirsky. You can't swing a bag full of quarters these days without hearing something about blockchain, usually related to cryptocurrencies like Bitcoin. But blockchain technology is also being adopted in the energy business. What the heck is blockchain? Let me read from a January 2018 Scientific American article by Alexander Lipton and Alex Pentland called "Beyond Bitcoin."

"Most everyone has heard of Bitcoin, but that's only one piece of an up and coming financial technology industry characterized by buzz and speculation. What is important to know is that the core invention is a ‘distributed ledger,’ a database shared and managed by several participants. Think of it as a communal digital bookkeeping system that represents the foundational technology that has made cryptocurrencies, simply digitally encrypted cryptocurrencies such as Bitcoin, possible. It's underlying data structure called a blockchain is held in a series of sequentially encrypted blocks. To make those blocks reliable and secure, they are consensually updated by a variety of proving mechanisms that involve both humans and computers." It's a database of encrypted information that can be updated by multiple users.

Now, back to blockchain beyond Bitcoin. In November, freelance science journalist Kevin Begos attended the US Power and Renewable Summit in Austin, Texas organized by Greentech Media. Begos filed this report. It runs just under nine minutes.

Kevin Begos:     Almost everyone at the conference agreed that huge changes are coming to the energy industry, partly because of innovative software and technology that's disrupting traditional markets and helping consumers and businesses who support green energy. Some people see a revolution on the horizon, similar to the way cellphones replaced landlines. One possible new force is blockchain. Here's Jon Creyts, a managing director at the Rocky Mountain Institute, a Colorado nonprofit founded in 1982 by environmental scientist Amory Lovins.

Jon Creyts:        Over the last year, Rocky Mountain Institute has been working with a number of different global energy players to create what's called the Energy Web Foundation." And that is a foundation dedicated to helping develop blockchain. And specifically, a public, open-source blockchain for use in the electricity sector. There are a number of different energy players, so Shell and Statoil along with different electricity companies like INEGY in Germany or ______ in France, Centrica in the UK.

Questioner:       And how do you see blockchain potentially helping the growth of renewable energies?

Creyts:               Yeah, so blockchain is a fascinating technology here that has a couple of key characteristics. One, it is inherently secure. Secondly, it can help fuse financial and physical markets in a way that's extremely low cost to lower the cost of transaction. Thirdly, it has the ability to enable smart contracts to make any transactions around renewables or distributed demand response seamless and fully automated. Right? And those all make it very powerful for incorporating in, yes, distributed forms of renewables because it's a very low-cost way to integrate them into a market platform.

But also, to integrate in lots of different forms of latent energy efficiency or demand response that exist around any building, whether it be a residence or a commercial establishment. We're talking here about HVAC systems and refrigeration. We're talking about LED lighting and other forms of energy consumption that can be digitized and easily integrated into a market platform that just sends a price signal.

And then, through a blockchain mechanism, allows you to balance out the use of energy among those different resources to an optimal and low level so that the minimum amount of energy is required and so that the maximum amount of renewables and/or batteries are used in the process.

Questioner:       Even though it's not directly targeting climate change, it could have the effect of a more efficient or less carbon-intensive grid, do you think?

Creyts:               Our sense is that it would make a much more efficient market and a much more efficient grid in terms of its overall operation, allowing us to draw in more distributed resources more effectively, which would minimize the amount that we would need central generation. And allow us to better accommodate some of the fluctuations that we see in renewables.

Questioner:       And it sounds like you see this as potential but for the large companies you're always, already working with but down the road in three to five years, these could be the kind of apps that could be built into a household inverter or some other system?

Creyts:               That's exactly right. We see this as a technology that could serve as a backbone for the entire electricity system here from big utilities and thinking about the power trading and the dispatch mechanisms that they have on their plants all the way down to, again, the personal power plants that exist at, on an individual's houses when they have a solar array on their roof or when they plug in an electric vehicle to their garage. They can transact in a way with the grid as being an independent, wholesale market participant.

And we're starting to see regulatory reforms globally that would allow that. This is a technology that enables it.

Questioner:       So the technology's moving very fast but I guess one question is how fast will the regulators work in setting the playing field for where this ­– or do you think the regulators are going to have ultimate control over this? Or not?

Creyts:               It's an interesting challenge, right? Because this is a very complex and technical area that most regulators aren't really thinking about a lot today. And it's coming very fast. The speed of innovation here is at the speed of software, not the speed of the electricity-utility industry. I do see ways for this market to assemble from the bottom up and be a bit disruptive in that. That there are ways to actually create block chain enabled local systems.

But I would expect in the not-too-distance future that over the next year or two, people would be able to either buy or integrate in software that allows them to essentially use this secure mode of energy management in their homes or in their businesses in a straightforward way.

Questioner:       And to be clear, a lot of this would be autonomous? People wouldn't have to make the choices, it would be built into the system.

Creyts:               That's exactly right. The virtue here is you can set up a few rules on the system and then the system will run itself against those rules.

Begos:                Some experts aren't so sure about blockchain's potential. Here's Brian Janous, Microsoft's Director of Energy Strategy.

Brian Janous:    I'm personally a little bit skeptical of the transformative nature of blockchain for energy. I feel like we've kind of reached peak blockchain for everything. In fact, I'm working on a book Blockchain for Parenting. I'm going to have the blockchain raise my children. But I think it does have, it is a transformative technology in certain spaces. I think from everything I've seen so far, it's an – it can offer some marginal improvements in the energy space. I've yet to see how it is going to be ultimately transformative because energy is just, it's a very unique commodity. It's very, it's still going to be tied to the grid in the way we regulate it and how we design markets.

Begos:                "Yet, blockchain is already showing promise," says Larry Temlock, co-founder of The Sun Exchange. The company is developing new ways to finance solar projects in developing countries.

Larry Temlock: We've created a marketplace whereby people can buy solar panels and have them leased remotely where there's a lot of sunshine and where developing communities really need the energy desperately. We're matching up buyers and sellers or matching up providers of capital and people who need capital to build solar systems in emerging markets.

It's in Africa right now. We've built four projects so far. We'll be expanding into Dubai next month. And we're actively searching for other places to do business.

Begos:                It sounds like blockchain really has helped you lower costs and make these projects a reality?

Temlock:            Yeah, that's right. And we use blockchain on several different layers. The simplest thing is that we accept payment in Bitcoin and Ether and other currencies for the solar cells that we sell, that we market. They cost about $7 each, so there's a very low entry price. When you buy a $7 solar cell and you earn rental monthly on that solar cell, we're talking about very small rental payments that need to go back to people. By applying that rental out in digital currency, lowering transaction costs and avoiding the commercial banking, corresponding banking system, we really make these micro-payments and micro-investing in solar capacity possible.

On another level, we have a smart contract that helps us to cost effectively service the projects. The projects have IoT smart meters on them that constantly monitor the electrical output of the systems and also monitor the bank balances, the pre-paid bank balances, of the consumers. And so, by putting these two things together, we can have the smart contract calculate and automatically withdraw from the accounts the required amount of money on a daily basis if necessary. Reserve some money for maintenance and insurance. And then, pay out to all the 60 or 100 investors in the project their daily balance of energy rental.

Begos:                And that could be pennies, it sounds like?

Temlock:            It could be pennies. And that's really not possible if you're using fiat currency in a traditional bank account. But with blockchain and digital currency, this is very possible.

Begos:                So there you have it. Blockchain could transform energy markets but we'll have to see how it plays out with customers, regulators and markets.

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Mirsky:               That's it for this episode. Get your science news at our website, www.scientificamerican.com where you can check out our eBooks. Just go to the store section on the menu. The latest of the dozens of eBooks available is "The Science of Diet and Exercise," which might come in handy if you're still working off the Christmas goose.

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