Should We Use Blockchain to Incentivise Energy Efficiency?
The meteoric rise of Bitcoin, Ethereum, Dash and other cryptocurrencies this year has placed blockchain well and truly in the hype phase of the Gartner Hype Cycle. It seems like all a company needs to do to raise capital these days is come up with a catchy name for a token and issue an ICO (initial coin offering). If you want to bump up your valuation, just add “blockchain” to your company name and investors and customers will flock to you. Some commentators have compared crypto-fever to the Dot-com bubble, while others maintain that blockchain really does represent a paradigm shift that will disrupt every form of financial market including energy markets. Indeed several energytech startups are looking at ways to use blockchain to improve energy efficiency (EnergiToken), roll out renewable energy assets more quickly (SolarDAO, SolarCoin) and enable peer to peer energy trading (PowerLedger).
All this buzz meant that when we had our end of year strategy session last week, blockchain was a topic of conversation. While coming up with ideas for new features, we dreamed up the “NegaCoin”, a cryptocurrency that you earn for generating negawatts (i.e. using less energy). The elevator pitch is that when one of our business customers starts working with us, we record their baseline energy consumption. Then as we provide energy saving recommendations and the business starts to implement them, we keep tabs on the year on year reduction. For every kW reduction in usage, they would earn a NegaCoin. If they participated in a demand response event where they reduced their usage when the grid was on the verge of collapse due to heavy usage during summer months, they’d earn many times more NegaCoin (a bit like Uber’s surge pricing). Electricity networks would purchase NegaCoin as an alternative to building out new transmission infrastructure.
Unfortunately NegaCoin is looking like NeverCoin at least for the near future. When we voted on priorities for the next year, blockchain didn’t fit in. In the rest of the article, I’ll explore some of the obstacles to adoption of a blockchain token for energy efficiency/demand response.
The Oracle Problem
One of the big promises of blockchain is that it creates trusted transactions without relying on governments/big corporates to verify a transaction thanks to its distributed ledger approach. This is all well and good when you’re talking about transferring funds from one entity to another but when you’re talking about proving that someone has reduced their energy consumption, you run into the Oracle Problem. An oracle, in blockchain parlance, is the part of the “smart contract” that validates that the input is true – e.g. did someone really mine that block of Bitcoin or in our case, did someone really reduce their energy consumption by 56.4 kW? Verifying that someone mined a block is relatively easy – if their solution to a cryptographic puzzle is the same as the majority of other miners, then you can trust them. But how can you verify that someone really did reduce their energy consumption and didn’t do something dodgy to their electricity meter to fudge the numbers? To guard against exploits, you’d need to audit the entire electricity network to make sure that the sum total of electricity consumed according to each meter connected to a transformer was the same as the meter on the transformer and that the numbers from the transformers matched those from the meter on the substation (after accounting for transmission losses). As an independent operator without access to network level data, there’s no way we could do this on our own. We could give NegaCoin to our customers but we can’t prove that they really earned them.
No Trust = No Demand
Given the inability to prove that a NegaCoin owner really earned it, there’s no reason why a network operator would buy one. Without intrinsic value, all we’d be doing is fuelling another crypto bubble. Our customers might benefit in the short term, but if the doomsday predictions are true and the crypto market suffers a strong correction, the price of NegaCoin might well “asymptotise” at 0c.
To create trust in the currency, we’d need strong audit controls in place and ideally have AEMO or a similar body in charge of regulating it. That then brings us to the question of whether the market operator would actually choose to use blockchain for this use case.
The Hypocritical Nature of a Blockchain for Energy Efficiency
Given that we are talking about energy efficiency, it would be important for the token system to be highly efficient. Unfortunately that is far from the case with today’s blockchain technology. One Bitcoin transaction chews up 261 kWh in electricity and ethereum isn’t much better at 54 kWh/transaction. All up, blockchain miners around the world use as much electricity as Morocco. It would be pretty hypocritical to reward energy efficiency by consuming more energy than was saved.
There are ways around this. Ethereum plans to change to a proof of stake algorithm sometime in the next two years which would dramatically reduce energy consumption. Holochain promises an even more energy efficient approach. If neither of those technologies pass muster, we could adopt the same approach as Power Ledger, who are apparently using a private blockchain that runs on many fewer nodes to conserve power.
Or we could scrap the blockchain idea and just use a column in a database table…
Speaking of database tables, it’s pretty easy to find a developer who knows how to create a high availability, highly secure API with persistence in a SQL/NoSQL DB but I don’t know many devs who have deep experience with dApps (distributed apps). Whilst a lot of devs (myself included) would love to work on a blockchain project, it would be pretty daring to use their nascent skills on a system transacting tokens with real value. Blockchain exploits seem to come out nearly every week and it only takes one major hack to completely destroy the reputation of the system.
Conclusion – Not Yet
For now, the challenges are too great, the value proposition isn’t there and the distraction cost would be too high. Nonetheless I’m following the space closely and will be watching to see how the team at EnergiTokentackle these problems. Perhaps we might even do a “Blockathon” (blockchain hackathon) when we’ve got some spare time and prototype NegaCoin. Ultimately though for it to be anything more than a gimmick, it needs to be embraced by the electricity networks as a whole.