Blockchain and the advantages of energy sector decentralization

By Eduardo Pimazzoni and Tatiana Revoredo

Introduction

By 2050, we will be 11 billion people on the planet (1), with 66% of the world population living in urban areas. In Brazil, 90% of people will be living in cities by 2020 (2). Such frantic urban-population growth always brings with it the problems inherent in the rapid development of megacities, such as those faced by Tokyo (38 million inhabitants), New Delhi (25 million) and São Paulo (21 million).

In this context, managers and rulers need to plan and create public policies with innovative ideas that, according to Harvard University professor Edward Glasier, will only be realized by the technology industry (3). But what is the relationship between rising urban population, technology industry and electricity?

The development of new technologies, the availability of electricity and coordinated planning and management make up the fundamental tripod for the implementation of “smart cities” capable of solving the problems generated by the geometric growth of the population in urban areas (4).

Smart cities require technologies like “Internet of Things” that involve sensors and cameras for monitoring, data management and which, according to Gartner, will have 26 billion devices and a savings of $ 1.9 trillion by 2020 (5).

For the implementation of smart cities, advanced communications networks and communications solutions, information systems, computing systems, sensor technology, meters, and more are needed.

Since all of this needs energy to function, electricity is the main strategy for economic and social planning and should be the main focus of governments wishing to lead in a connected world.

Electricity is the engine of the future.

Situation of energy distribution in Brazil

Electricity in Brazil and in the world works almost in the same way, with generation, transmission and distribution varying from country to country considering the sources of oil, natural gas, biomass and mineral coal, among others. In Brazil, the sector already has installed capacity in the order of 160 GW: with the participation of thermoelectric plants (44%) and hydroelectric plants (64%). Hydroelectric plants make up the largest generating source, followed in recent years by renewable sources such as wind and solar energy (1.5GW).

Here, it is worth mentioning the wind power with an installed power already equaling natural gas. The name “renewable energy” comes precisely from the possibility of using these resources without their exhaustion.

The journey that electricity travels from its generation, through the transmission and arrival at the door of its residence (distribution) is long with a series of mishaps along the way.

In recent years, due to droughts and very dry periods, production capacity in hydroelectric plants has been greatly affected and this contributes to an excessive increase in electricity costs for the final consumer.

The energy sector is facing a scenario of chaos and a total catastrophe. Explosive costs, high delinquency and disastrous productivity, driven by the low capacity utilization rate, bring to the surface a sad scenario where the biggest ones are the consumers who support tariff increases due to the political interference of the state companies.

As a result, the industry faces an alarming crisis with frequent drops and swings, blackouts and, in many cases, the complete lack of electricity per day. These losses considerably increase costs, aggravated by the inability and poor quality of the sector’s infrastructure in the country.

The red flag

This tariff demonstrates how expensive the energy production in the country is,having the green color as the cheapest, the yellow for an intermediate cost and the red one for a more expensive energy production.Public policies and lack of innovation and investment in the sector aggravate problems that intensify in the period of scarce rains, forcing thermoelectric plants to supply demand in place of hydroelectric plants. In these conditions, the financial balance in generation and distribution, represented by the green flag, has long been not part of our reality. Light beads carry the red flag almost every month, signaling the need to pass on the high costs of power generation.

The use of flags is not bad and helps the consumer to understand more about consumption and what is happening, but does not release it from the bondage that is conditioned whenever using this system. Concessionaires, often undermined by the high transfer value, end up with a very small profit margin compared to the entire distribution chain, being forced to return this burden to the final consumer, damaged by a precarious, expensive and inefficient system (6) .

The consumer as sovereign of the energy sector

Picking up the issues surrounding the principles and concepts of theAustrian school of economics and big names like Ludwig von Mises, the consumer is the sovereign in this context.

Any model of energy distribution should focus primarily on consumer needs, offering you choice of dealers, higher quality of service and better energy tariffs.

An ideal distribution distribution model, sometimes deployed in moredeveloped countries and adherents of the free market economy, still needs to go a long way before being effectively implemented in our country. Our current reality, however, already envisions some promising initiatives, still in an embryonic state, but with great chances of success.

The National Brazilian Electric Energy Agency (Aneel), by April 2012, hascreated and made available to all Brazilian consumers an Electric Energy Compensation System, enabling each consumer to generate their own energy from renewable sources or qualified cogeneration , providing surplus to your local distribution network. This model, known as GD (Distributed Generation), is innovative because it allows any consumer to invest in renewable energy and obtain future credits from their monthly electricity bill within a compensation model.

In other countries such as Canada, the consumer has a wide range of energy producing and distributing companies, and can choose which one to hire. There, for example, government dominates the public infrastructure, allowing local concessionaires to freely offer their services, just as it already exists in some countries in Europe.

The advantages of a Blockchain solution for the energy market

When analyzing the impact of traditional means of generating energy on the environment, the advantages of a blockchain solution for the energy market are evident.

The use of Blockchain structures in the energy sector brings with it an enormous potential for innovation and freedom for all who make use of the network, transposing from the current traditional model to what we call the “Smart Grid”.

A properly implemented Blockchain solution can give consumers greater freedom by making them self-sufficient, or rather by making them “prosumers” (producers and consumers of energy).

Imagine if you could disconnect from the traditional network, and still be able to generate your own energy by selling the surplus to your neighbor?

Obviously, it would be necessary for both to be part of the same network, the so-called “MicroGrid”. This may sound like a science fiction movie, but it’s closer than we can imagine.

And the model that makes the most use of this concept is what we call P2P, or Peer-to-Peer, where participants can freely buy and sell energy from each other from local production from renewable sources such as wind and solar.

Solar is also the most common renewable energy source already in operation in some places like USA and Europe. The choice of source, ie where the electricity will go, may come from the boards installed on the roof, from a nearby neighbor or even from local or remote battery banks.

In this scenario, a Blockchain solution would make it possible for all transactions performed within the MicroGrid and registered in the Ledger to be tampered with, ensuring greater transparency in invoice collection as well as eliminating errors that currently occur during the manual reading process.

Moreover, with the availability of information for all users through a graphical interface (an App, for example), it would allow the monitoring and visualization of the volume of energy available throughout the network by consumers, with the option to buy from a producer of energy by the PV system (Photovoltaic), and vice versa, using a crypto or fiat money, for example.

As the application of blockchain technology in the energy sector allows all providers to make transactions directly with their customers, the role played by many intermediaries operating today in the market (energy companies, trading platforms, traders, banks, etc.) will be considerably smaller. This will lead to a significant reduction in system costs such as:

– costs to account for expenditure (including staff and other operating expenses, infrastructure, etc.) and the profit margins of the companies currently active in the market but which will play a small role in the future system;

– operational costs for meter reading, billing, etc.

– costs with customer payment reminders and debt collection processes;

– bank payments costs (automatic debits for payment by customers);

– certification for renewable electricity, among others.

The reduction or complete elimination of the above costs would reduce the energy bills, directly or indirectly.

Final considerations

The problems generated by the geometric growth of the population in urban areas will only be overcome with the fundamental tripod to the implementation of the cities of the future: electricity availability, coordinated planning and management, as well as the development of new technologies such as blockchain that have as main focus the consumer.

For this reason, any government that wants to position itself at the forefront of a hyperconnected world must perceive energy as the engine of the future and, therefore, consider the energy sector as an economic-social strategy.

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References

(1)According to the report of the “World Population Prospects- 2017 Revisions” (UN)

(2) According to the report of the “State of Latin American and Caribbean Cities” of the UN-HABITAT Program, available at:http://unicrio.org.br/onu-lanca-relatorio-sobre-cidades-latino-americanas/

(3) Glasier, Edward (2012). Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier. Publisher: Penguin Books; Reprint edition

(4) http://www.com4.no/en/industries/smart-cities/

(5) Gartner (2017). In: Leading the IoT: Gartner Insights On How to Lead in a Connected World

(6) Papo de Energia – https://papodeenergia.wordpress.com/2016/04/27/custos-de-transacao-no-setor-eletrico/

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