The energy business has faced several fundamental obstacles in its continual quest to power and move the world. Effective deployment of innovative and pioneering technology has managed these obstacles well. The resulting industry environment is technologically advanced and well-organized, but it still has a complex and expensive transactional ecology, which could prove to be fruitful ground for blockchain solutions development.
Executives must carefully select how to adopt several digital advancements. It includes technologies such as the Internet of Things (IoT), automation, artificial intelligence, cloud platforms, big data, and sophisticated analytics, with blockchain serving as the basic backbone of the transactional infrastructure.
Digital technology and omnipresent data are enabling wiser, more informed decisions and considerably enhanced operational efficiency by boosting visibility, transparency, coordination, and information sharing across business boundaries. To take advantage of these digital advancements, the sector must solve the fundamental challenges of security and trust, which are basic business requirements. In this situation, blockchain technology emerges as a suitable solution to address these challenges.
Blockchain is a strong peer-to-peer network system that uses advanced computer science techniques to effectively enable entirely trustworthy interactions between participants, even if they don’t trust each other completely.
Essentially, it’s a shared electronic ledger that can be read and managed by various people, even those who are unknown or anonymous, while remaining incredibly dependable, secure, and immutable. It means that no one can modify the entries to the ledger once they are submitted).
Blockchain is expected to transform the basics of transacting and open the door to a near-infinite number of applications, much like the influence of other modern payment systems.
Energy firms may now execute and record transactions and information with unprecedented dependability thanks to blockchain. They can also achieve “optimal transparency” when sharing information, which means they can manage exactly what information is shared and with whom it is shared, and they can do it not only reliably but also anonymously if desired.
It helps to think about the many ways the energy business has traditionally obtained a workable degree of confidence to grasp the huge value of a trust mechanism like blockchain. Relationships are the oldest and possibly most important trust mechanism; nonetheless, they require time and work to build and are not 100 percent reliable.
Another option is legal contracts, but these take a lot of time and effort to create and administer; in addition, they can cost a lot of money and are never completely foolproof, so in practice, adherence is typically determined by the strength of the underlying connection.
Last but not least, a third-party intermediary (such as a bank, broker, exchange, credit rating agency, or regulatory institution) is involved to offer an impartial and dependable framework for transactions and other trust-based interactions. Intermediaries are quite frequent in today’s business processes, but they are also very expensive, charging a commission that is normally a modest proportion of each transaction but adds up to a huge cash amount in total. Furthermore, the level of confidence supplied is still constrained by the trustworthiness and reliability of each intermediary and its supporting procedures.
Due to the following factors, blockchain has the potential to unleash significant value throughout the energy and resources industry:
Direct investment in large-scale renewable energy projects normally happens by “sophisticated investors” around the world. Only those with an annual income of at least AUD250,000 or net assets of at least AUD2.5 million can invest in this type of asset in Australia, for example. On the blockchain, fractionalizing assets makes them accessible to everyday retail investors, not only high-net-worth individuals.
Blockchain has the potential to make fractionalized ownership of large-scale renewable energy assets more cost-effective. By leveraging the blockchain as an asset and income register, companies can minimize the cost of bringing these financial products to market as well as the upkeep of the legal and accounting frameworks for the assets.
The blockchain can increase efficiency in a variety of ways. For example, blockchain-enabled know your customer (KYC) solutions can lower the cost of verifying each investor.
Each user only needs one-time identity validation. It drives advancements in identification technology. Subsequently, it provides the potential to reduce compliance and fraud prevention overhead costs. It protects personal information and guarantees that only genuine, confirmed investors have access.
As per the International Renewable Energy Agency (IRENA), “renewables needs scaling up to six times faster for the globe to fulfill the Paris Agreement goals.”
We need investment if the world is going to accelerate its renewable energy growth. Blockchain offers a way to tap into previously untapped resources in this field.
Tracking tokenized carbon credits on the blockchain also ensures that no one can sell retired credits. Also, it ensures that one credit can’t be possessed by two parties at the same time. Thus, it reduces the risk of fraud and error.
In the United States, the Low Carbon Fuel Standard (LCFS), a clean fuel program managed by the California Air Resources Board (CARB), permits companies that refill electric vehicles in California to claim credits. That they can subsequently sell, is an example of blockchain in action.
Silicon Valley Power, owned by the City of Santa Clara, is using blockchain to monitor solar energy from solar panels to electric car charging points to confirm LCFS credits automatically, simplifying the process and lowering intermediate costs.
Families with solar panels can now sell their excess energy at a set price to an energy retailer. The retailer subsequently can sell it to other households. It is only possible if both customers use the same energy provider. Also, paying the household that sells the energy can take months.
Using the blockchain, on the other hand, can enable a quick, cross-retailer peer-to-peer trading and settlement system. It can do by linking the financial and physical transactions, regardless of who the energy provider is. Using a blockchain reduces the possibility of a single person holding the primary repository of sensitive data. Currently, it is the case with traditional database technology.
The use of a blockchain to settle transactions eliminates the need for a central authority. When it comes to regulators, they get access to immutable and authenticated market records. It has the potential to assist simplify disputes and complaints while lowering the number of instances of “under and over.”
For more information on blockchain’s implementation into the energy sector, take a consultation call with our blockchain development experts.