Blockchain and Energy: Understanding Opportunities and Challenges
Authors: Charles Hua and Nicola De Blasio
The transition to a decarbonized, decentralized, and digitized energy future will unlock new business, policy, and technology models with the associated opportunities and challenges. Innovative technologies like blockchain, a shared, decentralized, and immutable digital ledger system that processes, validates and manages digital transactions based on algorithmic consensus protocols, may enable this transition.
Potential blockchain applications in energy range from enhanced distributed energy resources and peer-to-peer energy trading regimes to more robust grid management and smart energy contracts. There has been significant hype around blockchain’s potential impact in shaping economic and energy systems. Yet, it is essential to separate signal from noise and assess blockchain’s potential impact.
This paper aims to provide a comprehensive analysis by identifying key use cases and then addressing which key characteristics blockchain technologies need to bring to fruition to support them. It also proposes an analytical framework to evaluate the potential impact of eight applications based on four key criteria: feasibility, maturity, scalability, and value additivity. Using this framework, three tiers are identified. Near-term opportunities for blockchain deployment include distributed energy resources, emissions and green molecule registries, and internet-of-things (IoT) applications. Medium-term options include peer-to-peer energy trading, smart energy contracts, and grid management. Lastly, long-term opportunities include energy for emerging markets and energy cryptocurrencies.
However, for blockchain’s potential to be realized, not only will the technology itself need to fulfill its full potential, but there will need to be much greater coordination between stakeholders along energy value chains to drive adoption and create the required network effects for scaling applications. This coordinated network of engaged stakeholders should also address misconceptions about blockchain technology. Moving forward, stakeholders will need to collaborate to tackle risks, barriers, and opportunities, including promoting awareness and education around blockchain’s potential impact in the energy sector, developing stable regulatory frameworks, identifying best practices and guidelines for standards and design principles, advancing security and technological capacity of blockchain, and accelerating research and development efforts.
This paper aims to provide a comprehensive overview of the range of blockchain applications in the energy sector. Its intended audience includes stakeholders with an interest, but not necessarily expertise, in the opportunities and challenges associated with the intersection of blockchain and energy— including policymakers, regulators, academics, researchers, executives, startups, and others. It synthesizes existing research on applications and use cases based on sources from existing literature to stakeholder interviews. This paper does not support a specific blockchain technology or development approach; it aims to evaluate the intersection between blockchain technology and energy systems to identify which key technical requirements would be needed to help accelerate the transition to a low-carbon economy.
For Academic Citation: Hua, C., and De Blasio, N., (2024) “Blockchain and Energy: Understanding Opportunities and Challenges" Institute for International Political Studies, February 2024.