Embracing blockchain to solve Africa’s energy problems

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By Thomas Wolfgang Thurner, Research Chair “Innovation in Society”, Cape Peninsula University of Technology

The production and provision of energy is changing rapidly as the industry moves towards a decarbonized and digitised energy future. Technological development also allows to organize the energy production and distribution in a decentralized manner. Unlike centralised energy systems, decentralised systems build on large numbers of actors who generate bidirectional electricity flows. In other words, consumers might also produce energy and create surpluses at certain times of the day or store energy, and thereby actively participate in the grid flexibility.

The equipment costs of smart grid components are decreasing at the same pace as the production of self-generated energy is increasing. Still, for this form of energy production to be sustainable, a proper exchange mechanism is required. This is where the distributed ledger technology – or blockchain – comes in. The blockchain acts as a protocol enabling the transfer of assets like energy without a trusted third-party. All transfers are publicly recorded and validated by the network, allowing for a variety of assets to be traded. Transactions are bundled and locally stored in verified blocks on numerous devices that belong to different participants (nodes) of the network. Thereby, even exchanging small amounts of energy can be processed. Due to these specificities, the Digital Economy Outlook 2017 ranks blockchain as one of the pivotal technologies alongside Artificial intelligence, Internet of things and Big Data. Research in the usage of blockchain has focused on the trading of carbon emissions and green certificates. Thereby, blockchain is used for registration and storage of emission credits and serves as a distributed database of carbon emission transactions, and thereby authenticates renewable energy crypto-credit. Interest in applying the blockchain technology to energy markets is slowly picking up, and in the middle of 2017, energy-related use cases already accounted for 3% of the total applications of blockchain technologies.

While in advanced consumer markets like Europe and the US, blockchain is seen as relevant for applications associated with electric vehicles, namely e-vehicle charging and vehicle-to-grid solutions, the situation in Africa is very different. In South Africa alone, 3.5 million households are to this day not connected to the grid. With the current mode of centralized power production, this is unlikely to change in the near future. Especially for remote communities, decentralised grid solutions have a tremendous economic potential. The good news is that South Africa is one of the most suitable places to harness the energy of the sun and convert it to electricity through photovoltaics. The prices for panels have reduced significantly and can be mounted on every shack. Individual storage solutions in contrast are currently unaffordable. In order to drive the uptake of photovoltaics in rural Africa, a trading system is needed that rewards every energy provider for every power unit that is generated. Thereby, the many households that are producing electricity through photovoltaic panels on their rooftops trade their access electricity and buy electricity when needed. In order to make sure that power supply is growing, those households which invest in more installed capacity than needed can sell the access to other users in the community. These trades are recorded by the blockchain. The exchange mechanism would not be based on South African Rands but instead the traded electricity units would be converted directly into a blockchain-based crypto-currency which could be used to pay back the loans for the photovoltaic equipment or to pay for government services. Thereby, the blockchain replaces both the billing system and the trading system of the retailer. This lowers the overall cost of energy for the customer, as retailers add on an estimated 20% to the value of energy. If households see the economic benefit and start installing more capacity than needed by the immediate community, aggregators might bundle up the power generation in order to respond to demand and sell it again directly to other consumers like nearby factories in regional DLT-enabled markets.

The integration of blockchain for energy trading would be a logical next step for South Africa. Already in 2011, the National Energy Regulator of South Africa allowed municipalities to connect small-scale embedded generation of under 100 kW. Two years later, the updated integrated resource plan 2013 predicted an increasingly uncertain energy future ahead and stressed the need for adaptive energy investments. Especially rooftop solar PV were identified as fears of the lacking reliability of alternatives was ebbing out. During last year, 27 renewable energy independent power producer projects were signed. For the deeply integrated electricity markets in the West, the move to blockchain enabled decentralized markets will take another estimated 25 years. Still interest is rising as a recent study from Germany requires more flexible and attractive reward systems for individual producers. Furthermore, the legal systems cannot be changed so easily to create the necessary environment for such models to flourish.

This backwardness in terms of connecting the remote parts of the country to the electric grid might in fact be a blessing in disguise. And yet another specificity of South Africa could be turned into a positive. The greatest difficulty to overcome for blockchain applications in general is trust. For existing processes that blockchain applications are disrupting, the consumers have built trust in the centralized institutions that managed the exchange mechanisms to this point. With ESCOM, trust readings are at best in negative territory.

The blockchain technologies might follow the landline diffusion path in Africa, where people switched to mobile telecommunication instead. In other words, the blockchain might enable ways to electrification by leapfroging expensive centralised grid systems. For photovoltaic to contribute to the grid security, better software solutions and a combination with other renewable energy sources and storage solutions are required. Despite considerable process, these required technologies are still under development. If done correctly, South Africa could become a test bed for these technologies and thereby benefit from R&D investments by major international corporations that have an interest in driving these trial runs. As a side effect, we would increase technological penetration of rural areas and turn sunshine into income.