Blockchain Technology and Distributed Energy Grids

Brett Larsen
December 17, 2017

Submitted as coursework for PH240, Stanford University, Fall 2017


Fig. 1: A schematic of how transactions are added to the blockchain. [2] (Source: Wikimedia Commons)

As the world's electricity supply shifts more and more to renewable energy sources, an emerging challenge is how do we keep track of the energy produced by "clean" sources? Once produced, the electricity is indistinguishable regardless of the source but often government and companies want to track and incentivize renewable energy, and this problem is further compounded by the existence of many distributed energy resources like individual rooftop solar grids. Currently, this problem is solved by a system of tradable certificates, which allows both for the tracking of energy production and the sale of excess energy produced by individuals in this distributed grid. Unfortunately, the certificate system has many problems that hinder the growth of clean energy, such as requiring the existence of centralized authorities to track and validate certificates and the sharing of data that many companies and individuals would rather keep private. Furthermore, the certificate system can be expensive to run, inconsistent across countries, and subject to double spending. [1] As a solution to many of these problems, the Rocky Mountain Institute, an organization focused on policy-making for sustainability, has proposed the use of blockchain technology to track the trading of renewable energy certificates. [1]

Distributed Energy Grids and Blockchain Technology

Blockchain technology, most well-known for its implementation in the cryptocurrency bitcoin, can be thought of as an encrypted, distributed ledger maintained by many nodes in the system. The ledger is visible to all users and is continually updated for current transactions but only under strict rules. These rules are based on a chosen consensus algorithm from the field of distributed computing, i.e. an algorithm used to reconcile data across many nodes for which some nodes may be faulty or adversarial. Using cryptographic techniques, the data is then turned into a hash, a large number of fixed length that maps uniquely to a data set and will change completely even if one bit in the original data is altered. This process of hashing the data ensures that earlier transactions in the ledger are left untouched as hashes in the conflicting ledger will not match. [2] This process is illustrated schematically in Fig. 1.

The main advantage of using a blockchain is that it keeps an encrypted and secure ledger without requiring a central authority. Furthermore, the ledger is transparent and prevents double spending through the hashing process. These characteristics seem to make blockchain a well-suited solution for improving the system of trading renewable energy certificates. Blockchain does have its difficulties, though; any consensus algorithm can be broken by a malicious individual who controls more than 51% of the nodes in the system, a problem which becomes fortunately more unlikely as the system grows. [2] But ironically, the main disadvantage relevant to tracking energy certificates is the energy consumption of updating the block chain ledger itself.

Energy Consumption of Blockchain Technology

Every blockchain technology has to choose a method of adding blocks to the ledger. Up until recently this was accomplished by a proof-of-work system in which nodes competed to solve a computational problem, in this case the hash function for the updated ledger. This process is computational intensive, and thus to incentivize these updates, users are often rewarded for being the first to solve the computational problem, e.g. with bitcoin in the case of cryptocurrency. This process is thus referred to as "bitcoin mining." [3]

This results in one of the main criticisms levied against blockchain technology in recent years: high energy consumption as users compete to mine bitcoins. [3] Although it can be difficult to estimate exactly how much energy is consumed by bitcoin mining, estimates in Oprey based on the hashrate in early 2017 and energy efficiency of top-of-the-line mining hardware put the energy consumption of a bitcoin transaction as high as the average amount of power used by 1.57 American households or 5,000 times as much energy consumed by a credit card transaction. [3]

Of course, this high energy consumption seems to make blockchain technology a counterproductive choice for keeping track of renewable energy production on a distributed grid. Fortunately, a much more energy efficient method is emerging to replace proof-of-work systems: so-called proof-of-stakes systems. [3] In a proof-of-stakes system, no computational problem is solved; rather each individual's influence in the consensus algorithm is determined by his or her "stake." For cryptocurrency, stake is determined by the amount of bitcoin held by an individual and the length of time they have held each coin. Such a model provides the additional advantage that larger stakeholders are more invested in the network and thus are incentivized to maintain its accuracy. [3] Since no expensive computations are performed, proof-of-stakes systems are substantially more energy efficient and likely would be the right choice for a blockchain-based system for tracking tradable energy certificates.


Utilizing blockchain technology for tracking renewables has already begun to be implemented on a small scale: a project called the Brooklyn Microgrid is allowing New York City residents with their own solar panels to participate in a peer-to-peer energy trading built on the blockchain, thus bypassing electric companies. [4] And in Australia, a company called Power Ledger is implementing a similar idea for trading energy in residential areas of Perth based on the blockchain. As this technology grows in popularity with start-ups, it is likely to spread into many areas of society, including the energy sector. Utilizing proof-of-stakes systems to avoid the excessive energy consumption of the bitcoin ledger, the blockchain could provide a powerful tool for tracking renewables and thus enable more effective energy markets across the globe.

© Brett Larsen. The author warrants that the work is the author's own and that Stanford University provided no input other than typesetting and referencing guidelines. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.


[1] M. Orcutt, "How Blockchain Could Give Us a Smarter Energy Grid," Technology Review, 16 Oct 17.

[2] "Blockchains: The Great Chain of Being Sure About Things," The Economist, 31 Oct 15.

[3] M. Opray, "Could a Blockchain-Based Electricity Network Change the Energy Market?," The Guardian, 12 Jul 17.

[4] D. Cardwell, "Solar Experiment Lets Neighbors Trade Energy Among Themselves," The New York Times. 13 March 17.