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Decentralizing the Energy Grid for a Sustainable and Resilient Future

Updated: Oct 18, 2023

By Jaya Bijoor

In 2020, the global electricity market was worth 2.8 trillion USD, according to the International Energy Agency. Since the invention of electricity, a few corporations have controlled the

production and distribution of energy. Their power has been centralized and unilateral, meaning energy flows from monopolies to passive energy consumers.


According to the 2020 Ecological Threat Register, there has been a tenfold rise in natural disasters such as hurricanes, floods, and earthquakes worldwide since the 1960s.


Therefore, energy production’s centralized nature and distribution model must become more reliable. As natural disasters increase, power is the first to shut down. Since most of us rely on electricity, all the other infrastructure that relies on power also ceases. But if production and distribution were decentralized, only those affected areas would lose power rather than entire cities. Microgrids—local electrical grids with defined boundaries—acting as a single and localized entity would make restoring power much more manageable.


In addition to reducing the vulnerability to natural disasters, decentralization of the power grid also addresses the growing concern of cyberattacks. Modern economies are reliant on

power, which makes them attractive cyberattack targets. By hacking into and turning off a centralized grid, cyberattackers could cause significant disruptions—both economically and in

the health and safety of citizens. Decentralization of the power grid makes it difficult for hackers to attack multiple entry points supplying power to microgrids at the same time.


A few corporations rule the energy market, preventing healthy competition and transparency around their internal controls and processes. Also, the energy value chain consists of multiple groups before power gets to the end consumer, which makes energy prices unnecessarily high. The decentralization of microgrids allows for an opportunity to create a free market between citizens where they can buy and sell power to each other rather than using third parties. This free market could drastically reduce the cost of power.


The traditional centralized power structure must be updated, reliable, and ready for change. We already see this as some consumers become prosumers who consume energy and produce their own energy by leveraging smart solar and wind devices installed in their homes. These residentially installed devices can collectively produce energy to serve neighborhoods and cities like centralized power plants have been doing for decades. Homeowners who make excess energy can sell their residual energy to their neighbors, creating a microgrid.


The hurdle preventing microgrids from forming is the coordination and tracking of power flow between devices and how to send and receive payment for the energy transacted. So, prosumers have historically found it easier to sell their excess power to big corporations than to put the energy back into their centralized grid. Blockchain technology answers these decentralization challenges.


Here’s how it can work: Homeowners plug their energy generation devices into a blockchain-based grid. Each distributed device is assigned a digital identity that shows information about the device, including its capacity, consumer preference, and other relevant information. The digital identities would also track how much energy each device contributes to the blockchain-based grid. The owners of each device would receive payment through smart contracts, utilizing a cryptocurrency supported by the same blockchain technology. Payment would be in the form of cryptocurrency supported by the identical blockchain, which allows the seamless integration of energy distribution’s financial and physical aspects. The system could also track and control the pricing of energy based on consumer demand.


Consumers who want to buy energy could access this same decentralized microgrid. Since demand would dictate the energy price, the pricing would be transparent to the consumer. This model type incentivizes consumers to utilize or not utilize energy at specific periods, depending on the pricing. This process could be automated using smart meters and smart appliances. For example, consumers could save money by setting appliances to “economy mode.” Smart meters would then monitor prices on the microgrid in real time and only allow for usage during off-peak periods when prices fall under a specific threshold.


In addition to the potential for consumers to save money through smart meters and appliances, the rising number of homes with solar installations presents another opportunity

for decentralized energy grids. The number of homes with solar installations is increasing. According to a January 2022 study by Pew Research, 8 percent of US households have

installed solar panels, rising from 6 percent in 2019. According to a 2020 report released by the US Solar Energy Industries Association in collaboration with Wood Mackenzie, fifteen percent of US households will have solar panels by 2028. As installation increases and homes continue to produce their own energy, blockchain-based grids will enable homes to sell excess power to their neighbors and community without the need to plug the energy into a centralized grid owned by large energy conglomerates. In time, peer-to-peer energy markets will emerge where anyone can buy or sell energy. When a household has unused power, a power generator sends excess energy to the microgrid, and the household is paid for the energy it supplies to the grid. Furthermore, this decentralized system eliminates the need

for intermediaries such as utility companies, allowing homeowners to transact directly with each other. With the help of blockchain technology, the process of selling and buying energy becomes more transparent, efficient, and seamless, fostering the growth of peer-to-peer energy markets. By creating a network where anyone can buy or sell energy, households can maximize the use of their excess power and contribute to a more sustainable and resilient energy system.


As a result, homeowners can generate savings and income from their devices and actively participate in the transition toward a cleaner and more decentralized energy future.





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