Recent technological advances in solar power and other alternative energy sources have changed the landscape of the electrical utility industry. For the past century, large utility companies have controlled both the supply and distribution of power. These companies utilized economies of scale by centralizing the power generation in large facilities and transmitting it over long distances.

However, solar panels, wind turbines, and other locally produced energy sources have decentralized the energy production model. Through net metering, consumers with these energy generation systems have lowered their electric bills by producing this alternative energy. A grid-connected system allows buildings with these energy producing systems to power themselves during weather-permitting periods and sell any excess power back to the utility company. This excess power travels all the way back to the central location then back out to consumers.

Unfortunately, this centralized distribution system is incredibly inefficient, as a great deal of energy is lost by transmitting the power over long distances. Additionally, these centralized systems are prone to outages and restrict consumer choice. Instead, a decentralized system that cuts out the third party utility is the logical evolution to complement decentralized energy production.

Blockchain technology has the potential to serve as the foundation for a new decentralized system in which energy producing households can sell power to their neighbors in an automated peer-to-peer system. As opposed to requiring administrative systems and human input to monitor each household’s electrical use and production, blockchain works by creating a public ledger that is automatically updated each time a transaction is made instantly and securely. As David Schatsky and Craig Muraskin assert in a Deloitte University Press article on the disruptive potential of bitcoin technology, “Blockchain technology offers a way of recording transactions or any digital interaction in a way that is designed to be secure, transparent, highly resistant to outages, auditable, and efficient.” Instead of the utility company managing the flow of power to each household, the grid could run itself.

Though this smart grid technology may seem like science fiction, it already exists. TransActive Grid, a joint venture between L03 Energy and Consensus Systems, went live with the first ever peer-to-peer transaction of renewably generated energy using on Aprill 11, 2016. This microgrid in Brooklyn automatically matches connected households who need electricity with those who have produced it, cutting out the middle man. In addition to startups, huge corporations like IBM and Samsung are investing in applying Blockchain technology to process electronic transactions. As this technology continues to develop, the energy distribution system will likely experience fundamental change. A shift from large, centrally-controlled grids to localized decentralized grids will be a boon for both consumers and for the environment.

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