Solar technology and battery storage are important. But what has been missing is a technology on which to organize, co-ordinate and secure a true peer-to-peer power grid.



While breakthroughs in solar-cell technology have led to greater variety in locally generated renewable energy, the underlying model is still broken: the local utility captures excess power in its supply for redistribution at wholesale rates, often with considerable leakage. (SHUTTERSTOCK)

This post was co-written with Alex Tapscott.

In the near future, the Internet of Things (IoT) will enable billions of smart devices to sense, respond, communicate and share data. Those things will also have the ability to generate, buy and sell their own electricity.

Now imagine if each household that has the ability -- and a lot of these things -- to generate and store electricity can enter into automated, peer-to-peer transactions with neighbours or sell power back into the grid at the market rate, rather than through a third-party utility.

But first, consider the aging energy grid of today, which is from the industrial age -- large central sources broadcasting power to "dumb" appliances. This will have to change.

We need a power grid that is decentralized, full of smart devices and where everyone can contribute power.

Furthermore, all these devices and the people who use them will need a way of buying and selling power, doing transactions and working together in a collaborative manner. Increasingly, power strategists are turning to a surprising new technology for this: the blockchain -- the underlying, peer-to-peer technology that enables, tracks, verifies and records digital transactions and currencies like Bitcoin.

Here's why.

Today, most homeowners, businesses, governments and other organizations in urban North America get their power from regulated utilities at regulated prices. This approach is deeply flawed.

For one, it is inefficient. Large amounts of energy are lost as heat at the plant or in transmission cross long distances, driving up prices and creating an outsized carbon footprint. Second, it is overly centralized, making it prone to failure, an uncomfortable reality familiar to anyone who lived through the Northeast Blackout of 2003 or Hurricane Sandy in New York. Finally, consumers are powerless (no pun intended) because they have no choice, accepting ever-higher rates for power.

While breakthroughs in solar-cell technology and battery storage have led to greater variety in locally generated renewable energy, the underlying model is still broken: the local utility captures excess power in its supply for redistribution at wholesale rates, often with considerable leakage. The consumer, who might have a neighbour with a local power source, must still go through the utility and pay full retail for that renewable energy. It's ridiculous.

Solar technology and battery storage are important. But what has been missing is a technology on which to organize, co-ordinate and secure a true peer-to-peer power grid. Blockchain holds the key.

Millions of homes could become autonomous agents, contracting power automatically with the highest bidder. With potentially millions of distributed power sources, the system needs to continuously track everything, including the ability to authenticate each node in the network -- to ensure its reliability, which is why blockchian is critical to all of this.

This is not science fiction. Indeed it's already happening today.

"Instead of the command-and-control system the utilities have now, where a handful of people are actually running a utility grid, you could design the grid so that it runs itself," says Lawrence Orsini, cofounder and principal at LO3 Energy, a pioneer in the space. "The network becomes far more resilient because all of the assets in the grid are helping maintain and run it."

It's a distributed, peer-to-peer, IoT model with smart contracts (which execute and self-enforce using software rather than people) and other controls designed into the assets themselves. This time, when a hurricane destroys transmission towers or fire cripples a transformer substation, the grid can quickly and automatically reroute power to prevent a massive blackout.

Resilience isn't the only benefit. Locally generated power, used locally, is significantly more efficient than the utility-scale model, which relies on transmitting energy across vast distances, where energy is lost.

LO3 Energy recently partnered with Consensus Systems to launch the first ever micro-grid project using blockchain technology, in Park Slope New York. The so-called TransActive Grid matches households who generate electricity with those who need it, executing sales automatically using smart contracts with little-to-no human involvement.

April 11, 2016, could very well go down as one of the seminal moments in the history of electrical innovation, akin to Thomas Edison's first light-bulb tests. It was on that day the Brooklyn Microgrid hosted the first ever peer-to-peer transaction of renewably generated energy on a blockchain in the world. Since that day, LO3 has had more than 130 buildings sign up for participation and that is growing by the day. The support from the city and its key stakeholders has been overwhelming.

"So, instead of paying an energy services company that's buying renewable energy credits, you get to pay the people who are actually generating the electricity that is serving your house," says Orsinin. "That is local and green and that actually has an environmental impact in your neighbourhood. It seems fairer, right?"

Alongside increasing the generation of renewable power at the local level, the Internet of Things is challenging the regulated utility model and not a moment too soon. We need our utility grids and our engines not to leak energy and carbon into our atmosphere. While utilities are looking at IoT benefits to their existing infrastructure (so-called "smart grids"), connecting blockchain-enabled microgrids could lead to entirely new energy models.

Utility companies, their unions, regulators and policy-makers, should explore these new models for generating, distributing and using electricity. "The potential to shift from nationwide-controlled energy companies to locally managed transactive grids offers a major opportunity to change the entire concept of energy consumption. It will be good for our pockets, but most importantly it will be good for our planet," Says Orsini.

Toronto is often described as a city of neighbourhoods. Indeed, Toronto's neighbourhoods, with their strong communities, identities and local advocates and organizers, could be the pioneers we need to create the energy grid of tomorrow for a more sustainable, secure and prosperous future. But this will take leadership. Says Orsini, "Last week, we took the meter off the wall and put it in peoples hands. Where we go from here is up to you."

Don Tapscott and his son Alex Tapscott are authors of the Globe and Mail bestselling book Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business and the World. This piece originally appeared in The Toronto Star.

Follow @dtapscott and @alextapscott on twitter.