Blockchain could help China’s push for decentralized energy
Large utility companies have long held a monopoly on electricity production. Since the late 1800s both state-owned and privately-held enterprises have taken advantage of economies of scale to profit from the creation and distribution of power.
The situation in China is no different. A push for energy reform beginning in the 1980s eventually resulted in the dissolution of the State Power Corporation of China, but the country’s electric grids are still overseen by just two companies: the State Grid Corporation of China and China Southern Power Grid. These firms hold geographical monopolies—one in the north and one in the south—on the transmission of energy, which is largely generated by five state-owned enterprises.
The justifications for centralization are numerous: efficiency, innovation in transmitting electricity over long distances, regulation, and more. But the paradigm is shifting.
The development of increasingly efficient—and affordable —alternative energy sources is prompting the evolution of a system that isn’t characterized by the monopoly of centralized production. Instead, individuals themselves generate and sell electricity, mimicking the distributed nature of the technology that underpins it—blockchain.
“The bigger picture is that we establish decentralized autonomous energy communities,” Lathika Chandra Mouli, business development manager at Shanghai-based Energo Labs, told TechNode. “You have energy trading, and you have locally produced energy being consumed first, and then the grid is used as a backup.”
The system is more straightforward than it sounds. Prosumers—those who create and use electricity—are connected to consumers on a local utility grid (microgrid). Depending on a range of factors, including geography, these local grids can function independently of or in conjunction with the main power grid. The solar-equipped prosumers then sell excess electricity they have created to consumers.
The result is that energy is sold as a digital asset. Energo Labs built a distributed app (dApp) on the Qtum Blockchain to facilitate this, with plans to move to its own public chain later this year. The app allows users to check their local energy market, negotiate prices, and set automatic buy and sell thresholds. It is currently being used in a proof of concept pilot project at De La Salle University in Manila, Philippines.
While peer-to-peer energy exchange is relatively novel, the idea of decentralizing energy production is not. Traditionally, large-scale power plants are set up close to power-generating resources. Electricity is then transmitted over long distances to reach centers that distribute it to consumers.
But transmission costs can be enormous, primarily due to energy loss over long distances. In China, average losses account for around 5.5% of all energy produced, resulting in substantial carbon emissions and higher electricity prices.
“Large-scale wind farms and solar parks helped the development of these industries in their early stages,” Shen Wei, a research fellow at the Institute of Development Studies (IDS), told TechNode. “But it has become obvious that there are side effects for such modes of development.”
This is especially true of the energy producers in China’s north-eastern regions—Gansu and Xinjiang—where local energy usage is low, and electricity needs to be transmitted to the east coast where the demand is much higher.
Decentralized production aims to address these transmission issues by placing energy sources closer to consumers. Proximity minimizes energy losses and infrastructure expenditure, thereby curtailing costs. Government subsidies are driving this general trend in eastern China while removing or decreasing them for large-scale production systems.