A blackout is one of the biggest nightmares of our modern world. Days and weeks without electricity would turn our life and society into chaos and anarchy. It is self-evident that electricity is indepensable. However, energy production and supply is a complicated matter. In many countries we have a market which consists of renewable and conventional energy sources. For example, in Germany four transmission system operators - 50Hertz (East Germany), Amprion (West Germany), Tennet (from North to South Germany) and TransnetBW (South West Germany) - maintain the stability of the electricity grid. Grid stability means that utility frequenzy is constantly held at 50 Hz. With the continuing growth of renewable energy sources transmission system operators often need to regulate overproduction of electric energy. What has electricity grid stability to do with cryptocurrencies?
Unused Energy
According to the German Environmental Agency (Umweltbundesamt, UBA) renewable and conventional energy sources produce more electricity than is used. In 2017 about 55 terrawat hours of electricity were overproduced in Germany and exported on the European Energy Exchange. To put 55 terrwat hours of unused energy into perspective: It comes close to the amount of energy which is needed to fully supply countries like Colombia, Switzerland or Kuwait for a year. By the way: accordding to Alex de Vries` Digiconomist's Bitcoin Energy Consumption Index Bitcoin uses 77 terrawat hours of energy per annum.
I don't want to discuss here wether Bitcoin is environmental unfriendly because of its vast enery consumption. I believe Bitcoin or other cryptocurrencies can be a useful instrument to bridge the gap to a more decentralized and flexible electricity grid which is able to maintain the balance between energy demand and supply.
Negative Prices not in favor for renewables
During the Covid-19 crisis the use of energy changed. Demand declined during the first lockdown period when offices and industrial production were closed or shut down. We had a situation with high amounts of energy from renewable sources which had to be fed into the grid but simultaniously demand declined. High utility frequencies can cause severe damages to the grid operation system. Circuits can overheat for example. Our electricity grid infrastructure is not capable yet to feed in high amounts of solar or wind energy on a very sunny and windy day. It is diffucult to capture and save electricity. It has to be used right on the spot or transmitted to areas with higher demand. If that is not possible, wind turbines or solar energy production has to be turned off from the grid. Transmission system operators are always challenged to find the right balance between overproduction and shortage due to a temporary higher demand.
When power supply surpasses its demand and when it can't be exported, electricity prices can turn negative. This is a huge handicap for renewable energy sources. Often transmission system operators must react quickly to maintain grid stability. It is easier to turn of wind or solar power than to shut down a huge power plant which would take days. Furthermore, when energy prices are negative producers with renewable energy sources would pay extra for supply. This contradicts with the business model - to provide green energy. In addition, it makes the supply of power for end users more and more expensive.
Virtual power plants and cryptocurrencies support renewable energy
In such a market environment further growth of renewable energy ressources seems to be very difficult. How is it possible then to expand production and use of renewable energy? Here a virtual power plant (VPP) comes into play. A blog article on medium.com describes a virtual power plant as:
a network of distributed residential energy storage systems, which is used to absorb surplus wind generation thus avoid the curtailment of renewable energy by charging the batteries when wind energy is abundant.
This virtual power plant combines blockchain technology and cryptocurrencies with a real problem: energy is a commodity which has to be consumed immediately. It is diffucult to save and store it. Cryptocurrencies receive value by a practical application. Here is the example of the virtual power plant by an energy company called sonnen. Here users can earn DAI by feeding in energy:
The network operator in northeast Germany reports the anticipated surplus energy. In response, sonnen’s VPP makes an offer to absorb some of that surplus. If the network operator accepts the offer, financial settlement occurs on the EW Chain using EW Dai, a stablecoin digital currency that mirrors conventional Dai on Ethereum. Settlement is essentially instant and nearly free, with the EW Chain built around negligible transaction costs.
We see cryptocurrencies can bridge the gap to a more decentralized energy network. In the future virtual power plants may provide the energy for hydrogen power plants, fuel cell or battery operated vehicles. Big companies like Shell are already setting up themselves for the future of energy production. Shell bought the companies Next Kraftwerke and sonnen, both providers of virtual power plants.
