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  • Joachim Lohse

How Can Blockchain Smart Contracts Solve The Current Pitfalls Faced By Energy Companies?



It is no secret that energy companies are being plagued by the monsters of operational challenges and slow market conditions. Despite implementing various cutting-edge technologies, these challenges are proving difficult to overcome for all the small and big players of the energy sector. From rapidly changing market demands to government policies and regulations, the grid industry is facing a host of new challenges nowadays. Could blockchain smart contracts be the holistic answer to all these hurdles? Let us try to understand this by breaking down the topic step by step.

Blockchain is a growing list of records, called blocks, which are linked using cryptography. It is an open, distributed ledger that can record changes (e.g. transactions between two parties) efficiently and in a verifiable and permanent way. So, in non-technical terms, it acts as a record keeper of events like transactions made between different parties.

Smart Contracts on the other side are computerized transaction protocols that execute the terms of a contract. In blockchain smart contracts, there are set of rules that the users of that blockchain have to agree to in order to communicate with each other. These contracts are responsible for enforcing and verifying the terms of the agreement and act as the easiest devices of automation.


Current Challenges Faced By Energy Companies


Lack of financing for green energy

For any renewable energy project to be easily executed, capital (funds) is the most crucial factor. Due to the lack of access to funds resulting from the market domination such as hedge funds, banks, and private equity funds that block investments in the energy market, there is still no substantial financing in this sector.


Limited renewable investment options

There are certain barriers which hamper the participation of the general public in the renewable energy market. These include factors like higher investment amount, longer lock-up periods, and lack of awareness about the availability of such investment options.


Inefficient energy infrastructure

Due to limitations of the current grid in terms of grid flexibility moving towards decentralized green energy, there is instability when it comes to intermittent renewable energy production. Inefficient energy infrastructure is the major pitfall when it comes to this challenge.


Increase number of electric vehicles

Tough the introduction of electric vehicles is seen as a technological advancement that has helped a lot in lowering down environment degradation to some extent. However, what matters the most for the energy companies is the energy that is required for charging them up.


Are Smart Contracts our gold path?

You may now be wondering how blockchain smart contracts can be of help to energy companies to tackle these pitfalls, right? Well, unlike most cryptocurrencies, the applications of blockchain technology are not restricted just to the world of finance. The fact that blockchains can operate without the assistance of any third-party, makes them highly useful tools in numerous other sectors like energy.


As we can understand, almost all of the above-mentioned pitfalls can be resolved by bringing about a change in the way business models of energy companies operate. Blockchain technology is capable of bringing about this transformation by improving compliance through automation, decreasing the costs of transactional processes, saving time for settlement, and shifting the core supply chain into a decentralized network in order to prevent a single point of failure.

The smart contracts feature gives equal authority to all the peers who are a part of the blockchain, thus resulting in a decentralized system. By using smart contracts, the various stakeholders such as plant operators, utilities, grid operators and consumers can independently collaborate very close within the supply chain to manage consumption/production and optimizing the electric grid.


Solving the Challenge

The interconnected autonomy of blockchain smart contracts will tackle the supply chain challenges by providing a single but distributed platform to all the users to mitigate any compliance issues. This uniform platform will help all the parties involved to make fast and transparent decision without creating new high overhead costs for settlement (e.g. incevization or billing) and processing information.

Smart Contracts in blockchain technology, will automate intelligent transactions of all the parties involved. This will automatically reduce the threat of human error in the energy sector. This advantage, coupled with the more obvious ones of cost-cutting and time-saving, makes blockchain smart contracts ideal tools for addressing all the issues faced by the energy companies.

By adopting blockchain technology, the technological and regulatory hurdles of the energy sector can be overcome. So, the technical advantages of the blockchain smart contracts have a wide number of applications in the energy sector and can solve numerous pitfalls that hamper its development.

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