LO3 is seeking nothing less than to transform energy production and distribution with its blockchain-based software, and has heavy-hitting backers willing to support their quest.
Blockchain has become a potential game-changer in the energy industry over the last few years, attracting hundreds of millions of dollars in investment. While it was invented to record and protect cryptocurrency transactions, it’s being used for other transactions. Brooklyn-based LO3 Energy has grown into a blockchain leader in energy after building the world’s first blockchain microgrid.
“Blockchains are used in situations where having a distributed accounting ledger for multiple parties would be useful,” Scott Kessler, LO3’s director of business development, told Karma.
The growth of solar panels, batteries and other technology decentralizing energy “requires an accounting system able to track usage at each of these sites,” he said, “but also generation, when someone reduced their energy use in response to a grid constraints, and other transactions.”
The relationship between consumers and energy has traditionally been a static, one-sided affair. Customers paid utilities and operators for the electricity they used from the grid. The growth of rooftop solar and other renewable technology has created a more reciprocal relationship as these producers sell surplus power back to the grid. LO3 Energy aims to take this further by applying blockchain and other technology to the interface between consumers and producers.
“Blockchain is a type of technology that can add more flexibility as energy moves from customers back to the grid,” Fei Wang, senior research analyst, grid edge, power & renewables at Wood Mackenzie, told Karma.
Using blockchain, households will be able to exchange power and have greater control over climate impacts. Blockchain allows for the secure, peer-to-peer exchange of electricity. Blockchain can also allow producers to raise capital by issuing tokens to buy or resell energy. A blockchain platform can facilitate a smarter, cleaner power grid, AZoCleantech reported Aug. 28.
“As the energy sector grows increasingly distributed and decentralized, it increasingly requires an accounting system able to track usage at each of these sites but also generation,” Kessler said. “Blockchain is very good at creating an auditable marketplace for actors who do not know each other and need a trusted way to transact, which will be increasingly required by the energy system in the future.”
LO3 Energy has attracted interest from some of the world’s biggest technology and energy companies. German manufacturing giant Siemens, Braemar Energy Ventures and Centrica Innovations, participated in the Series A funding round for LO3 Energy. They were joined by Shell Ventures and Sumitomo Corporation Group in July.
“As we move into a less carbonized future, Shell aims to invest in innovative companies that will help enable the energy transition,” Kirk Coburn, Investment Director Shell Ventures said in a July statement. “LO3 Energy fits right in that space.”
The Brooklyn Microgrid Project began in April 2016 when two residents in the Park Slope neighborhood participated in the first-ever peer-to-peer energy transactions. It was based on rooftop solar panels, with excess energy from the panels sold to nearby buildings. While all the buildings in the project are still part of the grid, energy transactions are handled via blockchain and smart meter technology.
The electrons flow through the grid transmission network, but the blockchain manages the identification of the energy source and the contract agreement to pay for it. In addition to peer-to-peer energy trading, this enables energy hedging for businesses, virtual power plants, dynamic electric vehicle charging and demand response.
“When it comes to energy, LO3 did report the first transaction by blockchain in Brooklyn,” Wang said. “The Brooklyn Microgrid Project really wasn’t a microgrid because it’s not an island, it’s still connected to the grid. I think it’s more accurate to say that they virtually account for how much electricity is bought and sold. They are really using accounting part of blockchain.”
LO3 Energy has projects worldwide in urban and rural areas. They are partners in a microgrid being developed in the Allgau at the foot of the Bavarian Alps. Other projects include a transactive-energy system in a sprawling agricultural region of South Australia and energy micro-hedging project in Texas.
“We’ve seen interest in purchasing local, clean energy in every market we’ve done a project,” Kessler said. “There are other barriers to consider as we select markets to work in, such as the energy regulations, pricing, data availability, etc., however we have not yet found a market where there was not a clear interest in purchasing local, clean energy from within a community.”
The company’s blockchain-based software was recently modelled on a local energy marketplace of almost 100 customers and producer-consumers in Australia’s Latrobe Valley using data from a 12-month period. They tested three scenarios, and in the one that most closely mimicked market conditions, they found customers could save as much as 12% by buying locally produced power, while consumers who also owned distributed energy resources such as solar, could make as much 37% more than they do now.
When asked where he expected LO3 to be in five years, Kessler replied, “the world’s leader in deploying energy and flexibility marketplaces at the distribution level.” We’ll know in a few years if his optimism is misplaced, but it’s clear that the company is well placed to remain on the cutting edge of blockchain in energy.