What does reimagining our energy system look like?

That carbon emissions from power generation are one of the leading causes of climate change is nothing new, nor is the fact that the proliferation of clean energy sources is key to fighting it.

In 2015, the UNFCCC Paris Agreement brought (almost) all nations into a common cause, outlining an ambitious effort to combat climate change. As part of this, measures by nations to implement domestic renewable energy production targets were ratified. They started down their respective paths to realizing their commitments through the development of predominantly large-scale wind and solar farms.

Gone are the days that renewable energy solutions are seen as just an act of corporate social responsibility. Significant reductions in renewable energy costs and maturing market and policy environments have also made them attractive sources of energy in their own right, presenting us with an opportunity to pivot away from traditional, carbon-intensive power generation.

We have arrived at a technological epoch where we are able to implement cost-effective renewables with software systems that can address the complexity of future electricity distribution across our networks. These two advances will be the catalyst towards the de-carbonization of our energy consumption.

But that’s not to say we should just build more low-carbon utility-scale solar and wind farms to limit the impacts of climate change. The old paradigm of energy access through grid extension alone is becoming obsolete, as bottom-up consumer demand is motivating millions of households to generate their own low-cost, clean energy.

However, these consumers-turned-prosumers are also becoming aware that defecting from the grid is becoming more cost-effective as regulatory frameworks once designed to protect end users are failing to present convincing reasons to stay connected.

At a grassroots level, a consumer-driven movement towards a distributed renewable energy future is already occurring. The energy industry must reflect on the emerging physical realities of a new energy paradigm – energy systems as a series of dynamic, integrated and distributed energy markets, with Distributed Energy Resources (DERs) playing an increasingly important and value-creating role at a distribution level.

Technological advances, particularly the emergence of digital peer-to-peer (P2P) systems, are redesigning the way we buy and sell energy by changing the nature of the agreements that support commercial transactions. This is unlocking the layers of value made available through DER integration into our electricity networks.

The value case for blockchain in this is that it is perfectly designed to implement distributed systems. It can be utilized to help manage the complex multiplicity of transactions required to transition towards these emerging distributed markets in a relatively seamless way.

They are able to function through the provision of data from advanced metering infrastructure (AMI) and other sources. Using close-to-real-time data from smart metres and other sensing devices, each transaction that occurs between the layers of services in a distributed market can be immutably recorded on the blockchain, and the information relayed to the Distribution System Operator for system planning purposes, checks and balances.

If utilities embrace DERs, underwritten by a blockchain-based P2P platform, we can create an efficient, multi-agent distributed electricity system comprised of prosumers, consumers and networks trading energy across an ecosystem built on cheap, clean and reliable energy.

In this ecosystem, prosumers receive a better return on their renewable energy assets, while consumers get cheaper electricity. For the utilities, transmission and network costs become lower, grid extension requirements less frequent and their customers incentivized to remain connected.

For this solution to work, government and industry will be required to embrace a fundamental change in the way they perceive the energy sector, or else be presented with the scenario of mass defection from existing power systems, leaving billions of dollars of infrastructure at risk of economic obsolescence.

The time is ripe for decision-makers to reimagine the way we generate, buy and sell energy. DERs, underpinned by the blockchain, can be a driving force for tackling climate change and realizing our low-cost, low-carbon energy future.

This article is part of the World Economic Forum’s Fourth Industrial Revolution for the Earth series, which explores how innovative technologies are beginning to transform the way we manage natural resources and address climate change and other environmental challenges caused by industrialization.