Blockchain and renewable energy for small islands

Using blockchain could be a great way decentralise electric distribution, especially in sunny and tropical small island nations. This would allow individuals to produce, let's say solar power, and sell it to their neighbours. This post takes the Seychelles as an example.

Photo from Unsplash

Seychelles is an archipelago comprised of 115 islands in the Indian Ocean. The country’s’ current electricity generation provides more than enough to support its businesses and individuals, who suffer very few power outages. However, electricity is produced by diesel generators, and the country imports 100% of its energy supply. On average Seychelles spends 4% of its GDP per year on energy, and this heavy reliance on imported oil is an important security issue. In 2007–08, the petroleum and food price shock, hit Seychelles particularly hard, and the archipelago was pushed over the financial brink. Luckily, following reforms with the help of the International Monetary Fund (IMF), the government quickly turned things around. However, this underlined Seychelles energy security issues.

Cognisant of these issues, the Government of Seychelles established its Energy Policy 2010-2030, aiming to reduce its dependence on oil through the development of renewable energy (RE). Indeed, the potential for low cost wind and solar energy in this tropical and sunny region, make for attractive conditions. However, take-off has been slow, and as of 2016 the archipelago was producing only 2.5% of its energy requirements from RE. The biggest barrier has been the lack of upfront investment - estimated to cost €270 million. Despite its World Bank status as a High-Income Economy, Seychelles is struggling to make ends meet on the energy front. In addition, being an archipelago of many small islands, means that space for such big infrastructure projects is very restricted.

It is very attractive for counties, especially small isolated islands, to try and attract sizeable foreign investments to help build large infrastructure projects. Governments throughout the word are guilty of assuming that such investments will bring fast ‘fame and fortune’. However, in the Seychelles this strategy is clearly not working very well, despite its good standing in the international community.

Blockchain technology could be the answer to Seychelles double conundrum: lack of finance and lack of space for big projects. The graph below shows the different uses of blockchain in the clean energy sector.

PWC infographic

Considering Seychelles’ lack of finance, new and innovative ways of private financing, such as crowd financing though blockchain technology, could mobilise investment. Blockchain is perfectly suited for the decentralised, digitised new energy paradigm to facilitate a roll out of clean energy. While blockchain was created for Bitcoin, cryptocurrency is not necessarily its only usage. Digital tokens (known as tokenisation) can represent assets, securities and currencies. Tokenisation can unlock new funding opportunities, as innovative results-based finance schemes in a cost-effective, secure, and transparent way.

For example, company WePower believes that blockchain technology can be instrumental in standardizing energy contracts for flexibility in power purchase agreements. By allowing RE developers to sell upcoming energy production upfront, WePower creates an enabling environment for developers to raise funds upfront for their projects. Other examples include companies such as The Sun Exchange and ImpactPPA, both aim to accelerate the financing of renewable energy using the power of blockchain.

Another advantage of the technology, is that by allowing local solar or wind generators to sell power to their surrounding neighbours, blockchains can help facilitate the distribution of small amounts of energy, combined with smart and innovative financing schemes, mobile applications and digital sensors. For instance, any individual interested can install a blockchain enabled solar panel, using a mobile phone to pay for the hardware in instalments and incurring minimal fees. Once the solar installation is paid for, the owner can sell excess solar power. Power requests and payments can be made via mobile phone.

Thus with a combination of crowd funding for medium sized RE infrastructure projects and peer-to-peer trading through small local projects – Seychelles could quickly scale up its RE infrastructure despite its geographic constraints, thus mitigating its impact of climate change and ensuring its energy security. For that through, SIDs, such as #Mauritius, would need governments that are willing to relinquish their near total control of the power grid.