Blockchain, the technology underpinning cryptocurrency bitcoin, has been recommended and theorized for uses across a broad spectrum of sectors and countries. Now, one Southeast Asian city-state is putting the tech to work in reshaping its energy industry.
In Singapore, companies can buy and sell so-called renewable energy certificates (RECs) that represent a unit of green energy production from the likes of wind or solar power. The idea is that firms seeking to offset their non-green energy production can purchase RECs from a company producing excess green power.
It's a system similar to carbon trading that takes place in many localities, and, as of last week, companies can now engage in their REC trading on a blockchain-powered system.
That's more than just a gimmick, according to utilities provider SP Group, which launched the new platform: It will allow for better transparency and lower costs in power trading because it reduces the need for a centralized entity to verify transactions. It could eventually even facilitate cross-border energy credit trading, the utility company has said.
"A consumer in Singapore who wishes to buy green energy can now, through blockchain-powered REC trading, purchase a REC from a hydro-producer based in Laos," SP Group CEO Wong Kim Yin told CNBC at the Singapore International Energy Week conference last week. "This reduces the cost, reduces the friction in the market."
High costs in verifying certificates as well as the difficulties in tracking RECs have led to relatively low trading volumes in Singapore, and even so, a majority of the transactions occur directly between one originator and buyer — not on a marketplace.
Adding blockchain to the equation may change that: The distributed ledger system effectively eliminates the need for verification processes at a centralized entity, reducing costs and allowing small energy consumers and producers to participate.
Wong spoke of a future in which energy trading is more decentralized, driven by technology and where consumers are empowered to make sustainable energy choices.
"In the past, you have big power stations in the centralized model and you would transmit power to the households. In the future you would have solar panels and you would have batteries. In that model the power system would be a lot more robust," Wong said.
Green energy options are limited with land constraints in the city-state, meaning large-scale construction of wind farms isn't an option. Solar panels, which are installed on surfaces, are also a function of land area, as well as the residential and commercial build-up.
Innovations like floating solar energy panels on reservoirs, which are currently being tested in Singapore, could help alleviate the spatial constraints of land, but the potential extent of such technology remains a question.
As a result, experts expect that demand will continue to outstrip supply in Singapore in the near future. Lars Kvale, managing director at APX, which is an issuer of RECs globally, told CNBC that "there is significant demand for renewable energy in Singapore but a limited amount of renewable energy capacity to meet all of the demand."
Blockchain could unlock some of that potential through matching cross-border demand and supply.
"The true promise of blockchain and distributed ledger technology in the context of environmental commodity platforms is allowing these platforms to establish trusted relationships with upstream information sources without having to revalidate it," Kvale added.
SP Group owns and operates electricity and gas transmission and distribution businesses in Singapore and Australia, as well as district cooling businesses in Singapore and China.