Smart contracts

Originally associated with cryptocurrencies and financial transactions, smart contracts are already being explored in sectors such as logistics, manufacturing, healthcare and, increasingly, energy. For companies such as Iberdrola, which is accelerating the electrification of the economy through investments in renewable energy, electricity networks and digitalisation, these technologies open up new opportunities to optimise processes, automate operations and support a cleaner, more flexible energy system.

What is a smart contract?

Unlike traditional contracts, smart contracts are typically deployed on the blockchain, a distributed digital ledger that stores transactions securely, transparently and immutably. Once deployed, the conditions programmed into the contract cannot be modified without network consensus, reducing the risk of manipulation or error. These contracts are then executed automatically when the specified conditions are met.

In 2014, Vitalik Buterin, co-founder of the decentralised blockchain and development platform Ethereum, explained at a summit how smart contracts work. “Contracts are translated into computer language and stored in blocks. The parties to the contracts, which are copied to distributed ledgers, are kept 100% anonymous. The code snippet is ready with specific tasks and details (time limit, what goes where, from where to where, etc.). When the specified conditions are met, it executes the transaction, and if the necessary conditions are met, the transaction is successfully completed or cancelled before completion.”

Today, platforms such as Ethereum have made it possible to develop increasingly sophisticated smart contracts capable of automating everything from financial settlements to industrial processes. Driven by this rapidly evolving technology, they are already spreading into sectors such as real estate, healthcare, media, finance, public administration and, of course, energy.

Why do smart contracts matter now? 

The transformation of the energy system is accelerating the need to automate processes, exchange data securely and manage an ever-growing number of connected assets in real time.

The expansion of renewable energy, the growth of electric vehicles, the digitalisation of electricity networks and the integration of millions of sensors, smart meters and storage systems are generating unprecedented volumes of information.

In this new energy environment – more decentralised, dynamic and interconnected – technologies such as smart contracts can help automate agreements, validate operational events, improve traceability and execute transactions securely and efficiently without relying on manual processes.

How does a smart contract work? 

Although each application is different, the operation of a smart contract usually follows a simple process:

1. Agreement definition. The parties define the rules, conditions and actions that will be executed automatically.
2. Programming. These conditions are translated into code and deployed on a blockchain network.
3. Data verification. The system receives information from connected platforms, sensors or external data sources.
4. Automatic execution. When the predefined conditions are met – following “if/when… then…” instructions – the smart contract executes automatically.
5. Persistent record.The transaction is validated by the network and permanently recorded.

What is needed for smart contracts to work?

Although smart contracts can automate agreements and transactions, their operation depends on several technological and operational elements that must be properly integrated:

Reliable data

Smart contracts can only make decisions based on the information they receive, making data quality, accuracy and availability essential.

Sensors and connected devices

Technologies such as the Internet of Things (IoT), smart meters and connected industrial systems make it possible to capture physical events and transfer them into the digital environment.

Clearly defined rules

The conditions that trigger the contract must be agreed in advance, be measurable and be capable of being translated into computer code.

Cybersecurity and identity management

Protecting data, communications and access is essential in highly connected ecosystems.

Integration with existing systems

To operate at scale, smart contracts must connect with business platforms, billing systems, energy markets and operational tools.

Regulatory framework and common standards

In regulated sectors such as energy, interoperability and regulatory evolution are key factors in facilitating adoption.

Traditional contract versus smart contract

Both traditional contracts and smart contracts aim to formalise agreements between parties. However, the way they operate can be very different. While traditional contracts often rely on administrative processes, manual validations and intermediaries, smart contracts incorporate programmed rules capable of executing automatically when certain conditions are met. The following comparison summarises some of their main differences:

Current applications of smart contracts

Although smart contracts continue to evolve, they are already being used across different sectors to automate processes, validate transactions and improve information traceability. Some of their most common uses include:

• Decentralised finance (DeFi). Blockchain-based platforms use smart contracts to execute loans, payments, digital asset exchanges or interest generation automatically, without the need for financial intermediaries.
• Automatic payments and settlements. Companies and digital platforms use smart contracts to release payments automatically when certain conditions are met, such as the delivery of a product or the provision of a service.
• Parametric insurance. In certain insurance products, smart contracts can trigger automatic compensation when a specific event is verified, such as flight delays, extreme weather conditions or logistics incidents.
• Supply chains and traceability. Manufacturers, logistics operators and distributors use smart contracts to verify the origin of raw materials, record the movement of goods and validate certifications throughout the supply chain.
• Property transactions. Some platforms are using smart contracts to automate payments, property transfers and document verification in real estate transactions.

Why are smart contracts important for the energy sector? 

The energy sector is becoming increasingly decentralised, data-driven and interconnected. Millions of connected devices, smart meters, renewable assets and electric vehicles continuously generate information that must be processed securely and efficiently. Smart contracts can help automate this ecosystem.

Smarter electricity networks 

Digital electricity networks generate huge volumes of operational data in real time. Smart contracts can help automate agreements between network operators, validate operational events and trigger predefined responses in smart grids.

An electricity network connected to thousands of assets such as wind farms, battery storage systems or solar plants could use smart contracts to automatically validate operational data from those assets and execute predefined actions in real time. For example, if a battery storage facility injects 50 MW into the grid during a frequency event, a smart contract could instantly verify the delivery, calculate compensation according to market conditions and trigger payment, all without manual intervention.

What’s more, when combined with technologies such as the Internet of Things (IoT) and artificial intelligence, smart contracts can contribute to more resilient, efficient and flexible network management.

For example, a smart contract could be used in peer-to-peer energy trading systems: a household could automatically sell surplus solar energy to a neighbour when the price becomes favourable or redirect that energy to a community battery.

Likewise, when connected to IoT-enabled smart meters, smart contracts can verify production and consumption in real time, calculating and executing payments instantly.

Thanks to their automated nature, intermediaries can be reduced and manual interventions minimised.

Renewable energy certification 

As consumers and businesses demand greater transparency regarding the origin of the electricity they consume, smart contracts can help certify the source of renewable energy in real time.

In 2019, Iberdrola carried out a blockchain-based pilot project that enabled customers to trace renewable electricity from its generation source to the point of consumption, reinforcing transparency in guarantees of origin.

In the future, smart contracts could also automate settlements between producers, consumers and storage systems within increasingly decentralised energy ecosystems.

Power Purchase Agreements (PPAs) 

Power Purchase Agreements (PPAs) are long-term contracts between electricity generators and buyers, typically utilities or large corporate consumers. They define the price, volume and duration of electricity supply, often over periods of five to 20 years, and are widely used to support the financing and deployment of renewable energy projects.

By providing price certainty for buyers and revenue stability for producers, PPAs have become a cornerstone of the energy transition. However, their growing complexity – driven by multi-party structures, evolving regulatory frameworks and the increasingly important role of renewable energy certification systems – has also made them more data-intensive and operationally demanding.

In the context of PPAs, smart contracts can encode contractual terms such as generation volumes, price thresholds and settlement rules directly into software. This makes it possible to move away from manual processes involving multiple intermediaries towards automated execution.

For example, when verified energy production data is received, a smart contract can automatically trigger payment flows between the buyer and generator without the need for manual invoicing or reconciliation. This reduces administrative costs and accelerates settlement cycles while improving accuracy and traceability.

Electric mobility 

The growth of electric mobility is creating new digital relationships between drivers, charging operators, energy suppliers and payment platforms.

In this field, smart contracts can automate:

• User authentication
• Verification of charging sessions
• Real-time billing and payment validation
• Settlement between operators
• Interoperability between charging networks

These capabilities can simplify the charging experience while supporting the large-scale electrification of transport.

Energy supply chains

From wind turbine components to substation equipment, energy infrastructure depends on complex global supply chains.

By combining blockchain, connected sensors and smart contracts, companies can improve:

• Asset traceability
• Maintenance records
• Equipment certification
• Lifecycle management
• Supplier transparency

This can strengthen operational reliability and support more sustainable procurement processes.

How is Iberdrola exploring digital agreements?

At Iberdrola, the exploration of technologies such as blockchain, artificial intelligence, connected infrastructure and automation forms part of a broader digital transformation strategy designed to accelerate electrification and support a more sustainable energy model.

As part of its Strategic Plan 2025-2028, Iberdrola is making significant investments in electricity networks, renewable energy and digital technologies to improve operational efficiency, strengthen system resilience and deliver smarter services to customers.

In this context, smart contracts help automate certain processes, improve traceability and facilitate faster, more secure interactions across the entire energy value chain.

Limitations and misconceptions

Although smart contracts offer significant potential, they are not a universal solution and do not automatically replace all traditional processes.

Not all agreements can be fully translated into code, especially those requiring legal interpretation, negotiation between parties or human oversight.

In addition, smart contracts depend on the quality of the external information they receive. If data from sensors, platforms or connected systems is incorrect or incomplete, automatic execution may produce unintended results.

Nor do all business processes necessarily benefit from blockchain-based automation. In many cases, adoption only adds value when there is a high volume of transactions, multiple participants or a clear need for traceability and shared trust.

Smart contracts: future challenges 

Despite their enormous potential, smart contracts still face several challenges before they can be deployed at scale in complex industrial environments. One of the main challenges is integration with existing infrastructure. Many energy, industrial and commercial systems were designed long before blockchain-based automation emerged, meaning that connecting legacy platforms with new digital architectures may require significant investment, technical adaptation and standardisation.

Data quality is another critical factor. Smart contracts can only execute based on the information they receive, so inaccurate, incomplete or delayed data from sensors, meters or other external sources can generate incorrect outcomes.

As connected devices and digital platforms continue to expand, cybersecurity is also becoming increasingly important. Protecting infrastructure, communications and digital identities is essential in highly interconnected ecosystems where automated decisions can trigger financial transactions or operational actions.

Regulation presents another challenge. Although legal recognition of smart contracts continues to evolve, their legal validity, enforceability and technical standards still vary across jurisdictions, especially in highly regulated sectors such as energy.

At the same time, scalability remains a key technical consideration. The electricity systems of the future will involve millions of connected assets – from renewable generation facilities and battery storage systems to electric vehicles, smart meters and flexible demand resources – generating enormous volumes of data and transactions that digital platforms will need to process efficiently, securely and in real time.

As electricity systems become smarter, cleaner and more decentralised, smart contracts could play an increasingly important role in automating trust, improving traceability and advancing the energy transition. For companies like Iberdrola, they represent another step towards a more connected, transparent and sustainable energy future.