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Blockchain in the energy sector – Hype or Revolutionary?

‘The heart of the fourth industrial revolution’, ‘as potentially impactful as the creation of the internet’ are superlatives often attributed to blockchain, the ‘distributed, public ledger’ technology underpinning Bitcoin. The excitement has already permeated the financial industry, where blockchain technologies have attracted vast sums of venture capital, and many of the larger players have signalled they are fully expecting the technology to become a prominent feature of their industry. Blockchain has become an object of immense interest for many in the energy space and its proponents claim that the technology can facilitate a revolution across the sector.

Why?

blockchain

The way a blockchain works means it exhibits a number of extremely useful properties. A blockchain is a record of events (often transactions) stored on a 

decentralised network consisting of all the computers participating in the network. All network participants act as witnesses and verify each event or transaction between other network participants. Blocks of data made up of groups of events / transactions are stored chronologically.

The data within these blocks is encrypted and each block is connected to the next via its encryption code. This makes both the composition of the blockchain and the data held within it highly immutable. These features mean a blockchain enables the reliable coordination between multiple parties without the need for a central coordinating authority or trust in the other participants on the network. A blockchain theoretically provides a single record of ‘truth’, from the very first event recorded on the chain to the latest.

These attributes make blockchain technology a potentially powerful catalyst within the shifting energy landscape as:

  • generation becomes increasingly decentralised;
  • peer-to-peer trading becomes more widespread;
  • customers begin to seek energy from more renewable, local sources;
  • processes become more and more digitised, automated and optimised; and
  • grids become increasingly ‘smart’.

Blockchains provide increased privacy, whilst at the same time a more transparent and secure way of tracking energy flows without the need for a central coordinating authority, and so are a potentially low-cost enabler of transactions between distributed energy generators at the grid edge.

However, this is just one of potentially hundreds of applications within the energy industry. Ideas for where the technology might provide solutions range from enabling a secure IoT protocol, to providing the basis for an autonomous EV charging network. Understandably then, energy players across the industry are scrambling to ascertain how exactly blockchain may be disruptive – from start-ups looking for potential applications, to large scale utilities seeking to understand the impact to their business models. Indeed, a number of these utilities are already engaged with the technology and have launched pilots globally.

These stakeholders came together in Vienna last month for the first global summit on blockchain technology in the energy sector. The event provided a platform for the latest developments in blockchain applications to energy, whilst also giving those involved an opportunity to debate how it can best achieve scale within the sector, how it should interact with regulation and current structures (and how these regulators should interact with it), and what the most significant challenges to its application are.

Presentations were made by start-ups such as L03 - who have created small peer-to-peer solar communities who can trade excess generation across a microgrid on a blockchain-based platform, Powerledger - whose platform allows distributed renewable energy generators to decide whom they want to sell their surplus energy to and at what price, and Electron – who are (amongst other things) proposing the use of the blockchain to offer meter registration and hence frictionless utility switching without the need for a centralised database.

Perhaps one of the most interesting proof of concepts outlined at the summit however was Grid Singularity’s ‘micro-trading’ platform, which, supported by a mix of AI and blockchain technology, allows devices within the home to act as mini energy traders, bidding on to the energy market to optimise the system at the micro-level.

Key challenges

One of the key challenges for applying blockchain in the energy sector is transitioning from these small-scale demonstration or proof of concept projects to larger, commercial applications, without compromising the unique attributes of blockchain technology as described above.

Whilst open, public blockchain networks such as that of Ethereum, which, by enabling users to embed smart contracts into a blockchain, seem suited for many energy applications, the way these open blockchains validate the transactions occurring on them means that the rate of transactions possible is currently relatively low. Using private or ‘permissioned’ blockchains means transaction speeds can be greatly increased, however one then has to necessarily reintroduce a degree of trust between transacting parties for such blockchains to be secure. Blockchain developers are working on a number of solutions to this, including platforms that can ‘bridge the gap’ between public and permissioned blockchains.

Potential for transformation and disruption?

Whilst it is impossible to ignore blockchain’s transformational potential, the technology is still at a relatively immature stage and as such it is unclear as yet to what degree, and for what particular use-cases it may be game-changing, and for which it may actually be better to apply more traditional solutions. Blockchain should not be used for the sake of it, and should not be hailed as a universal panacea – solving all problems within the energy sector.

In (a very broad) generalisation a blockchain could add value to and therefore be disruptive to energy applications where it is necessary to know the order of events, for it to be impossible to tamper with recorded data, and where the energy system has participants that do not trust one another. It is perhaps worth using criteria like these to assess whether blockchain technology is necessarily the solution to a particular problem within the energy space, or whether there are in fact other ways of solving the problem more effectively.

Whilst blockchain’s potential to disrupt many aspects of the energy sector is indeed huge - making it impossible to ignore, a degree of level-headedness is also required when considering how quickly, and to what extent, it can be disruptive in the energy sector.

Want to find out more?

Blockchain will undoubtedly feature in many case studies within our Business Models Research Service, but it is this level-headedness we will be bringing to our evaluations.

To find out more about the service, visit https://www.delta-ee.com/research/business-models-research-service.html or email [email protected].

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