Blockchain applications are rapidly spreading across the energy sector, writes David Groarke, Managing Director of Indigo Advisory Group. Some of those applications may be disruptive for utilities. Europe is the most active region globally. Groarke discusses some of the key takeaways from a recent blockchain conference in Vienna.
Currently the EU is undoubtedly the most active region globally in terms of blockchain activities in energy but also in terms of the broader core developer network. Indeed, we are seeing in Germany for example more than half of energy executives either carrying out or planning blockchain pilots.
Presently, there are approximately 40 startups operating globally in the energy blockchain space. These startups are working with the underlying technology of bitcoin and particularly on the Ethereum platform.
The technology still needs time to mature and the core developer network estimates that this may be 2-5 years away. However the emergence of initiatives such as the Enterprise Ethereum Alliance and the Energy Web Foundation will speed up standards and help to create both interoperability and shared design between public & private chains.
Although blockchain may provide an opportunity to transform some existing utility processes, the major opportunities in the near term will focus on the changes in the energy industry, and in particular, the interplay between distributed energy resources and utility analytics.
The map below highlights some of the global activity. (Indigo recently launched a dedicated blockchain in energy and utilities resource center where you can find more information.)
Global Interactive Blockchain in Energy and Utilities Interactive Map
In terms of evolving vendor and utility activity, we are seeing categories of use case activity emerge across the value chain. These can be broadly grouped across:
- bitcoin bill pay
- P2P trading
- EV charging and sharing
- renewable cryptocurrencies
- wholesale trading and settlement
- the creation of consortia and energy blockchain labs
Bitcoin bill payments – In 2014, BAS Nederland became the first energy company in the world to accept bitcoin bill payment. Since then we have seen Enercity in Hannover, Elegant in Belgium and Marubeni in Japan roll out bitcoin bill pay. In this domain we have also seen Bankymoon in South Africa launch a social innovation project that enables anyone to “send” electricity, water and gas to anybody else in the world, from anywhere, by topping their utility meters. The key takeaway here is that as cryptocurrencies continue to gain traction globally, and as utilities continue to invest in customer engagement strategies, we expect those utilities with jurisdictions and geographies that have high bitcoin penetration continue to offer varied payment solutions to their customers.
P2P trading – The trading of electrons with neighbors and within community microgrids on blockchain based solutions is perhaps the most publicly acknowledged application of blockchain in the sector. In the past 12 months, we have seen vendors such as Power Ledger and LO3 energy offer solutions to consumers, and utilities such as Alliander and Vector begin to experiment with the technology. While the potential in this category is large, this market will take time to evolve and will depend heavily on regulation. In the medium term, we may however see blockchain extend itself to dynamic pricing, even lending itself to platforms envisaged by the REV process in NY, where a dynamic market below 115kV is a goal.
EV charging and sharing – The area of EV charging and sharing charging infrastructure is perhaps one of the greatest near-term opportunities for the technology in the sector. In 2016 we saw Swiss bank UBS team up with German power company Innogy (RWE) and automotive technology company ZF to create blockchain-based eWallets for electric cars. The goal here is that car owners will be able to pay on-the-go for electric charging, parking fees, highway tolls and receive car-sharing fees in a sharing economy world. Indeed, earlier this year, the solution has been exported to the US with Innogy partnering with California-based ‘the Oxygen Initiative’ to roll out the technology. Overall, we expect this market to grow as EV charging infrastructure deployments accelerate.
Renewable cryptocurrencies – We are seeing the emergence of renewable cryptocurrencies, for example, SolarCoin, which aims to motivate solar prosumers by rewarding them with SolarCoins, a take on how bitcoin incentivizes miners to commit processing power to the network by rewarding them with bitcoins for each block of transactions mined. SolarCoin is incentivizing 97,500 TWhs of global solar energy production over the next 40 years. 99% of the currency is distributed to Solar energy generators providing a proof of work. Additionally, in this area we are seeing collaboration emerge with home energy management and thermostat providers. For example, two-thirds of Smappee’s users have solar panels, which they can now use to earn SolarCoin in a seamless fashion as this is integrated into their meter technology.
Wholesale trading and settlement – Another very promising area for the application of blockchain technology in the industry is in the area of wholesale market trading and settlement – an area that has the potential for some real process improvement opportunities. In the past 6 months, we have seen several notable developments in this space.
Firstly, at the EMART energy trading conference in Amsterdam in November 2016, the first European energy trade using blockchain technology occurred. The trades were executed by Yuso and Priogen Trading and both traders used the Enerchain trading tool, developed by PONTON.
In addition, PONTON aims to deploy a Smart Market blockchain solution in the NEW 4.0 collaboration project in Schleswig-Holstein. The vision is to use blockchain technology as a joint data layer to coordinate market activities such as the submission of buy or sell orders and the execution of trades. System users will be DSO, TSO, industrial and private prosumers.
In a similar vein, earlier this year BTL announced that they had launched a pilot with Wien Energie, Austria’s largest utility conglomerate that is focused on energy trading alongside two other utilities.
Finally, in this space, Qiwi, a Russian payment system operator, has launched a pilot to track energy transactions using blockchain technology in partnership with Tavrida Electric. Overall, and for multiple reasons, we view this area as having very bright prospects for blockchain application across the sector.
Consortia, labs & research – As we are at the very early stage of developing the technology and energy applications, and as the technology is currently too slow for the majority of industry scale use cases, much needed effort is being spent on developing the core technology and developing robust, research backed pilots.
Notable in this area is the work of Grid Singularity and the Rocky Mountain Institute on the Energy Web Foundation. The aim of this effort is to act as a central convening platform to bring together energy-focused blockchain efforts and accelerate the pace of blockchain development through a combination of hackathons, boot camps, and other gatherings.
Additionally, in this domain, we are also seeing notable activity by Endesa Energía who are establishing a blockchain Lab in Spain and by Wanxiang in China.
Notable startups – Finally across the value chain we are seeing the launch of some noteworthy startups that are using the technology to tackle a range of applications in the sector.
For example, Volt Markets in the US aims to use Ethereum smart contracts to issue and track Renewable energy certificates (RECs). UK startup Electron is working on solutions for the UK market with a focus on a meter registration platform, a flexibility trading platform and smart meter encryption techniques. M-PAYG, a Danish venture-backed startup, is aiming to improve access to renewable energy for people living below the poverty line in developing countries. Using blockchain they are developing prepaid energy solutions through small-scale mobile money installments.
What is blockchain?
The website Comparitech asked 10 Bitcoin experts around the globe to explain blockchain in less than 150 words.
Here we show the answers of the top-five. For all ten, check out the Comparitech website.
Ron Hose, founder of Coins.ph
The Blockchain is a decentralized ledger. In the same way the internet facilitates direct exchange of information (think Skype, WhatsApp vs. traditional telco model), Blockchain facilitates direct exchange of value between parties, without the need for a trusted intermediary.
Drew Ivan, Healthcare Solution Strategist
Blockchain is an immutable, public, distributed ledger that anyone can read or write. Here’s a breakdown of what that means.
IMMUTABLE – data written to a blockchain can never be changed, so readers can be sure it was never altered.
PUBLIC – data on a blockchain is visible to everyone, which makes it perfect for storing public records like bitcoin transactions, land titles, and asset tags.
DISTRIBUTED – unlike a centralized ledger that is kept by a trusted institution, blockchain runs on an entire network of computers, meaning there is no single system that can fail or be compromised.
LEDGER – blockchain is suited to storing small transaction records, not large files.
Taken together, these characteristics allow two parties to trust one another based on the strength of the blockchain network without the need for a third party institution like a bank or government.
Jameson Lopp, Software Engineer at BitGo
A blockchain is a history of events (transactions or otherwise) that uses cryptography to link timestamped batches of events together in order to make it evident if tampering has occurred. This type of data structure enables the creation of new applications that use a blockchain as a trustworthy public database. The first major usage of a blockchain was in Bitcoin as a currency, but many non-payment applications are now being developed on top of Bitcoin and other systems such as Ethereum. Eventually you can expect blockchain-based systems to be used under the hood to power applications that enable users to prove and transfer ownership of digital and physical assets.
Andy Singleton, founder of MAXOS.ai
Bitcoin is a database or “ledger” that shows how much money you have in bitcoins. It simplifies a lot of things because the database is shared. You don’t have to make a special request to your bank to find out how much money you have. It’s all visible in the shared database. You can transfer this money with a digital signature – a sort of instant check. This is a lot faster than a wire transfer where multiple banks have to update multiple databases and then check or “reconcile” them over the course of several days. This type of shared database or “blockchain” will also greatly simplify stock records and trades, tracking and paying for goods, paying musicians for their music, and even medical records. We won’t have to call around to find out where the goods are, when the stock will arrive, or who played what music.
Anatoliy Okhotnikov, financial and cryptocurrencies expert at SoftJourn
Blockchain is an open decentralized database – a distributed ledger. Every participant on the network has a copy of the transaction ledger. Ledger entries are secured by strong cryptography and each transaction must be agreed to by the most of the participants in order to make it into the ledger. This allows for better security, transparency, and trust. Blockchain is a disruptive technology in a sense that it can be used to store any value information like money, goods, property, work, or even votes without the need of a central authority to verify or prove it. The authenticity is verified by the entire community, by everybody who has a copy of the ledger. Cryptography makes sure it is not possible for a single individual or minor group to tamper or forge the ledger records. The future economy is seen to be moving to a distributed and trusted environment and the possibilities with blockchain are endless.
Overall, we forecast that the startup ‘blockchain in energy’ space will become very active over the next several months and we expect to see an evolving maturity around business models, “as-a-service” opportunities and continued pilots.
Developing a utility blockchain strategy
From our initial analysis, blockchain may provide an opportunity to transform some existing utility processes. For example, beyond the much-talked-about applications behind the meter, utilities may be able to leverage this technology for supply chain, asset management and organizational performance applications.
In reality, there will be largely three types of impacts of blockchain technology on the utility value chain. Firstly, there will be those areas where there is limited-to-no impact, for other areas the technology may support existing processes and make them even more robust and efficient. For other areas however, we may see some level of disruption. Overall, we have begun to analyze these types of impacts across the utility value chain in the resource center and expect this view to evolve as the technology matures.