The intersection of Blockchain and the energy industry looks like a great place to be today. A technology that promises to bring order and automation in a distributed world could be the perfect match for a system (the energy system) and an industry (utilities) that are slowly but relentlessly decentralizing. Almost like a marriage made in heaven.
I recently came back from one of Europe’s seminal events in this technology intersection, EventHorizon 2017 – the result of one year’s hard work by people at Grid Singularity, supported by EY, Vattenfall, PwC, Energie Steiermark, Microsoft, Fronius, and Parity Technologies.
Here’s what I bring home from this finely produced two-day gig in Vienna.
Blockchain: Why you should care
From a utility’s perspective, there’s a whole lot of good reasons for closely monitoring the evolution of blockchains, the developments in the technology community and, ultimately, to be at the event. These essentially cluster around four categories (two obvious and two lesser known):
- Process improvement (from simple optimization to total transformation) and the cost savings that go with it. Imagine being able to move past today’s complex and expensive billing systems by implementing a decentralized ledger that is inherently trusted (or trustless), secure, and auditable. Once users get the technology, utilities might even improve on their terrible consumer trust levels.
- New services and new revenue streams – a lifeline in a world where value pools are shifting out of a utility’s traditional value chain: utilities have to be ready to offer blockchain-enabled services if and when use cases mature. Take for example the ability to offer hassle-free, fully automated home energy management and P2P local electricity exchange, in the future. Or end-to-end e-vehicle charging services, including the infrastructure, commodity, and automated M2M billing functionality. And this is just to name two of the most discussed use cases out of a plethora (see below).
- Disrupt or be disrupted. This may come as a surprise to many, but utilities have come a long way from those rich and dull distributors of commodity whose responsibility was “only” to keep the lights and heating on. If competition and digital transformation are teaching utilities one thing, it is that building the right ecosystem is what makes the difference between getting to market first and being displaced (or disrupted).
- Attract talent. For many of the same reasons, the days in which utilities represented an attractive destination for engineering talent are also long gone: utilities have ageing workforces and a growing need for fresh digital skills. By making technology incubation a part of their vision, utilities can at least keep this talent within their gravitational pull.
On the lookout for use cases
In a survey published late last year by Germany’s energy regulator Dena, the countries industry decision makers identified 107 blockchain use cases, ranging from “platforms” (e.g., P2P trading, distributed generation) to process optimization use cases (e.g., billing, meter data management, mobility). We now stand at 184 and counting: a mind-boggling number of use cases for a single piece of technology and undoubtedly a testament to its transformative nature.
The Viennese event showcased a dozen of the world’s most promising startups in this space, some of which already grabbed headlines over the past few months. The use cases featured on stage include IoT (from EV charging to M2M data authentication), “tokenization” of renewable energy, AI-aided home energy management, P2P and autonomous energy trading, settlement and portfolio reconciliation (from the microgrid through to the distribution and wholesale levels).
Many use cases have already moved beyond the proof of concept stage, with demonstrators and even real-world pilots being initiated that leverage public or private “permissioned” type of blockchains. Some companies can even boast actual commercial deployments and DSO-scale trials involving thousands among smart meters and other grid devices.
Instant polls of the event’s roughly 500 attendees reveal that virtually all domain observers are persuaded of the transformational impact of blockchain on the industry and very few see utilities endure in their current form. While most companies are still trying to figure out which use cases to focus on, some claim to have found the first low-hanging fruits and confirm they are developing pilots. Overall, people think the first blockchain-driven business models will appear in the real world in 2-3 years’ time, with an optimistic minority already expecting something in production next year.
Looking at the expected impact of the core “platform” use case, the consensus is for P2P trading to account for under 20% of the total electricity market in Europe, by 2025. On the contrary, at between 20% and 60%, the consensus around the cost saving potential of blockchain-driven process optimization is less clear-cut.
Blockchain in energy: a matter of endurance
Overall, the enthusiasm and dynamism of technologists and startups contrast with the generational timescale on which the energy transition is measured. And, understandably, it also contrasts with the cautious stance of most utilities and investors.
The former have been looking at this space for the past 12-18 months and may be piloting a few ideas, but don’t expect the first full-scale blockchain project to be financeable before just as long. For the latter, it isn’t quite prime-time yet. The business models and technology roadmap need maturing and large venture capitalists are only dipping their toes. In addition, there seems to be somewhat of a disconnect in the blockchain conversation between the most widely discussed use cases, like P2P trading, microgrids and EV charging (currently niche markets) and some of the technology’s sweetest spots (e.g., “enterprise blockchains” for billing).
Regulation will also need to change before blockchain can produce any meaningful impact on the way energy is bought, sold and accounted for (e.g., market role of smart contracts and agents, grid fees in P2P trading, consumer access to spot markets, etc.) So-called “regulatory drag” is very strong in this industry, not least because of the broad health, safety and consumer protection remits that market regulation and technical norms have in utilities.
One clear call to action from the EventHorizon 2017 attendees to industry regulators is that they should look into the implications of blockchains – and the sooner the better! – possibly by installing a dedicated task force. Luckily, a debate has started among European regulators, and legislation is being drafted that sets certain preconditions for the use of blockchains in the sector. But do we really need market regulation in a world where compliance and auditability are upfront? According to blockchain enthusiasts, the energy regulator’s role will likely evolve to become one of “smart contract certification” and “audit of last resort”.
From a broader market system perspective, blockchain is expected to simplify customer data management, enable dynamic retail pricing and enable users to better react to price signals, incentivizing demand-side response and ultimately leading to lower retail energy bills. This, of course, provided the blockchain ecosystem has enough endurance to get there!
If you want to learn more about Blockchain and Energy Insights, please contact JF Segalotto.