A True Use Case?
Blockchain – the term causes a stir in tech circles, and there are many promises that the technology will change the way business is carried out in a multitude of industries.
Energy is no exception.
Of course, there is also talk of blockchain being the next “dotcom bubble”, and the recent decline in Bitcoin price to some is an indicator that the pop is coming. However, Bitcoin is just the tip of the iceberg for, and when looking at blockchain in energy, the use cases go beyond an asset to be traded speculatively.
To take a dive into the action, I had the opportunity to attend Blockchain2Business in Amsterdam by Solarplaza. I wanted to answer the question: “Is the use case for blockchain warranted in the energy space, or is this another case of blockchain being a ‘solution looking for a problem’?” (Sidenote: Volunteer at conferences if you can!)
At the close of Day 1, it was shown that blockchain appears to have a clear use case in the energy space indeed, especially when it is applied to the meteoric rise of distributed energy resources (DERs). That said, many of the use cases are currently in the experimental phase, with the "business cases" still being built out.
A "Seemingly Unstoppable" Trend
Bitcoin was just the beginning.
This is what is said with regards to the potential use cases for the system that underpin Satoshi Nakamoto’s (in)famous cryptocurrency. Indeed, as seen in the conference, the applications of blockchain within the energy space vary from the traditional cryptocurrency asset model. Some of the use cases that are already active include local energy trading platforms, such as LO3 Energy; and EV Charging blockchains enabling flexible charging and payment schemes, such as Share & Charge in Germany.
A third case, though perhaps it can be thought of as the overarching use case, is the management of the grid as more DERs come online. Within Europe, transmission, and electricity service operators such as Tennet and Sonnen have already created partnership to demonstrate platforms to this end.
But, why use blockchain for something like this? Is the 15x increase in investment (from $10 million in Q1 2017 to $150 million in Q1 2018, based on the BNEF presentation) warranted?
From the first sessions, the shift in the way the energy business operated became clear, in that the handling energy data is becoming increasingly complex. While conceptually, it is well known that DERs are coming online in record numbers, looking at the actual values for the U.K. helped put the shift into perspective:
- 2000: 80 electricity assets, no demand side response (DSR) devices
- 2018: over 1 million electricity generating sites, and thousands of DSR devices
- 2030: over 10 million generating sites projected, and billions of "flex" devices (DSRs, EVs, etc.) connected
While these numbers UK-only, similar trends can be seen in other countries, resulting in pressure for these assets to be, using a quote from Jo-Jo Hubbard from Electron, “appropriately digitally managed.” As well, she pointed out that while multiple providers could own different assets on the grid, at the end, they are “non-rival goods” (i.e.: they all provide energy). Collaboration of these resources is necessary for a resilient and efficient grid.
When a Phone Call Doesn't Cut It
Gone are the days when the utility can call up the manager of the local powerplant when they need to scale up or down production. Not only are the energy sources becoming too numerous, but they are also becoming more variable, resulting in grid balance challenges that operators are becoming all too familiar with. This will only become exacerbated by the proliferation of electric vehicles, when the total capacity of energy storage, and whether it draws or contributes to the grid, becomes variable.
At Blockchain2Business, the effective management and use of data towards balancing the grid was one of the recurring themes of use-cases:
- Electron: Electron has created a platform that will enable the coordination of multiple energy assets. The aim is to create a unified infrastructure where all DER assets work together to balance the grid.
- TenneT and Sonnen: Working towards creating Europe’s first grid-balancing project using blockchain technology. In this case, Sonnen has created the “micro-grid” whereas Tennet is the transmission service operator (i.e. they own the infrastructure).
- Stedin: Aims to create gateways that connect local markets (i.e. peers trading energy with eachother), to wholesale markets. In this sense, it is a “layered” energy grid.
- Enerchain: a product developed by Ponton with a minimum viable product target of Q1 2018, with the blockchain business case being in lower transaction costs, and the ability to have more transaction entries from writers on the platform that trust each-other. This platform will also be open source and reduce the barriers to entry for the European OTC energy market.
Another item of note is that while the use cases promoted the stability of the grid, they also aimed to reduce the barriers to entry for participation in the grid. At the outset, these seem like seemingly contradicting goals, though the use cases presented seem to show that the two are not mutually exclusive.
A possible envisioned future for these systems would be similar to the “layered” grid that was spoken about by Stedin (Enerchain), where local energy trading platforms first use the “locally grown” energy, and then any residual energy is traded on the wholesale grid as needed. Now, as was pointed out by Scott Kessler of LO3 Energy, the end customer doesn't care whether blockchain is used or not, so long as the benefits of the new platform outweigh those of the incumbent. Thus far, blockchain has showed the most promise in being able to simplify these complex data flows.
Reguations are Friends
Of course, all this change needs to play within existing regulatory frameworks. This was the theme of the opening panel of the last batch of sessions (Jake Brooks refers to this as well in his article comparing the internet and the power grid).
The opening lines on the panel set the tone: electricity distribution is one of the most regulated sectors in the world, and this is for good reason. The power grid supplies all of the most important things in our lives, such as hospitals and schools, and regulations need to be in place to ensure the quality of the generators connected to the grid. How do these blockchain solutions play in such a space?
What struck me was nature of this discussion. As opposed to talk of how blockchain solutions can be implemented despite regulations, or how regulation was “red tape” meant to be cut, the panel opened with how well-designed regulation was critical to ensure the adoption of blockchain solutions. As I overheard leading up to the panel “everyone knows that the second you connect to the grid, you need to follow the rules.” It is not "us vs. them" - long term success in a complex grid requires extensive collaboration between new players and incumbents.
Following this, the perception of regulation being equal to stifling innovation was quickly shot down. Properly designed regulation can, in fact, act as an accelerator of innovation with the appropriate definitions in place, the panelists pointed out. Designing these regulations takes time, and to do so requires policy makers to look towards regions that have begun experimenting with policy decisions in the form of pilots (after all, every plan falls apart once it hits implementation), or barring that, creating pilots of their own. The inclusion of small players (not just large generators) in initial discussions surrounding the formation of policy is also important when designing future policy for the grid.
On the other side of scale, incumbents and utilities will continue to, and need to, play a role in the development of the future grid, as they have both the experience and infrastructure that is needed in an increasingly distributed power grid.
Blockchain also has its limits. In the context of the grid, most cases see blockchain being used as a data management solution which ensures some form of trust in terms of where you are buying electrons from. However, blockchain does NOT eliminate the need for third parties that perform the necessary task of verifying the compliance of physical assets behind the meter. These entities will need to continue to exist, though their business models may need to be re-evaluated at some point in the future.
An Envisioned Future for Blockchain and Energy
What are the possibilities of blockchain in energy? In short, they appear to are numerous, with an emphasis on making complex data streams in energy simpler for all. The coming year is likely to see some use cases thrive, though not to a very widespread extent. It was agreed by speakers that governance structures will need to be established to facilitate the widespread adoption of blockchain protocols in the energy sector.
In the long term, one of the possibilities enabled by blockchain that really struck me was the ability for "Decentralized Autonomous Organization":
Imagine a legal entity, one that is not a team of people, but instead an entity made up exclusively of an array of solar panels. Using a blockchain token system, the entity of panels receives credit for every kilowatt hour that is generated. Then, through sensors monitoring the system, when an error is detected, an automatic call is put out to an O&M provider to dispatch a crew to fix the issue. Upon completion, the O&M provider is then paid automatically with the tokens that have been allocated to the array. No human is needed to dispatch the crew, and one can also imagine a future where drones instead are sent to fix the issue with the array.
Day 1 for Blockchain2Business set the bar high for the conference, and I look forward to hearing the next day's lineup of incredible speakers!