Blockchain2Business Day2: Complexity to Simplicity

Day 1 Insights here if you haven't read them yet!

Day 1 of Blockchain2Buisness showed that not only does blockchain have use-cases, but that there is widespread experimentation of how the system can be used to effectively manage energy data.

The topics shifted gears slightly on day 2 towards the tokenization of energy, and the unlocking of further investment in renewable energy. To close the day, a “visionary panel” was held with experts in the field to understand what their thoughts were on the future of blockchain in the energy industry. But first, the day began with the topic: do we really need blockchains to solve the issues in the energy sector.

Is Blockchain the Ideal Solution?

In short – the answer wasn’t a resounding yes, more of a “well – yes, but…”

Why not the resounding yes? Blockchain is supposed to be the “thing to disrupt all industries”, right? To understand this, we need to look at this through the lens of one of the fundamental uses of blockchain technology across all industries: the assurance of trust in a decentralized manner. From this point of view, the question becomes: Is there really a ‘lack of trust’ in the current electric system?

Within developed economies like the EU and North America, not really. It could be argued that current centralized methods of power capacity planning are centralized and really don’t give consumers a say in what energy they receive, but then again, do they really care? If the electricity is reliable and affordable, perhaps not really. However, what the blockchain does allow is the ability to build a trustworthy electric system from scratch.

So then, what does the blockchain do for energy? In the current use cases, some of the most compelling for existing grids appear to be in improving the quality and management of data, especially with an increasing number of data sources. Essentially, blockchain in the energy sector is a data play, though as the sessions in day 2 showed, perhaps there is a bit more that the technology can do. 

Attaching Immutable Value Energy and Data

What if energy had its own currency ecosystem; a currency tied directly to energy?

That’s what the first set of sessions on day 2 was looking to showcase, and each case had its own unique outlook on how this could be accomplished. Why tokenize? By tokenizing energy, you now effectively have something “tangible” that you are able to transact at the same time as energy. I will admit, I still need to do some more reading to fully understand some of these systems, so below, I’ll attempt to outline the high-level concepts with links for additional reading. A detailed concept explanation would likely make this post too lengthy.

Below are the tokens, and a brief outline of what they are:

 

Mihail Mihaylow presents NRGcoin at Blockchain2Business day 2

Mihail Mihaylow presents NRGcoin at Blockchain2Business day 2

  • Jouliette has a community in Amsterdam using what is called “Jouliette coin” to manage the flows of electricity within the community. This software pilot aims to scale up and enable the intelligent analysis of data within microgrids, and even at the home level. You can take a look at their active pilot (which includes energy flows) online.
  • NRGcoin is a token that aims to reward those who consume their energy locally, as opposed to the traditional Feed in Tariffs that reward consumption only. It aims to be a “support policy for renewable energy”, and in this case, coins are used for local production and consumption, and most notably, the way in which they are rewarded is based on immutable “smart contract” that are programmed into the blockchain. More on this in this video and their website.
  • Solarcoin is creating an ecosystem that rewards all producers of solar energy, regardless of their location, for their production of solar energy. They say to think of it as “the air miles for solar energy”.
  • Exergy, currently working with LO3 Energy and a host of others, aims to be the blockchain standard by which smart devices communicate with one another in the context of energy flows. Think of it as an IEEE standard for blockchain and energy.
  • IOTA aims to be the blockchain token by which all IOT devices communicate. IOTA uses what they call a “tangle” to settle blockchain transactions. What this system does is eliminate transaction fees and increase speed, arguably the two barriers that prevent scalability of conventional blockchain systems.
  • The Sun Exchange is working on creating a token that will enable the widespread development of solar energy projects. They currently use crowdsourcing models that accept bitcoin to develop solar energy projects in Africa (disclosure: I’ve purchased a solar cell lease through the Sun Exchange using Bitcoin).
  • The Hyperion Fund, which intends to launch an ICO, aims to use funds raised from the token sale to construct utility-scale solar assets in developing countries. When the solar asset is sold after construction, the tokens then raise in value. One thing to note: the Hyperion fund exhibits a property that quite a few ICOs show – the utilization of sometimes complex legal structures in order to the token to be a “utility” as opposed to a security.
The Hyperion Fund is structured such that the token holder receives "energy" to avoid being classified as a security in a solar plant. 

The Hyperion Fund is structured such that the token holder receives "energy" to avoid being classified as a security in a solar plant. 

As mentioned, I would recommend doing further reading on the use cases of interest. To explain these in detail would a) likely take up a post each, and b) I would likely get some details wrong and not present what they are doing accurately. 

Gazing at the Crystal Ball

 

The visionary panel to end the day. From left to right: Claire Henley, Energy Web Foundation; José Minguez Matorras, Endesa; Hugo Shönbeck, Energycoin Foundation; Colleen Metelitsa, GTM Research

The visionary panel to end the day. From left to right: Claire Henley, Energy Web Foundation; José Minguez Matorras, Endesa; Hugo Shönbeck, Energycoin Foundation; Colleen Metelitsa, GTM Research

To close the day, a “visionary panel” was held to help inform, after seeing all these use cases, what the possibilities of blockchain are in the future of energy, and how long these might take to develop. Most blockchain use cases don’t enter into production or enter a meaningful market, so what are the likely ones to be successful?

The first of my takeaways from the panel was that the current use cases for blockchain and energy fell into two distinct categories:

  1. The improvement of efficiencies in the current market (cutting operational costs, removing unnecessary intermediaries).
  2. Capturing value from the transition of capital away from conventional generation sources to renewable energy.

To this end, the coming year is likely to see blockchain take out many “non-value added” intermediaries in the energy space, and one of the first areas where this application will take root is in wholesale energy trading. However, there is a caveat: the success of this application will ultimately determine if blockchain continues to be used in energy. This is something to watch for.

In terms of applications that aim to bring flexibilities to the grid: these have the most promise but will also take more time to develop. This is especially true in areas where regulations are such that pilot projects with start-ups are harder to implement (the United States was given as an example of such a region). To this end, the mentality of incumber players seems to be “if it ain’t broke, don’t fix it”, or rather, “if it doesn’t seem broke, don’t fix it.” When stability is the name of the game, fast experimentation that risks failure is one of the last things you want to do. However, a point was made that regulations shouldn’t be of concern – if a blockchain solution can prove that it is more stable and reliable than what is currently on the market, widespread adoption is likely to follow.

Finally, accessibility was another key issue that was discussed on the panel. Many blockchain solutions (as you can see from the cases from day 1 and above) often lead with the fact that they use blockchain, when in fact it should be at the back-end of products that use it. Simplicity on the front-end is key; the example given was the introduction of the iPod: while there were other MP3 players on the market, the iPod dominated with it’s simplicity of use. This has been a fundamental feature of Apple products that have led to the company’s modern-day success, and the ideal blockchain solution will fall within the category of simple to use.

In the long-run, blockchain will be largely invisible, similar to how email platforms don’t expressly advertise “we use XYZ internet protocols to enable simple communication”. However, one of the barriers to this taking place is that homes aren't "smart" enough yet, and adoption of intelligent devices for energy control need to be more widespread.

A Key Year Ahead for Blockchain

While there is still a long way to go before a blockchain use case sees use even on a regional level, the year ahead will surely be one to watch in terms of the use-case development for blockchain in energy. The two days of Blockchain2Business showed that in an era where distributed energy generation is becoming the norm, perhaps a distributed ledger technology has the capabilities to become a great complement. The years ahead will tell, though I'm excited to see which solutions grow, and what new innovative solutions will come as the technology matures.