Over the past three years, we at the Energy Web Foundation have spent significant time debunking two big myths about blockchain technology in the energy sector: first, the notion that blockchains consume far too much electricity to be useful (not the case) and second, that public blockchains can’t support enterprise applications (another common misconception).
In 2019, as more and more companies understand what blockchain technology can be used for in energy, we’ve had to spend most of our time debunking a third widespread issue: conflation of blockchain technology with peer to peer energy (P2P) markets and architectures. In our experience, conflating these topics has in some cases set back utilities in our ecosystem by nearly a year in their exploration of blockchain technology. Here, we aim to unwind the two topics and highlight how decentralized technologies can support the grid of the future today, without waiting for P2P or transactive energy markets to come to fruition.
Peer to peer = market design and grid architecture. Blockchain = enabling technology
Dozens of startups in the past several years announced their intention to launch peer to peer energy markets enabling prosumers to sell locally-produced energy attributes (and in very rare cases energy services) to their local community. Many of these same startups have also injected blockchain into their marketing and high-level technology roadmaps. But this is misleading: peer to peer energy markets, like transactive energy and/or distribution-level electricity markets, are fundamentally new ways of organizing the way we operate the grid. In many cases, they imply entirely new grid architectures, characterized by different market designs, regulations, and in many cases a dramatic redistribution of value amongst sector stakeholders.
Blockchain is something different: it is a technology. And yes, we believe it can support the grid of the future. But for most energy market participants, technologies like machine learning, internet-of-things, and digital are not contentious concepts. Unfortunately, blockchain has become one, and in our experience it’s largely because the technology has been conflated with the future of energy markets.
We don’t need new market designs for blockchain to unlock value today
Blockchains can unlock major value in the sector today, regardless of energy market rules and regulations, by fully integrating customer-owned DERs to the grid.
Context matters here: in contrast to the P2P narrative where blockchain was positioned as a disruptive force (just as blockchain commonly is in other industries like banking and financial services), we believe the opposite is true. The energy sector is already decentralizing—completely independent of blockchain—as evidenced by unprecedented customer investment in the sector. By 2030, customer investment in electricity sector assets (including renewables, transmission and distribution infrastructure, DERs, and electric mobility) will eclipse utility investment in the entire sector.
A key feature of the new grid is millions and potentially billions of DERs. But as GTM recently pointed out, when it comes to DERs, “…rarely if ever are they deployed or managed in any coordinated way. Instead, each home or business makes decisions for necessarily selfish reasons (reduce a bill, go green, avoid a demand charge etc.). They are as they are named, distributed resources, often not ‘seen’ by the utility but felt in ways that impact operations only once their effect has passed.”
These DERs represent a massive opportunity, and blockchain is key to unlocking it. Blockchains can be used to manage digital identities for DERs, seamlessly integrate them to the grid, share data between them, conduct trusted measurement and verification, and unlock near-instant settlement for grid services—all with extremely low transaction costs. With digital and decentralized technologies in hand, we can give grid operators access to a global fleet of billions or even trillions of DERs capable of unlocking value for every market participant involved. And although more value can likely be unlocked in deregulated markets, DERs are coming online everywhere; even vertically integrated utilities can benefit by making existing demand-side management programs more efficient and widespread.
Today, this is where the real value of blockchain in energy shines and even more use cases are sure to come. But for market participants to move further, faster in the context of the energy transition, blockchain should be understood as an enabling technology that can support future market designs and architectures—P2P or otherwise.