A surface level examination of the energy industry might not reveal much promise for blockchain deployments, After all, what does cryptocurrency have to do with generating and distributing the electrical power we rely on to keep the lights on at home, charge our devices, and otherwise enjoy the conveniences of modern living?
But industry insiders know there’s more than meets the eye here. As a new type of engine for information management, blockchain technology represents a completely new system for storing and sharing data in a secure fashion. The question phrased above, while accurate in tone to many blockchain skeptics, represents a view that unfortunately betrays the holder’s lack of knowledge on the situation.
Though we’re only just now seeing the first peek of this technology’s transformative potential in conventional business beyond cryptocurrency, the trend suggests these use cases will mount over time. That spells a clear sense of momentum into a rather specific direction that makes it easy to rally more people behind a shared technical understanding of what’s going on behind the scenes. With the average worker more fully understanding the blockchain and how it works, they can more cohesively work towards big business goals while harnessing the capabilities of the latest and greatest technology in the process.
Though we might not always think of them as ambitious companies using the latest technology, large commodity-style businesses like power and utilities still have goals and need to be innovative on how they get there. A lot of energy processes are already fully optimized — it’s difficult and effectively impossible for a solar panel to capture 100% of the energy that the sunlight provides, for example. Energy is always lost in converting solar to electric, but that doesn’t mean the computer processes that manage how that energy is stored, used, and sold need to be ineffective.
Businesses operating across sectors within the energy industry wrap around the globe to drive economies and keep the connected world connected. The US’s energy economy is the second-biggest one in the world in 2018, valued to be worth some $350 billion. American energy companies operate in conjunction with oil, natural gas, coal, or clean energy sources like wind, solar, hydropower, or geothermal.
There can be a lot of different companies involved to keep the overall energy infrastructure delivering the electricity people need. Interests here vary across transmitting, distributing, and storing energy around the larger electrical grid. Few industries come without their middlemen, but blockchain technology is notorious for providing a secure, trustworthy means of communicating and transacting.
As you penetrate a layer or two below the surface, it’s clear that blockchains provide a new and proven technology for managing the data pertinent to a number of industries, whether they’re inside or outside of energy. This isn’t about a single new process for finding an edge within an industry on the edge of stagnation, but about finding new efficiencies across a business’s processes in general.
In some (or many) evaluations, there may be a lot of cause for redesigning those processes to be blockchain-compatible. Someone approaching the energy industry with a high level of blockchain expertise may see this technology as a kind of Swiss Army Knife for fixing and modernizing processes within organizations beholden to certain legacy business practices. It’s a whole new way to manage paperwork, for example, and trust that signed copies are truly signed, legally binding copies.
Energy is a sector begging for exactly this kind of disruption. The World Economic Forum, Stanford Woods Institute for the Environment, and PwC collaborated on a report that calls out more than 65 different blockchain use cases either coming online today or ripe to happen soon.
Enterprise-level blockchain deployments are not exactly happening at present and don’t seem of special concern for the established stakeholders in the short term. But the medium-term is bursting with potential as momentum begins to gain here. As more energy businesses adopt a product that makes a significant difference to how they operate (and that product happens to be blockchain-powered), a swell of awareness will spill throughout the industry.
Before you know it, it’s the new normal. Blockchains at their most basic are just networks of data, and businesses with savvy IT arms can learn rather quickly about how to program and maintain such a new kind of database.
But this is exactly how resistance to such improvements of base layer processes begin. “Things are already working according to the plan,” goes the thinking. And every company deserves its own clear, functional plan, of course. But those companies don’t get to complain when a smaller startup takes advantage of new (and maybe even overhyped) technology in order to solve a big industry problem in a practical, proven way.
These highly desirable outcomes only call for developer-level abilities with a computer and someone with deep domain expertise of the energy industry. Together these two people could come up with a valuable problem worth solving and a plan on how to solve it. Depending on the scope of the problem they’re trying to solve, you might even see working barebones prototypes after just a day of development.
These pairings aren’t likely to happen within larger, established organizations unless they very mindfully choose to make it happen as a way to roll the dice with blockchain and see what an honest, experimental shot at it looks like. Utilities generally struggle to maintain reliable service while complying with regulation and managing any rising complexity. But blockchain developers are offering some of their software products as cure to the ails of the energy industry.
The potential is there for blockchain to play a role in managing increasingly complex electric power systems, store measurements of how much power a household used, as well as how much they owe versus how much they’ve actually paid. It’s time for more people within the energy industry to listen up for rising talk about blockchain implementations that might change accepted best practices for the work they do.
That means learning where blockchains came from and how they work.
Chapter 1: Blockchain 101
If you ever want to solve questions of trust on the internet, use blockchain to do it.
Human history tells us that the world is full of unknown, unpredictable people. Many of them might be our close friends or family who are fundamentally on our side. But just as many might be malicious tricksters looking for a sucker to con. A number of technological solutions, particularly those that are blockchain-enabled, work to push back against those companies and individuals who’d otherwise be taking advantage of us. (Go ahead, we’ll wait while you send your banking details to an anonymous emailer who says he’ll give you a gold deposit.)
But if trust is the problem, then decentralization is the technologically enabled solution. This idea drives the entire blockchain concept, and in simplest terms, it says that you don’t store all your data in one place. You let other people store fractions of the whole, and before anyone changes anything on their fraction, they all have to agree to it.
Malicious cyberattacks ultimately depend on gaining access to information that the attacker shouldn’t have, but blockchain changes this paradigm forever as a decentralized database technology. Rather than store use a single computer to store information in a single database, blockchain uses a network of computers scattered around the world that work together to maintain one database. When authorized users change the data stored there, other nodes on the network monitor it to confirm a legitimate update, then broadcast this updated information to the rest of the network.
This mechanism lets blockchain operate in a so-called “trustless” fashion. Whether people trust each other or not (even if they explicitly don’t trust each other), they can still transact in a trustworthy fashion. Preserving a decentralized ledger requires participation from the community of users that depend on it — the two people in the transaction aren’t necessarily involved in confirming it. That check gets outsourced to the community, who supervise the transaction to make sure it’s valid.
For cryptocurrency transactions, this means unknown third parties can confirm your receipt of some amount of Bitcoin and update your wallet balance for you, just as you might do for them. For blockchain applications in the insurance industry, this means validated, verified data can be transmitted as easily and securely as a large insurance premium might be paid on the same network.
Every piece of data represented on a blockchain comes with a figurative “seal of approval.” Insurance agents might see a blockchain-validated death certificate in order to confirm they needed to start paying life insurance. Patients can see an itemized, validated tab of everything they’re paying for when they send money to the insurance company.
Wherever information and financial transactions are involved, blockchain technology will emerge as a difference-maker. Read on to learn the four major benefits this technology stands to bring to the energy industry.
Benefits of blockchain in the energy Industry
1. Improved electricity data management
Customers crave efficiency and control over their energy sources, and blockchain database systems can provide secure, real-time updates of energy usage data and other important energy stats, like market prices, marginal costs, compliance, and fuel prices. This kind of data might be intentionally misreported in order to protect stakeholders, but blockchain methodologies make it impossible to manipulate data. Total transparency in these records makes corruption an unproductive pursuit.
2. Driving the concept of peer-to-peer energy trading
Energy distribution is a primary application for many energy companies, but certainly not all of them. A report by Wood Makenzie shows that 59% of blockchain energy projects are about building peer-to-peer energy markets, which are shared networks of people who buy and sell excess energy from each other. The blockchain records all the details of each transaction and moves funds between parties in classic trustless fashion. Peer-to-peer energy markets reduce control of centralized authorities, like major power companies. More countries are reaching energy parity as the cost of renewable energy meets or beats retail energy costs — those producing their own energy will be able to trade with neighbors and peers.
3. Improved commodity trading
Gas and energy traders are overdue for some innovation, and blockchain technology could modernize everything they do today. Companies go all-in on proprietary trading platforms designed to meet the energy trading industry’s needs, and it’s highly expensive to maintain and secure them. But a single decentralized ledger could maintain all the same information in near real time, and it’s completely free to use. Bringing blockchain implementations to commodity trading would guarantee all the security and immediacy that any commercial product on the market could guarantee today, except blockchains are open source computer databases that don’t cost anything at all.
4. Streamlined processes for utility providers
It’s a little too easy to forget how hard the power company might be working in the background. As a large commodity provider that’s generally taken for granted (we always expect the lights to work when we flick them on), utility companies tend to plug forward as best they can. This means modern innovations like blockchain can get overlooked, even if they present opportunities for new top-to-bottom process overhauls that win them new efficiencies with data and transacting.
Modern energy solutions help us keep the world modern. Innovators can’t work through the night unless there’s a light on somewhere. We owe too much to the energy sector for carrying us as far as it has without noticing direct parallels between where it can improve and what blockchain technology does by default. Blockchain methodology can be radically transformative to a given industry if they encounter each other at the right time. Need meets ability, and suddenly there’s flagrant disruption in what has previously been a steady, conservative business.
Blockchain topics are well on their way to winning some critical mass of attention within the energy industry. Energy stakeholders are certainly aware of the benefits and efficiencies this new technology stands to unlock across a variety of industry use cases. In some cases it adds convenience to the customer while reducing cost for the carrier. But in other cases, blockchain can threaten some existing power structures that might not want to see change come to the area.
That’s why it’s important to be tuned into the many smaller experimental teams seeing what kind of blockchain-driven energy products they can create. As we’ll get into in the next chapter, the state of blockchain in the energy industry is one of awareness, some proven use cases, and growing speculation at what else might be possible. These leaner teams may end up yielding a new and improved way to do business that surely won’t come about unless the industry’s power structure (pun not intended) gets shaken up.
The time for active disruption seems riper every day.
Chapter 2: State of blockchain in energy
The state of blockchain in the energy industry today is an immature and underdeveloped state that is not only ripe for experimentation, but does has some exciting ongoing development there today. It is a time of theories and experimentation on how energy industry problems might find great blockchain solutions. It is not totally a time of developers releasing those breakthrough blockchain solutions and seeing them catch on within this niche market.
Blockchain-powered solutions for the energy industry might work perfectly well on paper, but making them useful in the real world is another matter entirely. Computer development ability, especially as it pertains to the blockchain, doesn’t necessarily arise in a person by virtue of their working in the energy industry. Talented developers are made elsewhere, they’ve instilled strong logical problem-solving skills in themselves as well as learned how to express rules and procedure to a computer. These people approach questions of technology before they consider questions of company goals and values, whether or not that company is in the energy business.
Success within an older industry like energy is surely dependent on a strong working knowledge (and even better working experience) of complex sector topics like compliance and regulation, safety standards, and historical trends. That’s why teams seeking to make an impact here also need someone with deep industry expertise. There needs to be someone to serve as reality check on what the industry will and will not allow from a blockchain project.
The state of blockchain in the energy industry today is hampered only by the rate at which these blockchain-minded people get involved. These will be the people finding connections and drawing parallels between new technology and solve chronic problems within the energy business.
Those who are old hat in energy aren’t especially inclined to accelerate adoption of a new system like blockchain that runs according to different rules. They’re far more likely to want to retain their power under the existing structure for as long as possible. But blockchain technology brings unparalleled transparency and trustworthiness to shared data of all kinds, so it potentially threatens this holdout. Making important data more shareable and more secure at the same time isn’t an appealing idea to those at the top of most pyramids.
But it hasn’t stopped committed teams from working together to generate exciting results within the blockchain-focused segment of the energy industry, especially within the most recent months.
Here are some of the top blockchain milestones from the energy industry in recent history:
✔ The S&P issued an opinion that blockchain in energy is beginning to mature and the US is lagging behind in adoption (September 2019).
✔ Netherlands-based energy operations and maintenance services provider Dietsmann was revealed to be a pilot enterprise customer of Blockchain Database Platform (September 2019).
✔ Peer-to-peer-based energy trading is known as one of the main trends shaping the energy business in southeast Asia (September 2019).
✔ The US Department of Energy awarded a $200,000 grant to a company experimenting with the popular Factom blockchain (September 2019).
✔ Australian blockchain company Power Ledger announced plans to extend the pilot run of its decentralized energy trading platform (August 2019).
✔ The Department of Energy granted just over $1 million to energy company ComEd, the University of Denver, Virginia Tech, and software company BEM Controls for their blockchain trading platform (August 2019).
✔ Major Chinese energy provider ENN announced that it was turning to a blockchain called VeChainThor for optimized quality control and supply chain management (July 2019).
✔ Energy company E.ON filed a blockchain-related patent for a data analytics device (July 2019).
✔ Apple co-founder Steve Wozniak founded a blockchain startup called EFFORCE that seeks to solve for energy efficiency (July 2019).
These slow and steady sparks of innovation are beginning to come together to form a cohesive fire that burns together as one in the energy industry. This industry is still in its first wave of blockchain-inspired innovation, and it’s only the most nimble experimenters who can implement a blockchain product in the name of solving a business problem in the space these days, let alone create that blockchain product in the first place.
This technology ultimately seeks to change the way we think about businesses transmitting money and data to each other, as well as how we can trust those transactions to be valid. As the energy business already captures all kinds of data, it should be an easy sell to point those data sources at a single blockchain where it can interact and play with other data, instead of keeping them siloed apart from each other. Data is more powerful in the aggregate than as a standalone tidbit, so storing varied output in a single unified database presents new avenues for experimenting with those numbers while retaining high confidence in their output.
The energy industry seems to be taking a “let’s wait and see” approach with blockchain. This database technology is significantly hyped for being so closely linked to Bitcoin, and it will take high-value, unignorable use case to reverberate throughout the industry in order to make the power players take notice.
This doesn’t mean it’s especially hard to find potential blockchain deployments to rally a company around within energy, but it does you might be so far on the industry’s cutting edge that you’re early.
Early isn’t necessarily bad, it just requires adapting to different parameters. Here are the challenges hindering blockchain adoption within energy.
Challenges to blockchain adoption in energy
1. Regulations are strict
Energy businesses have to play by a lot of complicated rules in order to be allowed to conduct business. If energy regulators decide that blockchain deployments are somehow a liability, then they’ll be banned without a second thought. Yes, blockchain is known for its security features, but people can be thoughtless and mistakes can happen that lead to a breach or violation. “The global energy sector is one of the most highly regulated industries in the world,” said Peter Bronski, Director of Marketing & Communications of The Energy Web Foundation. “Designing a blockchain architecture that can find favor (and thus adoption) among conservative industry players and energy-sector regulators is critical.”
2. Stakeholders need education
The energy market has sat mostly unchanged in the wake of modern internet technology, especially by comparison to communication and IT sectors. Large, centralized organizations hold influence within the market, and they’re responsible for everything from the energy supply chain from the production to the distribution and billing. What they say goes, blockchain will never happen without them. “There is a need for an education process to communicate the benefits of this new technology to the stakeholders,” said Assaf Ben-Or, CEO and Founder of Greeneum.
3. Legacy gatekeepers stand in the way
Major banking businesses and large oil companies have no interest in seeing decentralized systems threaten any power they might retain in a given situation. Everything’s gone great for them so far, so there’s no reason to change, right? Decentralized energy marketplaces operate in a way that lets them grow slowly over time, so owners can operate that business on an extended basis until it’s in a position to present a substantive obstacle for any existing industry giants. “Expect the grassroots, freelancer-based shareconomy arising from the distributed energy ledger to peacefully disrupt legacy banking and big oil in profoundly unorthodox ways,” said Josef Kulovany, CEO and Founder of WECHARG.
4. There’s a lot of industry inertia
Energy problems tend to feel solved on a “well, how else would we do it?” level. But blockchain technology is exactly this kind of totally new vehicle for doing the same tasks with new efficiency. It’s a matter of industry leaders not wanting to fix what isn’t broken. Many companies are happy to let the pioneers go and learn things the hard way first. “The number one challenge is the inertia in the energy industry and their slow rate of adoption due to limited interest and perception of benefits,” said Binu Parthan, Principal Consultant at Sustainable Energy Associates.
But nothing worthwhile ever came easy.
Not only is blockchain too new to talk at length about for many people, but the idea of finding its killer applications in industries that are outside of cryptocurrency is only recently seeming to catch on. The concept of blockchain as a new base-level vehicle for interacting with and sharing data stands to make an impact across a variety of industries. It’s only a matter of people within these industries being sufficiently able to see blockchain solutions to existing problems.
That’s why this stuff will remain the talk and speculation of experts for the time being, and brave companies or collaborations will put a use case into the wild just to see what happens. It’s been highly experimental time lately. This experimental spirit is exactly what practical use cases seem to require right before they become reality.
The energy business may be on the tipping point of blockchain interest rising and active speculation shooting through the roof. This is merely the initial ground game necessary for trends to shape blockchain in energy to the point that it presents undeniable advantage or brings new efficiencies to the surface.
Trends shaping blockchain in energy in 2020
1. Energy as a platform
Blockchain stands to be the missing ingredient necessary to transform the energy industry into a multi-sided platform economy. When the focus is on matching and exchanging data between different market actors, blockchain can provide safe and conflict-free energy exchange within various regions in a way that’s only just now starting to happen.
2. Selling energy back to the grid
There’s a growing number of energy consumers who use solar panels to capture energy from the sun and store it in batteries. For the first time in history, really, people can generate an “asset” that has real value in the energy market and collect a price for it. There is already infrastructure out there today for doing exactly this, but blockchain implementations could make those transactions more transparent and trustworthy, as well as bring a new flash of appeal to the renewable energy market.
3. New carbon reporting methodology
With an open, decentralized infrastructure built around carbon reporting, companies can trade carbon assets in the market with new and unparalleled ease. Blockchain systems can bring enhanced provenance to this data and establish significantly higher baseline trust. Blockchain will not only standardize and record all relevant emissions data, but will also ensure that all transactions settle properly and automatically.
4. Improved transparency
We don’t always know all the information pertaining to payments made in energy or the data behind them. Some of those payments leave third parties completely in the dark on every detail entirely. But blockchain works another way, with everyone having access to all the same data. Whether business entities trust each other or not, blockchain networks can unite them to share and transact in a trusted environment.
Innovation within the energy sector might give us more efficient energy production or a new way to track where energy goes after it’s created. It’s not going to succeed at coming up with a brand new system for managing data in a way that is not only highly secure but very transparent and shareable at the same time.
Blockchain is poised to present the energy business with provocative products that will help establish industry-wide forward-looking momentum in the short term. This is where we are nowadays, with blockchain technology only just beginning to make its headway into the energy business.
Time will prove it to be a productive intersection. Let’s get into the specific benefits the energy sector might enjoy from blockchain technology.
Chapter 3: How Energy Can Benefit From Blockchain
Blockchain’s domination of the energy industry by widespread adoption just isn’t happening as quickly as some predicted it would. In any case, blockchain use cases continue to mount across other industries in a way that leaves any good energy leader wondering if he or she could be doing something similar. As a new way of storing and interacting with data, blockchain seems to ask “Why not do better and differently?”
Unilever CMO Keith Weed said during a CES session in January 2019 that the early days of blockchain (especially as conceived and inspired by Unilever) are promising, but the perceived problems of instantly needing to make various switches from non-blockchain products to blockchain products just aren’t reality yet.
The energy industry can benefit from the blockchain in as much as any collection of business entities can benefit from being shaken up and reevaluated. Energy business is occasionally dependent on the influence of concentrated power — there is an old guard throughout the business keeping the pace these days. While they know the ins and outs of this business exceedingly well, that knowledge is based on things staying mostly the same. These people are not especially incentivized to see their industry change.
But it can only come down to a competition of ideas. The energy industry will only adopt blockchain solutions to ease its business processes when there is a clear (maybe even obvious) reason to do so. This means energy stakeholders want to see proof, and lots of it — blockchain implementations in this sector would need to make industry headlines for their added advantage or convenience, and it would need to continue to happen before other energy market players start asking questions like “What about the blockchain?”
By the time they do dig in, do research, and pick up on how it works, they’ll understand the clear benefits and potential for how this industry should use this technology.
1. Blockchain technology can make the electrical grid smarter
Suppose everyone on your block decided to charge their Tesla at exactly the same time.
The impact on the overall grid would be noticed, at least by a power company employee monitoring outputs.
Some electrical grids aren’t up to the task of handling wide fluctuations in power demand, especially if everyone suddenly wants electricity all at the same time when they never have before. But well-curated historical data about how many people use how much electricity and when they use it goes a long way toward anticipating energy use in the future.
Blockchain technology might play a role in enabling a fluctuating price of electricity depending on demand at that time. Someone specifically seeking cheap energy might have to wait for their device to charge. Someone who didn’t care about the price might pay more in order to charge the device as soon as possible.
Better data about where energy goes and when can be harnessed to improve lagging power grids.
2. It opens up the door to peer-to-peer energy trading
Someone with solar panels on his or her roof generates energy by capturing sunlight and the associated electricity in batteries. Depending on how they have their house configured, it’s perfectly possible for someone to generate their own energy, even more than they need. This begs the question of what to do with unneeded energy. Well, you do the same thing with it that you do with old furniture: sell it.
Blockchains are already proven foundations for e-commerce and selling things. But the technology is so handy that it even works as a means of exchanging energy on a marketplace, and validating those exchanges to be trusted and true. While it’s kind of an abstract idea, energy is absolutely bought and sold in order to get it into high-need areas without energy resources nearby.
But blockchain sets the stage for someone running highly modern energy equipment to sell electricity to a neighbor at a discount. (Never mind that they’re getting it from the sun for free in the first place!)
3. It will make the power and utilities business easier
Businesses operating here are often very large or established organizations consisting of many different people fulfilling many different job descriptions. It’s not always easy to orchestrate them through their days, or to babysit a certain process that might get passed around a lot before completion.
But blockchain makes it possible for all kinds of energy workers to come together in the same trustless environment. From power and utilities companies to subtractors, suppliers, and end users, blockchain use cases are going to excel at getting these things done more easily, and in some cases automatically.
Notarization and validation of someone’s bill or other paperwork can be instantly handled by automated smart contracts. Any pain point with data, whether on the user’s or supplier’s end, now has to stand up to a new tool for untangling any knots out of that data, and doing so transparently. Or at least that’s the big idea.
As a next-generation database technology, blockchain is a new way to look at and interact with the data that energy businesses already collect and depend on every day, and access to data is related to business success and stability. If energy organizations suddenly had full trustworthy and foolproof access to robust data about their business environment, it would modernize the industry’s data practices and set in motion a new normal.
It seems clear that “blockchain” will not become some special hook that end users care about. Instead the blockchain “appeal” is going to end up in how seamlessly capable an application can interact with data. Whether it’s a high-level electrical grid monitoring application or an entertaining game, blockchain-powered software still needs to be good software. The users are mostly uninterested in understanding the complicated database system that drives it if the software works as it’s supposed to.
As a fully transparent and auditable database, blockchain brings an enhanced transparency mindset to industries as use cases start to proliferate. Access to reliable data (and the ability to interpret that data) are strong indicators of how well a business can expect to operate into the future, inside or outside of the energy industry.
We depend on energy companies in the developed world every day, and we tend to think almost nothing about them. This is approximately what a high-proliferation blockchain future would be like as well: from secluded nuclear reactors to regional power providers, they’ll end up using blockchain-powered products to conduct business because the complicated blockchain layer will be fully replaced by some great interface.
As an industry that is generally resistant to change, energy players need to familiarize themselves with this thing called “blockchain.” It can move money and information between people in a completely new and secure way, so it’s positioned to solve a variety of problems within energy.
Let’s go deep on that in the next section.
Chapter 4: Problems Blockchain Can Solve in Energy (And Who Is Solving Them)
It’s funny how quickly we forget that electricity has to come from somewhere.
Any grown person has surely gone through a period (or is in that period right now) where they fully take it for granted that flipping a switch will turn on a light. Workers in the energy sector might tell you this everyday occurrence deserves a little bit more appreciation. Energy consumers can tell you that power comes from a power plant, but they can’t really tell you how it gets to their house or how it’s made in the first place.
Energy industry processes can be opaque and outdated, and this is exactly the problem-solving thrust that blockchain tends to cling to. Because it’s specifically concerned with data, blockchain is a foundational technology that compels companies to ask hard questions like, “What if this new way of doing things is better?”
This decentralized database technology has already won major attention for its role as the underlying engine for popular cryptocurrency Bitcoin, to the point that there are cryptocurrency-related headlines on sites like Bloomberg or CNBC every day. It seems the financial sector is now most seriously in the grips of reckoning with the blockchain, but it is taking years to see how the relationship plays out.
As it becomes more mature in any case, a host of companies adjacent to the finance industry (and any other business that might rely on opaque, bureaucratic processes) are waiting in the wings to see if blockchain can bring any advantages to them that it may have delivered to others.
Energy isn’t a perfect industry (no industry is), so blockchain thinking is a compelling lens to use here. It forces a confrontation between the latest and greatest technical thinking and the famous “why fix it if it ain’t broke?” mentality. Well, some people are tinkering anyway.
Let’s learn about energy industry problems and the blockchain businesses taking steps to solve them.
Problem 1: The industry is dominated by a few giants
Con Ed. National Grid. Exxon Mobil. Across its individual niches, the energy industry sees the name names pop up repeatedly as leader of the pack. This is because these are previous-generation companies enjoying extended maturity within an industry that is less than totally cool with change. They have a lot of advantages if things keep running the way they are, so talk of changing things is going to be met with skepticism.
Giants tend to stay on top in business because they’ve already amassed large financial resources they can deploy for publicity or research and development to stay on top. Energy giants today already own the existing infrastructure that blockchain technology would have to depend on in order to make any kind of impact within the industry. These stakeholders are well-positioned to swat down any idea that might threaten business as usual or unseat them from their power — so they do. Power is concentrated within the energy business, and it doesn’t dilute especially easily.
Currently in a time of grind and evolution, it’s going to take time before blockchain poses any kind of major threat to the top of the energy hierarchy. But small committed numbers of people always have ways forward for improvement. In the case of blockchain technology touching the energy industry, there are some exciting projects springing up that seem to solve old problems by mostly ignoring the existing power structures.
How blockchain could solve centralized industry power
Blockchain fundamentally runs in a decentralized fashion that sees pieces of its overall database stored around multiple nodes in scattered fashion. It is something of a cards-on-the-table approach to data management, because blockchains retain everything, including previous states of data and a user ID for who might have changed it.
Blockchain is a radically transparent technology, and easy access to open data will always threaten old power. Facts and figures about the industry and how it works, whether they were previously only slightly known or completely unknown, will become a little more common knowledge as blockchain implementations paradoxically keep their data secure by storing it in the figurative open (you’d have to browse this data using a less-than-intuitive block explorer program).
There are already a number of blockchain-flavored initiatives that seek to bring more power to smaller players in the energy sector. Here’s who you need to know.
List of companies using blockchain to tackle this problem
Location: Brooklyn, New York, US
What they do: The Brooklyn Microgrid is a niche, community-based approach to blockchain energy management. A conventional utility provider maintains the grid that delivers power to people’s homes, but the energy itself is generated, stored, and traded locally by members of the community. It’s like a neighborhood-sized power company that embraces more sustainable clean energy.
How they use blockchain: Participants in Brooklyn Microgrid depend on blockchain technology to track energy consumption and who’s paid for their electricity. It also measures instances of people putting excess energy back into the grid, using solar panels, for example. That excess energy gets stored amongst grid members and gets them a step closer to self-sufficiency in Brooklyn.
Location: Perth, Western Australia, Australia
What they do: Power Ledger is an energy trading platform that facilitates microgrids linked to clean energy producers. The company’s platform makes energy markets more efficient: consumers and producers alike get a platform for monitoring their energy production, energy sources, and what they pay. The software is already operational in Australia, Thailand, India, Japan, and the US at a time when more people are generating their own energy than ever before. This system makes it possible for those people to sell that excess electricity to their neighbors.
How they use blockchain: Blockchain is what puts “Ledger” in “Power Ledger.” The company’s blockchain, which is also called a decentralized ledger, manages all the pertinent data to drive successful energy trading. This means it’s completely transparent how much energy someone generated versus how much they sold, and how much they got for that sale.
Location: European Union (EU)
What they do: Estonia-based WePower helps bring more confident choices to the energy industry. Consumers on a blockchain-driven smart grid can use WePower to intelligently compare energy providers and buy from them directly. This helps engender a choice-driven market, and time will make it clear that consumers want modern solutions at a great price.
How they use blockchain: Linking energy grids to the blockchain gives consumers total control over where they source their energy. They can plug-and-play to see which electricity service they most prefer, who they want it to come from, and how much they want to pay. This is blockchain transparency brought to how different power providers operate.
Problem 2: The energy industry needs a better backend
The global energy business not only has different rules for operating in certain jurisdictions, but different rules for operating within energy’s different niches. Nuclear power isn’t coal, just as solar power isn’t nuclear — there are in-born differences in how these energy operations do business, and they’re not as unified as they could be.
The concept of “blockchain as backend” is about reconceiving all of a business’s operations to be blockchain-compatible, and therefore interoperable with many other systems. This would go a long way toward counteracting fragmentation within energy, as well as finding happy educational moments from each other. Who knows what a solar engineer could learn from a nuclear engineer’s data, for example?
The current energy business environment makes it difficult for these people to have any cause to communicate with each other and share ideas. It’s because they’re segmented so far apart. But if they were all operating on the same backend at work, small and disparate energy operations could more easily tap into shared data and collaborate with the larger whole. The environment would be more competitive
But an industry as important as energy needs a strong foundation to hold it up, and it is complicated to replace foundations. A hypothetical mature blockchain backend for the energy industry will only materialize after a number of other worthwhile or impressive use cases appear first.
How blockchain could solve the energy industry’s backend problem
The name of the game is to merge security with interoperability, and blockchain excels at this.
Today’s clunky energy backend is fragmented across different types of customers, different types of energy businesses, and different geographies around the world. The blockchain stands to be the single technology capable of uniting them all on a single platform. It also happens to play nicely with other software and be very secure at the same time.
If there is a cause for progress to be slow here, it’s that large energy businesses aren’t going to be too interested in talk of changing the way they do things (unless there’s a clear need articulated). Energy stakeholders would probably tell you that things are working fine just the way they are and there is no need to smash the system and start over again from scratch
But this attitude will only be recognized as willful ignorance as blockchain use cases and education mount in the long run. Backend-level change is a big change to a big industry, and change at that scale doesn’t happen quickly.
In any case, there are a number of nimble teams working to build high-level energy software on the blockchain. Here they are.
List of companies using blockchain to tackle this problem
Location: Berlin, Berlin, Germany
What they do: Operating from Austria, Grid Singularity is developing software that’s purpose-built to make it easier than ever before to buy energy. The company handles local marketplaces in parallel to form a smart and connected grid of energy producers who can sell excess energy to consumers.
How they use blockchain: Grid Singularity’s software is blockchain-based, so all the data involved in conducting operations on Grid Singularity is queried from a decentralized ledger. Details about who sold how much energy to who and at what price are easy to look up, and the team consists of energy market professionals and leading blockchain and smart contract developers.
Location: Berlin, Berlin, Germany
What they do: Shell, Statoil, Tepco, Centrica and a half-dozen other energy companies joined forces with $2.5 million on the table to introduce an open-source blockchain designed for the electricity market from the ground up. This organization isn’t really a startup as much as it is an alliance aimed at introducing deploying blockchain at the base level throughout the energy industry.
How they use blockchain: The blockchain is the open-source hub around which these companies rally. Energy Web Foundation actually does seek to do some deep work on the overall industry, and by getting buy-in from a number of known players, they may be very well able to make a difference toward seeing blockchain adopted with any urgency.
Location: Greater Seattle Area, West Coast, US
What they do: Bringing together machine learning, high-frequency trading, and blockchain technology, Seattle-based Drift is at work on a different kind of retail energy provider that aims to eventually one day electrify the world with 100 percent green energy. It raised $7 million in 2017 and is currently serving New York City.
How they use blockchain: As a blockchain software startup, Drift operates a peer-to-peer marketplace that lets residential, business, and commercial customers buy power directly from local renewable energy providers, like solar, wind, hydroelectric, and more. The blockchain enables and validates these financial transactions.
Problem 3: It’s not always easy to sell excess energy
Solar energy is on the rise, and the only question seems to be what to do with any leftovers.
More people are gathering solar power from their rooftops than ever before and storing it in batteries in order to more comfortably survive power outages or even power their entire house. So the modern electrical grid faces a funny problem of having more power in the system than necessary. What does someone do if they have more excess energy than they could ever use?
They’d sell it, of course, but this is sometimes easier said than done. Sellers have their own measurements for how much power they’re supplying to the system and the utility company has its own. Hopefully, they match up pretty well, or else argument stands a chance of preventing the sale from ever being finalized.
But blockchain technology unites everyone on a shared ledger that’s open source and fully auditable. This means the utility company could potentially watch in real time as the seller pumped excess energy back into the grid. His systems report a number that’s guaranteed to match their number because these systems are agreeing on the data in order for anything to get done or be possible. People can only come to an agreement if they share the same data, and this is exactly the convenience that blockchain unlocks.
How blockchain could solve the energy marketplace problem
By merging shared, reliable data with a trustless environment and a means to transact with other nodes on the network, a smart system that balanced local energy sales and distribution would be a major gain to the larger electrical grid. It would also incentivize green energy enthusiasts to get their own renewable energy systems set up for generating energy to sell back to the grid.
This is a use case that screams for blockchain, quite frankly. Here are the companies who heard the cry.
List of companies using blockchain to tackle this problem
Location: London, UK
What they do: Electron first built a blockchain-based solution to help UK energy customers switch suppliers, but has also been quite public about communicating its aims to bridge the gap into energy trading. The company won U.K. government support in September 2017 to extend its platform.
How they use blockchain: This is a blockchain development house with special attention on the energy sector, simple as that. Electron has designed a number of specialized products that leverage the blockchain to bring new efficiencies to energy.
How they use blockchain: Electron believes that digital infrastructure will become a global priority for the energy industry. That’s why they’re exploring blockchain implementations to solve a variety of energy problems — no system can truly be “smart” or “connected” if the structures that underpin it are inappropriate or incomplete. Blockchain was delivered seemingly perfectly capable of bringing coordination and structure to fragmented data sets and markets.
Location: New York, New York, US
What they do: This company effectively cuts out the middlemen involved in energy sales. Customers are free to shop for their energy in a new way, considering things like source and price in a way that contemporary players can’t do as effectively
How they use blockchain: GridPlus needs to maintain its data in a fashion that is highly shareable and secure at the same time, and blockchains are a prime vehicle for doing it. Customers are able to pay for their power using cryptocurrency and leaving trace of that purchase in a decentralized blockchain ledger.
Location: Dublin, California, United States
What they do: This company works to decentralize power infrastructure into lots of self-sufficient microgrids. That way communities get to manage their locally produced energy, make it available nonstop, and compete with the utility companies. Energy prices will be transparent to all users, and the company wants to make clean energy more accessible and affordable with help from blockchain-powered efficiency.
How they use blockchain: A blockchain decentralized ledger is probably the most ideal tool for maintaining this category of data in a high-trust environment while also granting users the ability to conduct financial transactions with each other. Blockchain methodology makes it simpler than you might think to get more juice out of the same squeeze of a lemon.
There’s a collection of people forming at the intersection of blockchain and energy. Industry use cases exist today, but there is no sign yet of the energy industry’s “killer app” coming from the blockchain. But the blockchain is a base-layer database technology that has to touch all your business segments if it’s going to mean something.
To adopt a blockchain solution at your energy business nowadays would probably be to kowtow to the hype. So closely linked to Bitcoin and scandalous criminal tails, it’s a little easy to blindly buy into the narrative that blockchain will change everything.
But it hasn’t happened yet. It will change some things for sure, but only in time and with iteration. For it to really make the impact so many of the blockchain prophets are calling for, then it would require more mindful, intentional adoption. Companies would issue press releases about their pivot to the blockchain because they truly see blockchain as the best way to solve problem X.
That’s the kind of talk that and strategy that gets positive attention from leaders in the energy sector, and it will take their buy-in to see any kind of industry-scale blockchain efforts gain momentum.
Now let’s talk about where blockchain can take the energy sector in the future.
Chapter 5: What’s the future of blockchain in energy?
Imagine a black-tie party where impeccably dressed people sip champagne and make comments about art. How high society they are.
Now imagine a skateboarder rolls through in torn shorts and a Hawaiian short, executing a kickflip. This person is literally having more fun at the party than everyone else who had a proper invitation. That’s a threatening position to be in, so the party’s powers that be are likely to ask him to leave.
When legacy or commodity businesses look at next-generation technology, they often don’t understand it or perceive it as some kind of aggression. The black-tie party goers surely look at the skateboarder the way the industry’s established hands of power look at companies seeking to capitalize on any blockchain hype within the energy sector. “We don’t remember inviting you,” goes the neutral-tending-negative sentiment. These entities begin their encounter one sentence away from “it’s time for you to leave.”
But this doesn’t mean that energy workers aren’t aware of real problems in need of scalable solutions. Energy’s hypothetical blockchain-driven future can only happen when workers gain competency with this technology at the individual level. Education will have to rise in order to fuel and potential major shift to blockchain.
Energy presently seems like a second-level for blockchain disruption. The needs are not as immediate or primal as they are in finance, but you don’t have to stretch your imagination too far to come up with how a new database technology can clear the way for new and improved best practices.
1. Blockchain will turn energy into an economy
If the energy industry started operating with total transparency overnight, it would inspire new entrepreneurs to find missing advantage in those numbers and go to work filling those gaps for a profit. If people will trade little cryptographic pieces of computer data called Bitcoin, then they’ll definitely trade an asset as immediately useful as electrical energy. Power consumers will more readily understand their role within the energy economy and the world overall. “Blockchain promises to transform the energy industry into a multi-sided platform economy where the focus is on the matching of, and the data exchange between, different market actors and the acceleration of clean energy use,” said Dr. Mervyn Maistry, CEO and founder of Konfidio. “Blockchain can provide safe and conflict-free energy exchange within our local communities.”
2. Carbon reporting will improve
Carbon reporting is the first vital step a company takes to share data about its emissions. There are a lot of rules about how much carbon a company is allowed to emit, so companies are obviously motivated to take steps for their numbers to be as low as possible. This can and sometimes does include filing fraudulent numbers. But the beauty of the blockchain is that it catches fraud immediately. “Blockchain will not only enhance carbon reporting by standardizing and recording all relevant emissions data, but it will also ensure all value-based transactions are valid and settled automatically,” said Vincent Manier, CFO of ENGIE Impact.
3. Renewable energy will drive blockchain use cases
People are starting to embrace renewable energy sources in a way that the old-school energy players are beginning to feel. It’s no longer necessarily a de facto decision that you will buy standard electricity from the usual. Now people are using solar panels and even wind turbines at home, as well as seeking out these energy sources specifically as they buy them from a provider. As our electrical energy starts to come from more and more places, blockchain will help us keep track of it. “The global energy sector is amidst a massive transition defined by decarbonization (the rapid growth of renewable energy), and digitization (even though the electricity grid remains a largely analog technology) and decentralization (customers are adopting millions — and eventually, billions — of distributed energy resources such as rooftop solar, battery energy storage, smart thermostats, and electric vehicles),” said Peter Bronski, Director of Marketing and Communications of The Energy Web Foundation.
4. More experimentation and education
Energy stakeholders not only need to learn a lot about blockchain technology, but become fans of it in the process, if they’re ever going to demonstrate the kind of industry buy-in necessary for a business-wide change. There are still some committed startups and exploratory labs doing interesting work with the blockchain as it pertains to energy organizations, and the signs suggest that this trend will continue. Blockchain still doesn’t have a critical mainstream appeal, but experimental pioneers can help shape that future. “In order to move into the pilot phase and beyond, energy blockchain companies will partner with incumbent utilities and established energy market participants to address narrowly-tailored and specific use cases,” said Buck B. Endemann, partner at K&L Gates. ”However, Europe will continue to outpace the United States in the development of viable energy blockchain solutions due in part to increased government and regulatory participation and, in some cases, streamlined regulatory regimes.”
If blockchain technology is supposed to bring some kind of transformative impact to a wide variety of industries, then we’re only seeing it make its first dents — or maybe even thuds. It has yet to establish a reputation as an instrument capable of bringing fine precision to parts of the industry that might have previously been clunky or ungraceful.
The energy industry is extremely large and complex, and much of it depends on well-established processes with no real need or imperative to change. Despite this less than totally favorable environment, there’s strong initial action on the ground. A number of exploratory or research-focused blockchain implementations have been popping up within the energy industry. They’re trying hard to make things better, and in many cases succeeding.
But none of it is especially niche or sexy. Just as energy involves a lot of technical infrastructure, blockchain itself can easily be thought of as infrastructure for managing complex data involving multiple sources. A new and improved normal that’s heavy on blockchain would have wide-ranging positive benefits in energy.