Blockchain – What is the Impact on the Energy Sector and What Are the Key Trends Seen in 2017?

Annual Report - 2017


MICHAEL HOROWITZ

Blockchain – What is the Impact on the Energy Sector and What Are the Key Trends Seen in 2017?

MICHAEL HOROWITZ

2017 was the year of Bitcoin and blockchain. “Blockchain” was a buzz-word that gained traction even in the energy sector, as a technology enabling grid transformation towards a more decentralized energy system. “Blockchain in energy” use cases span from peer-to-peer trading solutions, providing consumers the flexibility to control their energy usage and sell excess capacity to the grid, to wholesale trading platforms, back-end operating functions and load control solutions. Over 80 blockchain projects were reported in the energy sector in 2017, with Europe being the key market driving innovation and piloting technologies.

There is no doubt that although we are seeing increased government support and industry participation, it will take time to develop energy-sharing grids and transition towards a blockchain-based energy world.

What is blockchain? In short, it is a decentralized database or digital ledger that keeps a continuously growing list of data records or transactions (blocks), allowing buyers and sellers to interact directly without the need for a third party or central agency. The benefits of blockchain technology include greater efficiency for settling transactions, greater audit-ability as it creates indelible audit trails as each transaction is recorded, increased transparency through replacing the need for paper trails and improved security through independent verification of transactions.

In the past few years, the evolution of blockchain in energy has moved from simple payment and transaction systems based on cryptocurrencies/ tokens (more prevalent in emerging markets) to the application of “smart contracts” enabling peer-to-peer trading on decentralized platforms.

Blockchain has the potential of impacting the energy industry in several ways. In the short term, a centralized blockchain ledger could help drive down transaction costs and settlement times for trading of unbundled renewable energy certificates, creating a robust data system tracking the transfer of ownership that is cheap to manage and cyber-secure. It could also increase the speed of transactions through automating billing processes and simplify the audit process of data records at the back-end. What we have also seen is that blockchain technology in the energy space is predominantly used for localized peer-to-peer energy trading between consumers, supporting the growing demand for renewable energy and local production of energy, having the potential of removing the need for a central agency.

In the long term, blockchain also has the potential to reduce grid costs through better balancing of decentralized assets, automating load dispatch and utilization of storage. Blockchain applications are already being integrated into EV charging infrastructure (e.g., innogy’s Share&Charge in Europe), while fully integrated wholesale market trading and distributed peer-to-peer market automation are still in the early stages of development. The Enerchain Project in Europe is one example where 33 utilities (including EDF, ENGIE and E.ON) have joined forces and are piloting a wholesale trading platform that is enabling energy trades on the blockchain ledger. In peer-to-peer energy trading, a number of start-ups are leading the way. Lo3 Energy’s Brooklyn Microgrid is an example of a platform built on blockchain, enabling consumers to generate, store, buy and sell energy at a local level. Grid+ and Power Ledger are two peer-to-peer trading platforms that received attention in late 2017 through successful initial-coin-offerings (ICOs) of $24 million ($34 million AUD) and $40 million, respectively. These companies are both built on Ethereum and are based on token payment systems. Grid+’s value proposition is offering consumers access to wholesale power prices. For Power Ledger, peer-to-peer trading is just one service offered to consumers, with a broader focus on facilitating collaborations between market participants (including government agencies) to invent new services that are expected to be required in a fully distributed energy system. Drift is another peer-to-peer trading platform leveraging distributed ledger technology, machine learning and high-frequency trading to enable consumers to prioritize clean power and provide access to competitive retail pricing (a discount of 10-20%).

Blockchain is also increasingly used to enhance energy flexibility and ensure efficient grid balancing. Transmission system operator TenneT recently partnered with Sonnen to use residential storage as a buffer to absorb overloads of energy from the North-German wind farms. Blockchain technology provides TenneT with a comprehensive view of the available pool of flexibility, enabling grid balancing. Similarly, in the Netherlands, TenneT has partnered with the energy utility Vandebron, using the charging of electric vehicles to balance the grid in case of mismatches between demand and supply. The blockchain technology enables each car to record their availability and action in response to signals released by TenneT. Electron in the UK started by using blockchain to set up a “meter registration platform,” facilitating faster switching of an energy provider, but expects the big growth opportunity to lie in blockchain’s ability to integrate meter data into applications such as demand response and peer-to-peer trading applications.

Many of these start-ups have received government grants and policy support accelerating innovation. Likewise, utilities have increasingly shown interest in getting involved. One example is the Energy Web Foundation, a network of 50 energy market participants (including AGL Energy, ENGIE, Shell and TEPCO), set to promote commercial acceleration of blockchain in energy.

TEPCO has been one of the most progressive utilities, partnering and investing in numerous blockchain companies including Conjoule, Grid+ and Electron. RWE, through its innogy Innovation Hub, has also shown support for blockchain, incubating and investing in Conjoule’s peer-to-peer energy trading market place and partnering with Slock.it’s Share&Charge smart contract platform that leverages Ethereum to create a decentralized market for privately owned electric vehicle charging stations, with a roadmap to bring in other shared mobility services (e.g., rental cars, parking systems, insurance) using smart contracts. In July 2017, Share&Charge also partnered with eMotorWerks, extending the platform use case to electrical vehicle infrastructure in California (eMotorWerks was later acquired by Enel in October 2017).

There is no doubt that although we are seeing increased government support and industry participation, it will take time to develop energy-sharing grids and transition towards a blockchain-based energy world. In this transition, utilities will continue to play an important role in the management and control of the central grid. Nevertheless, blockchain could allow utilities to increase their generation asset optimization through load control solutions and to deliver more reliable and cleaner energy services.

Increased awareness and adoption amongst consumers will also help blockchain scale to a commercially viable technology. Given customers are increasingly interested in clean power and an ability to control their power consumption through smart devices, we are optimistic that there is a future of efficient peer-to-peer energy grids and that blockchain has a role to play in the energy sector going forward.

Blockchain – What is the Impact on the Energy Sector and What Are the Key Trends Seen in 2017?

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