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Blockchain for Utilities - a reality check

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In recent years there has been increasing hype around blockchain. Media articles abound about it as people search for applications for this promising technology. Since January 2017, blockchain has been the No. 1 search term on gartner.com. CIOs have been under pressure to help guide decisions on if and how blockchain can be implemented in their enterprises. 

To recap:

Blockchains allow mutually mistrusting entities to exchange financial value and interact without relying on a trusted third party.

This article serves as a more cautious update to my 2018 article on blockchain.

Hype: from inflated expectations to disillusionment

The Hype Cycle is a visual aid to help understand the maturity and adoption of new technologies and applications. 

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On the latest one above, we can see that blockchain is well past the “Peak of Inflated Expectations”, a time at which there is huge media and press attention, heightened expectations and more failures than successes. It is now heading steadily towards the “Trough of Disillusionment”, where the media and public quickly lose interest because experiments and implementations fail to deliver. At this time many producers will shake out or fail.

recent paper from the US National Institute of Standards and Technology (NIST) cautioned that “there is hype around the use of blockchain technology, yet the technology is not well understood.”

Do I really need blockchain?

Here’s the thing. Blockchain may hold great promise but often the technology is being offered as a solution in search of a problem. It may be ten years since the creation of Bitcoin, but we are yet to see much wider applications or broader adoption of the underlying blockchain technology.

There is a very good chance that blockchains are totally inappropriate for whatever problem you’re thinking about solving, especially when the disadvantages are so numerous.

Blockchains do not magically make the data in them accurate or the people entering the data trustworthy, they merely enable you to audit whether it has been tampered with.

Few firms have fully embraced blockchain, according to consultancy Capgemini. In a recent survey of firms looking to use the tech, 3% had large-scale use, 10% were piloting it, while 87% had only tested blockchain proofs of concept.

The paper by Karl Wüst and Arthur Gervais “Do you need a Blockchain?” includes a guide for determining whether a blockchain is the appropriate technical solution to solve a problem.

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Source: Do you need a Blockchain?

Writers are effectively users. A trusted third party might be an individual, corporation or government that can be trusted with your data.

Most ideas stop at step two or three of the flowchart, meaning you don’t need a blockchain. 

Blockchain in Utilities

Despite the immaturity and challenges, there are some clear opportunities emerging for blockchain in Utilities with several associated pilot projects.

Peer-to-peer energy trading

With the rise of the energy prosumer and the few cents they are paid for energy fed back into the grid, there is increasing interest in energy sharing. Consumers can buy locally produced renewable energy that is likely cheaper than buying from their utility.

Blockchain’s relatively low transaction costs allow smaller energy producers to participate, right down to the individual solar household. Smart contracts facilitate the real-time coordination of production data from solar panels and other installations and execute sales contracts that allow for two-way energy flows throughout the network.

In Australia, current projects include the Decentralized Energy Exchange (deX) from Melbourne-based Greensync, AGL’s Solar Exchange and LO3’s virtual microgrids in South Australia and the Latrobe Valley.

Balancing supply and demand through real time transactions

As solar and wind energy scale, energy markets are increasingly challenged to balance supply and demand. There is demand for flexibility services, which either adjust demand to better match supply, or can provide supply at short notice to meet increasing demand.

In Europe, Transmission System Operator TenneT is continuing with blockchain after two successful pilots last year. Blockchain technology is deployed to temporarily interrupt charging sessions of customers with electric cars and smartly manage household batteries to prevent congestion on the high-voltage grid and keep it in balance. 

UK based Electron has developed a flexibility trading platform that can compensate consumers for adjusting their energy consumption. This enables the demand side and consumers to bring flexibility to help balance the networks and to help integrate increasing levels of renewable generation on the grid.

Electrify undeveloped markets

There are still more than a billion people without access to electricity, mostly in sub-Saharan Africa and India. Electrification has tended to be an expensive and cumbersome process involving the installation of power lines, traditional loan structures and centralised energy authorities.

Lithuanian WePower is using blockchain technology to sell future energy production from planned renewable generation to raise capital. Renewable energy developers can secure easier financing by selling part of their energy production capacity directly to the corporate energy buyers through a “Digitally Enabled PPA”. 

Danish M-PAYG provides prepaid solar-energy systems to off-grid low-income households and businesses to access solar energy through small-scale mobile repayments.

In South Africa, Bankymoon provides blockchain-aware meters to schools in need of financial aid so anyone from around the world can make payments direct to the meter and fund the energy or water needs of the school.

Electric Vehicle charging stations

Blockchain offers opportunities to coordinate EV charging. Blockchain can orchestrate the charging station network autonomously, showing drivers where nearby stations are located and how they are being used. Smart contracts allow for automatic, secure, peer-to-peer energy payments.

In Germany, Share&Charge is a blockchain-based app that offers EV owners a seamless charging experience, connecting cars with available residential and commercial charging stations. It tackles the challenges of a highly fragmented market, overload of power grids and complex settlement between EV companies.

Renewable energy certificates

Renewable energy certificates (RECs) are currently given to solar producers based on generation estimates and forecasts rather than on actual generation. Inaccuracies could be reduced using sensors paired with smart contracts that record data to a blockchain ledger and issue or trade RECs based on actual energy produced. Blockchain can reduce costs for public agencies administering RECs by streamlining trade verification and data indexing.

In Spain, Acciona has developed technology that allows its clients to access data in real time and offers full transparency over the origin of renewable energy. In Singapore, SP Group has launched a trading platform to allow local companies to engage in REC trading. Volt Markets offers an energy origination, tracking, and trading platform using blockchain to streamline the distribution, tracking and trading of RECs.

Wrapping up

Blockchain at scale remains three to five years away, but by applying blockchain to their vast stores of data, utilities can unlock new revenue streams from better-coordinated markets, “smarter” hardware, and wider electrification. 

P.S. The inspiration for the title of this article came from the original reality checkpoint which may be familiar to some readers :)

Gavin  Mooney's picture

Thank Gavin for the Post!

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Discussions

Srikanth Arya's picture
Srikanth Arya on March 20, 2019

Hi Gavin,

I liked the flowchart approach but I believe blockchain has more to offer to the energy industry given the transitioning times in the years to come. An year back i too felt blockchain as a less know technology but today based on the use cases you have provided it makes more sense to me on the potential of this technology.

Best Regards,

Srikanth Arya

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