Blockchain, a power for good for the utility industry?

For some years now, blockchain has been a word that conjures up a range of intrigue and opinion. It has been praised as an industry gamechanger, but as the technology matures, key players across sectors are starting to ask how blockchain can advance them.

In this article, I will answer some of the key questions around blockchain technology, assess its current status within the energy industry and its potential to reshape the market.

What is blockchain? 

Essentially, “blockchain” is a distributed, decentralised database that is shared across a network of computers. Once a record has been added to the chain, it is almost impossible to change. To ensure all copies of the database are identical, the network continually checks records. Blockchain networks resist political governance because they are governed by everyone who participates in them, and by no one in particular.

The viability of blockchain’s future has been questioned, given its structural challenges and failure to yet scale a significant application. A consensus remains that blockchain is most valuable when it enables collaboration, democratises data access, and solves specific pain points across industries. Before there can be mass adoption of the technology, hurdles need to be addressed including lack of scale and ‘off-chain’ security vulnerabilities.

What blockchain means for the energy industry

There are numerous key outputs of blockchain that make it a viable tool for reshaping the energy sector, blockchain technologies have the potential to further improve the efficiency of current energy practices and processes. One of the major benefits is potentially reducing transmission losses and postpone expensive network upgrades. For the “decentralised generation” of energy consumers, blockchain offers the opportunity for greater control over individual consumption through the innovation of peer-to-peer energy trading (proven to be notoriously difficult to handle).

Taking a deep dive, blockchain could affect the industry in the following ways;

Billing: Automated billing can be realised for consumers and distributed generators through blockchain, smart contracts and metering. Utility companies might benefit from the potential for energy micro-payments, pay-as-you-go solutions or payment platforms for pre-paid meters.

Sales and marketing: Sales practices may change according to consumers' energy profile, individual preferences and environmental concerns. Blockchains, in combination with Artificial Intelligence and Machine Learning, can identify consumer energy patterns and tailor products towards them.

Trading and markets: Blockchain-enabled trading platforms might disrupt market operations such as wholesale market management, and green certificates trading.

Automation & Grid management: Blockchains could improve control and management of energy systems/networks, asset management and microgrids. Adoption of local energy marketplaces - P2P energy trading, could increase energy self-production and self-consumption.

Security and identity management: Enhanced cryptographic techniques can provide protection and security for transactions (privacy, data confidentiality, Identity management).

Sharing of resources & Smart Grid: Blockchains could offer charging solutions for sharing resources between multiple users, such as sharing EV charging infrastructure and communication between smart devices, allowing consumers to monetise their electronic assets.

Competition: Smart contracts could potentially simplify and speed up the switching of energy suppliers. Thus, increasing competition and reducing both fuel poverty and energy tariffs.

Transparency: Immutable records and transparent processes can significantly improve auditing and regulatory compliance.

Current status of blockchain adoption within the energy market

As with any technology that requires multiple stakeholders, mass adoption takes time, but inroads have been made. Organisations have started to adopt technologies, ranging from large organisations such as Energy Web Foundation (comprising of 10 major energy companies) to much smaller start-ups such as Power Transition, who recently launched a blockchain-enabled green energy microgrid in London's South Bank. With a relatively low barrier to entry, we will undoubtedly see momentum gather in the industry, with more players contributing, creating new markets and initiatives. 

Barriers to adoption of blockchain within the energy industry

Despite the obvious benefits of the adoption of blockchain, Capgemini reports that few firms have fully embraced blockchain. In a recent survey of firms engaging with blockchain, 3% had large-scale use, 10% were piloting it, while 87% had only tested blockchain proofs of concept. Several issues must be addressed before it can be considered a viable, wide-spread option for the future:

Constraints with physical energy management 

Energy is still delivered through the physical grid, demand and supply need to carefully be managed and controlled to comply with the physical constraints and power system stability. According to a report by Eurelectric, unlike the finance sector, the physical exchange of electricity has so far inhibited larger adoption of blockchains in the energy sector.

Concerns around privacy 

Dutch peer-to-peer energy trading network PowerPeers Co-founder Michiel Ooms states the biggest challenge is handling of privacy-sensitive data and a lack of regulations and procedures (consumptions, locations, financial transactions), as there have been issues with GDPR compliance, so there is still work to be done. 

Concerns around sustainability 

There have also been questions over the carbon footprint of adopting the technology, due to the high-energy cost of ‘adding to the chain’. Paradoxically, however, for the energy industry blockchain could offer opportunities to reduce carbon emission through locally orientated grid management techniques. For energy markets, proof-of-stake offer a solution to these concerns by reducing competition, thus reducing the energy required.

What is next for energy players?

With all of this considered, the large number of established energy companies and utilities that are currently involved in blockchain projects, combined with ever-increasing investor interest, clearly demonstrates the potential value of this emerging technology for the energy industry.

The real, long-term value is, however, yet to be proven, especially as most initiatives have trialled the technology in relatively small-scale projects that are still in an early development phase. As a result, questions will need to be answered before the mainstream adoption of the blockchain in the energy industry. Several organisations have emerged to concentrate resources and R&D efforts to try and make this a reality. We have already seen this is the Commodities trading space with VAKT's post-trade management system being backed by many of the oil supermajors and trading firms. The full potential of blockchain is still alien to us but as market forces strive for greater transparency and pricing liquidity, I think it wise to investigate further.