Change has typically come slowly in the energy and utilities sector, long dominated by large and established organisations with control over wide swathes of infrastructure and a mostly captive customer base. But even this legacy industry has seen dramatic changes in recent years: the growth (and growing affordability) of renewable energy, smarter technologies (including the Internet of Things) and rising demand for more modern and consumer-friendly services.
And now blockchain is posing both an opportunity and a potential threat to the sector.
“The emergence of blockchain introduces a new measure of uncertainty at a time when the industry is changing rapidly due to renewable and distributed energy, energy efficiency, energy storage, and digitisation,” a McKinsey article pointed out last year.
Yet distributed ledger technology could also help utilities modernise and become more competitive.
“Decentralised energy grids have the potential to cut costs at the same time as increasing energy efﬁciency, improving reliability and supporting renewable energy integration,” states a September 2018 report from the World Economic Forum, PwC and the Stanford Woods Institute for the Environment. “Coordination issues across these grids, however, remain largely unresolved. Blockchain can provide the solution to these issues, using smart contracts to optimise coordination, enabling genuinely local markets for energy trading.”
The McKinsey article identifies six areas in which blockchain could prove useful to energy producers, utilities and/or consumers. It could make it easier to issue and trade renewable-energy certificates (RECs), support peer-to-peer power generation and distribution, bring electricity to undeveloped markets, balance supply and demand in real time, improve infrastructure management and integrate electric vehicles and charging stations into the energy mix.
“For utilities, blockchain is a double-edged sword,” McKinsey says. “New challengers can use blockchain to displace incumbents, but incumbents that use blockchain wisely stand to realise substantial benefits. By applying blockchain to their vast stores of data, utilities can unlock new revenue streams from better-coordinated markets, ‘smarter’ hardware, and wider electrification.”
Thierry Mortier, EY’s global innovation lead for power and utilities, wrote recently that blockchain’s arrival “coincides with massive industry upheaval”. In particular, he foresees the technology having an impact on three “critical tipping points” that are fast approaching: more affordable and better-performing off-grid energy (starting around 2021), more affordable and better-performing electric cars (starting around 2025) and energy distribution that becomes more expensive than local generation and storage (starting around 2039).
The value of blockchain for the energy utilities market is projected to surpass $3.4bn by 2024, compared to $210.4m in 2018, a research report released in February found.
Energy utilities aren’t the only area where blockchain shows promise, either. Marchment Hill Consulting last year summed up some of the ways in which distributed ledger technology could benefit the water sector as well. They include applications for water rights trading, smart contract payments and settlements, peer-to-peer trading and raising capital through ICOs (initial coin offerings). In fact, the consultancy noted, because water industry trades typically involve lower frequencies and volumes than those in energy, “adoption of DLT may be more easily achieved”.
With so many potential applications, a number of utility companies and other organisations are already developing or testing blockchain pilots. They include:
- a multi-utility pilot in Switzerland
- TenneT’s pilots for grid flexibility in Germany and the Netherlands
- a live Share&Charge app for electric-car charging in Germany
- RWE’s tests of an electric-vehicle charging network, peer-to-peer energy trading by Vattenfallan
- IoT experiment by Energinet
- Electron’s energy flexibility trading platform
- an electricity sharing project by Fujitsu
- a peer-to-peer network installation in Pennsylvania
- the Brooklyn Microgrid pilot by LO3 Energy
- Siemens and Civic Ledger’s feasibility study for water trading.
Working with the Energy Web Foundation, a non-profit organisation of affiliates that soon plans to launch a blockchain platform for the energy sector, the utilities Swisspower and Iberdrola recently hosted a hackathon aimed at specific challenges in the industry. The winners included Papers, a mobile platform prototype for optimising consumption; FlexiDAO’s framework for mass-market device registry; and DAO IPCI’s platform for carbon tracking.
At the moment, Europe is considerably ahead of the US in terms of blockchain tests and pilots, according to Hannah Davis, an engineer/scientist with the US-based Electric Power Research Institute.
“The utility structure in Europe is very different than in the US, and in some cases are structured in a way that allows them to move faster in experimenting with new technologies,” Davis told Solarplaza recently. “I think it is reasonable to assume that the number of pilots will increase in the US, although at a slower pace than what we’re seeing in Europe.”
Utilities need to move ahead with such projects if they want to survive in the changing landscape, says Udi Merhav, founder of the cloud-based platform energyOrbit.
“In today’s climate, I believe it is no longer enough for utilities to simply provide reliable energy to the grid,” Merhav wrote in Forbes last year. “They must do this, yes, and they must also take the steps to break out of their comfort zones to implement new technology solutions, embrace collaboration with existing companies and foster their own innovations in-house. I believe those that do will not only survive the next 50 years of change, they will thrive; some may even be trailblazers. If they don’t, customers will likely figure out ways to go around them.”
“To be certain,” EnergyWeb notes in a recent paper about accelerating the energy transition, “blockchain technology is not a singular solution; it is one of many tools that will influence the evolution of energy systems. However, we believe blockchain has the potential to play a critical role in transforming energy markets”.