Blockchain and utilities

Closely allied to the technology behind virtual currencies, blockchain offers a fast, efficient and secure way of enabling such services as peer-to-peer trading. Utility Week investigates.

Across Germany, drivers of electric vehicles (EVs) depend upon a network of “Share & Charge” charging points whose flexible usage arrangements rely on their connection to a payments platform operated by Essen-headquartered Motionwerk, a subsidiary of Innogy SE, itself a subsidiary of RWE.

Soon, a series of alliances and partnerships with charging point infrastructure owners in other European countries will see the network stretch from Norway to Italy –including, at some point during 2018, the UK, where the charging points will be supported by Npower, RWE’s UK retail arm.

To some, the expansion of EV charging infrastructure alone is a sign that visions of the future are being made real. Motionwerk’s drive to connect more and more charging points to its platform sits alongside a surge of other investments in infrastructure and payment mechanisms, not to mention a series of high-profile policy announcements from national governments heralding the end of petrol and diesel-powered vehicles.

Already this year, governments in France, China, and the UK have said that sales of internal combustion vehicles will be banned from around 2040. Car manufacturer Volvo has said that from 2019 all of its new models will be either all-electric or hybrid.

Yet, look closely and there is an even more futuristic dimension to Motionwerk’s EV charging platform – its reliance on blockchain “distributed ledger” technology.

Popularly associated in the public’s mind with the bitcoin currency, blockchain-driven distributed ledgers are the first real innovation in the structure and recording of business transactions since the ancient Sumerians began encoding them on clay tablets in cuneiform script over 6,000 years ago.

Stripped to the essentials, business transactions revolve around the exchange of a series of documents between two parties. There’s an initial order, for instance, followed by an acknowledgement, then a shipping note and packing list, and then an invoice, a payment, and finally a payment advice. Stages may be skipped or subsumed within others, but the basic structure remains the same, with bookkeepers and accountants keeping tally. One party’s invoices, in short, match the other party’s payments and outstanding payment obligations.

At its starkest, blockchain dispenses with all that. By securely encoding transactions within identical distributed ledgers held by both parties, the need for these documents disappears. So does the need for the accounting and checking processes which match and validate transaction documents. Held on multiple computers as a huge distributed database, a blockchain ledger is both secure and immutable: falsification is impossible, because of the impossibility of changing every distributed record and its hash-encoding at the same time.

The utilities application

For utilities, which are fast embracing both extensive levels of automation and machine-to-machine transactions, the appeal of blockchain is becoming apparent. At a stroke, it provides a means of easily and securely monetising transactions where conventional bookkeeping and document exchange would be cumbersome. One automated device can transact with another automated device, with both devices agreeing the mutual balance of payment obligations at every step of the process.

Moreover, in any industry in which cyber attack and digital fraud are very real concerns, the distributed nature of blockchain’s ledgers add both security and resilience. As with the internet, there is no central point to attack: the system of record is the network, rather than a given node within it.

Even so, the existence of a particular technology and capability is a very different matter from seeing that technology and capability become a trusted and ubiquitous part of how business is done. Again, the example of the internet is instructive. Invented in the 1970s, it took until the mid-1990s for the “killer applications” of the worldwide web and consumer email to drive mass adoption. So too with blockchain, say the experts.

“Blockchain technologies will definitely impact utility operations, but quite how that impact will be seen is still evolving,” says Christine Easterfield, principal consultant at analyst firm Cambashi. “Blockchains and the distributed ledgers based on blockchain technology can support many applications, from wholesale energy trading to meter registration, and also reckon to provide greater security against cyber attack, because every transaction is ‘witnessed’ by the entire user community. With trials and pilots in operation around the world, the industry seems actively engaged in exploring just what blockchain might do for it.”

Nor are possible blockchain applications within the industry solely of a financial nature, adds Stuart Ravens, principal research analyst at analyst firm Navigant Research. “There’s a lot of talk about blockchain’s distributed ledger technology, but you can also view blockchain as a distributed database technology,” he says. “And here, blockchain could take off very quickly, because this makes it possible for all the players in an energy network to share a single view of the network’s data. It’s not a particularly sexy application of blockchain, but it could be where the technology is more likely to gain traction.”

These perspectives on blockchain are certainly shared at technology services provider Wipro, where a number of initiatives have been underway to both explore and exploit blockchain technology’s potential. Of particular value to the utility sector, says Krishna Ram, Wipro’s general manager for the utility digital products and innovation practice, is blockchain’s ability to offer a single shared and secure view of data, right across a network – irrespective of how many parties are transacting in that network.

“Consistency is enforced: it’s part of how blockchain works,” he explains. “Everyone looks at exactly the same data. And that data is immutable. When you store data in a blockchain, no one individual has the power to change it or disrupt it. And that data is distributed rapidly, in real time: once something changes in one node, all the other nodes know of it. With blockchain, the rules are defined, and cannot be changed by any single one of the parties – only by all the parties to a transaction, acting together.”

The result, says Ravindra Balija, Wipro’s general manager of digital architecture and technologies for utilities, is to create a different – and more secure – way for the industry to manage its data.

“Utilities’ networks are connected ecosystems with multiple data exchanges and ‘hand-offs’ to multiple parties, calling for significant amounts of investment, and high costs in terms of reconciliation, verification, and validation,” he notes. “Blockchain fundamentally disrupts this, providing – literally – one version of the truth. So it becomes possible to do things that otherwise can’t be done today, such as make agreed financial settlements in near real time. Power can be generated, and paid for immediately: there isn’t any need to wait for data, and to then reconcile and validate that data. The fundamental process of validating all that data is being disrupted, and potentially eliminated.”

So what, then, might blockchain look like in practice within the utility industry? In the energy sector, Balija points to the huge surge in the number of end-point solar and wind “prosumers” as an ideal application.

“These vastly complicate the data flows involved, with end points that are not just consuming energy, but feeding it back into the grid as well,” he says. “Blockchain not only makes it all simpler and cheaper to manage this, but also opens up the possibility of peer-to-peer energy trading.”

Supplier switching is another fruitful area for blockchain, he adds. “At the moment, switching is a slow and complicated process, and this is generally down to the need to co-ordinate all the data transfers that are involved – getting everyone to the same point, and agreeing the cut-off point at which one supplier ceases to be the provider, and another takes over. With blockchain, all of this is again easier, simpler, and cheaper, because the blockchain ledger has all the data. In the UK, switching can take up to 21 days at present: with blockchain, it is possible to do it in a few hours.”

Grid management, smart contracts, demand response management, trading platforms, asset tracking: in all these areas, adds Ram, blockchain can have a disruptive effect, rewriting the rules of the possible. Faster data, better data, pre-validated data, and more robust data: blockchain, reckons Wipro, offers not just a better and more secure way of transacting, but also a way that offers savings compared with existing approaches.

Even so, as with using blockchain to help manage the two-way data flows entailed with prosumers’ wind and solar-generated power, the adoption of a new technology such as blockchain will always be easier when not only is there a need, but also an absence of an extensive existing infrastructure that must be expensively discarded before the end of its useful life. Consider the rapid rollout of mobile telephony across the Middle East and Africa: in both cases, landline technology was largely leapfrogged, with providers and users jumping straight to mobile connectivity.

Will history repeat itself? Technology providers such as Wipro clearly hope so, with Wipro’s Ram pointing to blockchain’s low costs of adoption acting as a democratising influence within the sector, lowering barriers to entry and increasing competition – messages doubtless of interest to regulators.

Others, however, counsel caution. Navigant’s Ravens, for instance, while bullish on blockchain in general, sees adoption taking place at a more measured pace.

“Blockchain is an interesting technology, but it’s going to take a long time for it to really become embedded in the energy industry,” he says. “What is really needed for blockchain to take off is a really sophisticated market for prosumers – and that might be a decade away.”

Blockchain in action: Motionwerk

Think “charging station” and it’s difficult to shake off the mindset of the fossil fuel era in which “charging” or fuelling stations are operated by large companies, or perhaps municipalities, with charging being paid for by cash, or credit or debit card.

But the reality of electric vehicle charging is very different. Charging points are unattended, with no physical person there to pay or transact with. And the owner of the charging point may not even be a corporate entity, but someone who has bought an electric car and installed a charging point outside their house.

Ravindra Balija, Wipro’s general manager of digital architecture and technologies for utilities, says private citizens need to have access to a charging point for only a few hours every day – and having invested in having one installed, have every incentive to defray that cost by making it available to friends and neighbours when they don’t require it themselves.

“They’re out at work, say, and the charging point is sitting there unused and potentially available for use: the trouble is, there’s no straightforward way for ordinary consumers to carry out such a transaction. Or even finding an unoccupied charging station, without physically seeing it.”

Back in early 2014, German energy utility Innogy SE began thinking about this very problem, and conceived of blockchain as the answer. Today, it has a series of blockchain-enabled products, including a blockchain-based peer-to-peer car-sharing smartphone app, a pan-European charging infrastructure employing blockchain as a payment mechanism, and a peer-to-peer charging station network in California. Using a smartphone app, drivers can not only find an unoccupied charging station, but also reserve it and pay for it.

“It was a very futuristic vision,” explains Carsten Stocker, senior manager for the machine economy at Innogy SE. “We wanted to invent Uber for energy, blending our own technology with that of others.”

That blockchain became part of that solution was coincidental, he concedes. But talking to both start-ups and major IT service providers – including Wipro – it was clear that blockchain was theoretically capable of meeting Innogy’s needs, and was worth investigating.

In particular, he says, the company was pointed to the blockchain-based digital currency Ethereum, a competitor to bitcoin. Very quickly, he explains, Innogy decided to partner with Ethereum and use its existing “open” blockchain technology, rather than develop its own proprietary blockchain, seeing the value of using a digital currency that had already gained traction and an active user base.