The Energy Blockchain: linking it all together

With many recent technical advances still undigested by the energy sector, new disruption from blockchain might seem like the last thing that this industry wants. However, it is exactly the tonic that it needs argues Jo-Jo Hubbard.

For an industry not renowned for rapid adoption of new technologies, energy certainly feels like an exciting place to be right now. Solar power generated more electricity than coal in the UK for six months this year for the first time in history. The rate of growth of distributed generation has far outstripped all estimates and the grid has had to adapt quickly from a system designed to support a one-way flow of power to cope with reverse flows. This phenomenon will be exacerbated by the forecast rollout of small scale battery storage units over the coming years. On top of this, new smart technologies and connected devices are promising greater information and control than ever before and now, just on the horizon, looms the prospect of peer-to-peer electricity trading underpinned by blockchain technology.

But the reality is that we are not quite there yet. Despite the great care with which our electricity delivery system has been designed, financial settlement can seem like an afterthought; sometimes a 14 months one at that. Moreover, the high transaction costs of the current system render it ill-suited to this emerging world of lower value, higher frequency transactions.

To maximise the potential of distributed generation and other new technologies, we need to rethink various aspects of the industry’s shared systems infrastructure and design a leaner, less centralised system. Moreover, it will need to be highly flexible in order to accommodate, but not pre-determine, evolving demands for new ways to generate, distribute, consume, trade, balance and settle electricity. No wonder the potential of blockchain is capturing the imagination of so many utilities.

Blockchain technology is still best known as the technology underlying bitcoin, though it is now seeing use cases in almost every major industry. It offers a reliable, low cost way for financial or operational transactions to be recorded and validated across a distributed network with no central point of authority. Permissioned blockchains have particular industrial appeal since it can be arranged that those requiring access to the platform are also in charge of maintaining it. This not only removes a cost base, but it also has the power to eliminate other inefficiencies that arise from conflicts of interest between service providers and consumers. It also creates a very robust system, resilient to denial of service attacks and with no single point of failure.

Blockchain platforms are also adaptable and extensible. They don’t just consist of inactive records, but provide a platform on which to deploy pieces of code capable of monitoring, executing, and enforcing agreements automatically. This code is open for extension, meaning parties can deploy new value added services at a pace that they dictate.

Initial adoption of this technology is likely to see it supporting, rather than replacing, entrenched processes. In doing so it will not change current roles and processes but provide a transformative solution at a lower cost, and one that avoids silo-ing information and stifling innovation. An example of this is the meter registration platform that we have developed at Electron. The platform could provide a solution to Ofgem’s ambitions to move to reliable next day switching of energy supplier without relying on a new monopoly service provider that would have to be compensated and regulated. Instead the data could be collaboratively maintained by those granted access and value added services could be appended to it, such as incentives for data-cleansing. It would also be very easy to extend its functionality to provide other services such as a priority services register for vulnerable customers.

Looking beyond asset registration services, blockchain also has the potential to lay the foundations for widespread future participation in peer to peer energy and flexibility trading— turning energy surplus and varying demand into a potential market. The basic premise of this is being explored on a micro-grid scale by companies like Transactive Grid and Power Ledger. Slock.it and RWE’s are exploring another use case in autonomous charging stations for electric vehicles.

Blockchain technology is still at an early stage and is likely to encounter significant commercial, legal and regulatory adoption hurdles that will only be surmountable with industry buy-in. However, with huge cost and carbon savings at stake, there are many reasons for utilities to champion this technology. Moreover, given that it is the industry’s shared infrastructure under scrutiny, there is a strong case for the next phase of development to be collaborative. Here the energy industry could follow the example set by banks. Despite also being a heavily regulated industry, the financial services industry has tended to joint source problems, whereas energy has historically been much more regulator led. Blockchain could be a great starting point for utilities to design and build their own infrastructure and ultimately reap the benefits that this will unlock.