How blockchain technology could reshape Utilities businesses, EnergyPoint – Le blog Energie et Environnement de BearingPoint
We have been increasingly hearing, reading and talking about blockchain technology in the latest months, especially in the financial industry, where it is thought to become a game changer. It can provide extra efficiency and security, and may even fully disrupt the entire industry.
Blockchain technology turns out to be of similar interest in the utilities business. Utilities and banks are alike in the way they are centralized, powerfully regulated structures with elaborate processes. Utilities are a favorable environment for the deployment of blockchain technology.
Indeed, we are watching growing numbers of pilot projects involving blockchain in the energy industry, some of them instigated by large companies such as RWE, startups like LO3 Energy and its experiment in Brooklyn, NYC, and even stock exchange operators such as the NASDAQ.
To understand these projects and what lies in the background, it is necessary to look at the basic concepts of blockchain, and how its characteristics provide assets for the transformations of the energy landscape.
1. Blockchain Technology
Blockchain technology has inherent characteristics that can be of use to many sectors, including the energy sector. Going over these characteristics will help in the evaluation of its potential in the energy landscape.
What is blockchain and how does it work?
A blockchain is a distributed, secure and see-through system of record comprising a log of transactions collective across a digital network. Each knot on the network contains a finish replica of the blockchain data. The knots are held by “miners”.
Figure 1 – Each knot on the network contains a finish replica of the blockchain data. The knots are held by “miners”
Miners are responsible for authenticating and validating transactions, and then create blocks to be added to the blockchain.
Figure Two – A transaction on a blockchain
What are their main applications?
Blockchain technology’s main applications are:
– Distributed ledger : insure traceability and certification of legal documents of all types
– Assets transfer : peer-to-peer transactions of assets of all types, without intermediary
– Brainy contracts : autonomous programs executing pre-defined deeds under immutable terms
Blockchains are the very first systems to overcome limitations of synchronizing databases, so that individuals and companies can store data and run applications with 100% reliability. The potential cost savings introduced by a single global digitized ledger are significant.
This core functionality – decentralized database – can be beefed up by integrating mechanisms that make possible to carry out decentralized transactions inbetween two or more users under specific conditions defined previously. This is what we call brainy contracts. In this type of transaction, the terms of the contract are to be accepted previously by the users and the execution of the contract is then automatized. In a brainy contract, rules are defined individually (quantity, price, quality) and thanks to blockchain technology, there is an autonomous matching inbetween the parties, for example inbetween distributed providers and prospective customers.
An identically significant benefit is that the ledger will produce a golden source of data: useful for business owners, auditors and regulators alike.
Blockchains have a broad range of applications, some already in use like in finance with the cryptocurrency bitcoin (for more details, see our explore in the BearingPoint Institute : https://www.bearingpointinstitute.com/en/can-financial-services-industry-master-cryptofinance), others being just experiments or ideas as it is the case for most projects in the energy sector. The outlook is broad when we think of the possibilities of wise contracts in the energy sector. It represents a potential for secular switch to the status quo, in which every player perceives an chance to play a fresh role in the global energy system.
Figure Three – Main applications and functionalities of blockchain technology
The capability of blockchain to enable a decentralized and autonomous grid can explain why blockchain technology caught the attention of all energy companies in the latest times.
Two. Use cases of blockchain technology in the energy sector
After this introduction to blockchain, we can now analyze how it can be an response to the current needs of the energy sector in the lights of the current switches it is going through.
Blockchain technology may response the crucial need of authentication of contracts and certificates addressed by the energy sector
One of the assets of blockchain technology is database management, which is semi-transparent and cannot be violated. This asset could be used in systems that need certifications and traceability.
In France and several other European countries, Energy Saving Certificates or “White Certificates” are one of the main devices in their policies that aim for the reduction of energy consumption.
The idea is that energy producers, suppliers or distributors (electro-therapy, gas, fuel, fever, cold …) are shoved to promote energy efficiency deeds actively. An amount of obligations is defined in regulations over a specified period of time (obligations are distributed amongst producers according to their sales / energy deliverance). Each activity indicating the amount of energy savings has to be described and filed, and can then be managed by the authorities. At the end of the specified period, “obliged” producers have to justify the accomplishment of their obligations, or pay penalties otherwise. White certificates are tradable (For more details: http://www.developpement-durable.gouv.fr/-Certificats-d-economies-d-energie,188-.html)
This system is fairly analogous to the concept of CO2 emissions trading. Other types of certificates are also now delivered to track the production and consumption of renewable and / or recovered energy (green electro-therapy, biomethane, etc.).
These certificates are instruments supposed to ensure a specified amount of energy savings, emission, or renewable energy consumption has been achieved. Each certificate has to be unique and traceable, assuring that the influence of the related activity has not been accounted for elsewhere.
Therefore, authorities have to track the evolution of these certificates in registers. It has been noticed that authorities have a lot on their arms and sometimes lack the time to control filed deeds and work on the evolution of the mechanism (corresponding regulations are often revised), in addition to managing the registers.
In the future, registers could be managed via blockchains, requiring little activity from the authorities whilst being accessible to all players in the Energy sector (the State, the public, producers, consumers, emitters, …), ensuring the uniqueness and traceability of certificates, and even managing the certificates’ trading (certificates’ markets). The benefit is for all players, since they would be able to concentrate on deeds contributing to the energy transition.
There is no denying that there is still much to be done in the field since regulation weighs strenuously on any innovation. Each country has its own national registers for the White Certificates, which meet different rules depending on the geographical location, which entails enormous costs for the utilities. For example, if a utility has wind turbines in Belgium, solar panels in Wallonia, and biomass in Brussels, it must have three different national White Certificates management registers, and as many dedicated teams and therefore the costs rocket. Blockchain would here be a flawless example of application to disintermediate all these actors, and thus reduce the risk and the costs, except that the main actor is the State, and therefore this implies to switch the regulation very first.
NASDAQ and its service LINQ used the authentication of the certification of solar power
The stock exchange operator, Nasdaq, unveiled in May two thousand sixteen a service that lets solar power generators sell certificates thanks to its Linq blockchain service (for more details: http://ir.nasdaq.com/releasedetail.cfm?ReleaseID=948326).
In this system, the solar panels have to be connected to the Internet with technology provided by Filament, a Nevada-based blockchain start-up. Through an API pull from NASDAQ’s blockchain-based private markets platform Linq, anonymous certificates are created and can be sold to anyone who wishes to subsidize solar energy. The solar panels are hard-wired into the IoT device through a converter which enables Linq to measure the wattage they’re putting out and producing into the grid.
Blockchain technology may ease the billing process for utilities and reduce energy bills for consumers thanks to wise metering
The electric current clever meter is the keystone inbetween suppliers and customers of the brainy grid, and concentrates all the transaction, confidence and security stakes associated with an ever more intelligent and lithe energy.
Brainy meters associated with the transparency of blockchain create an environment where transactions are open and secure:
– Reduce risk of fraud / theft
– Help manage debt recovery
– Increase transparency in price switches and fees
A brainy grid network supported by blockchain technology would ensure an efficient local relationship inbetween production and consumption of renewable energy. Participants could publicly track their energy usage and production, and sell any unused energy to other participants. They would also have the capability to reduce their energy bills by making more informed purchasing decisions, avoiding consumption peaks or switching into a lower subscription. Brainy meters and blockchain technology would ensure a simplified billing process (efficiency, transparency) and quicker switching times.
A blockchain solution identifying where the energy is coming from, at what unit price and any mark-up passed to the consumer would result in more competitive pricing and in better integrity from public perception.
BlockCharge: EV charging and billing solution
RWE and Slock.it are putting together a decentralized billing system for electrical vehicle charging. It is called BlockCharge. Following the same principle that wandering for telecommunications, it would permit electrical vehicles to charge anywhere (with the help of a brainy ass-plug), and to be billed for the electro-therapy they used in a plain, common, and blockchain-based way. The EVs would interact automatically with stations and the electric current payment process would be autonomous.
The benefits of the project:
– Multiplying charging infrastructures (the use of a wise plus enables to charge a vehicle anywhere)
– Simplifying charging contracts (no need for contract anymore)
– Resolving interoperability issues
– Simplifying the charging process by treating authentication, charging and billing
Blockchain may help the emergence of microsystems based on prosumers
In the energy sector, we are witnessing the development of prosumer characters that is to say individual consumers that are also producing energy (homes with solar panels for example).
In that respect, blockchain technology represents an chance for a broader development of those behaviors by enlargening the number of people who could buy and sell energy directly with a high degree of autonomy.
Indeed, as said in the previous paragraph, blockchain technology should entail major switches since it permits transactions to be carried out directly from peer to peer. No third party intermediaries are required. In theory, we can imagine a market place where consumers exchange their own production without needing energy companies to organize the transactions. It creates a shift from centralized structures (banks, trading platforms, energy companies) towards a decentralized system (peer-to-peer transactions). It would reduce cost and speed up processes. The system would thus become more lithe. Of course, in that model, energy companies are still needed to organize the transfer of energy.
From theory to reality: the emblematic experimentation in Brooklyn
Transactive Grid, the project of the LO3 platform and ConsenSys, has become a fairly famous example of the possible application of blockchain to energy with its pilot experiment in Brooklyn, NYC (for more details: www.brooklynmicrogrid.com). Five “producer” houses, tooled with solar panels, sell their production to five “consumer” houses, on the other side of the street since April 2016. The objective of the experiment lies in the re-appropriation by citizens of their energy production, by the establishment of mini-grids, that is to say, mini autonomous energy communities. For this purpose, sensors record the history of the energy generation at a specific point, and instantaneously record it on blockchain Ethereum. Wise contracts can then govern the rules of use of this energy, and of course the tariffs of producers.
We could thus imagine, like the microgrid in Brooklyn, a proliferation of local decentralized and autonomous microgrids. In local communities, single persons with a single solar panel could thus participate in the end user market. Moreover, we can lightly conceive a system where people with individual solar panel no longer feed their excess energy into the grid but market all their production.
List of potential use cases and associated examples. This list is not exhaustive, as blockchain technology makes it possible to increase efficiency in processes and improve transparency, so it can be considered in numerous applications. Its use will depend on its adoption by the greater mass. At this stage, all projects remain pilots to validate the public interest.
Figure 7 – Potential use case and examples
Three. Transformations ahead
None of the energy companies presently developing blockchain applications have moved beyond the concept or pilot stage yet. It shows up that those models are difficult to put into practice. Indeed, the actual technology lacks of maturity and is elaborate in its development and implementation, in the energy sector in particular.
Moreover, barriers such as legal and regulatory requirements that blockchain projects must conform with are obstacles that still have to be overcome. The legal and regulatory frameworks still have to be designed to reflect the requirements of decentralized transaction models and provide protection to energy consumers.
However, France is a pioneer in this field, which is encouraging for the development of blockchain technology. Indeed, in July two thousand sixteen the CRE enacted an ordinance on the self-consumption and the pooling of the energy which permits anyone to produce violet wand and sell surplus production to others (neighbors for example). It thus authorizes a collective self-consumption which would react to a local electrical request through a local electrical supply. On December 21, a bill ratifying these ordinances was adopted.
The development of these models is very promising. Blockchain technology is a potential game changer for the energy market and its ecosystem: users, real estate companies, municipalities.
Nevertheless, it is too early to know what role in energy markets blockchain technology is set to play. It may be restricted to database management and transactions processing, but most likely, some broader and more disruptive future awaits.