Are Electric Blockchains For Real or Just Hype?
by Bob Shively, Enerdynamics President and Lead Facilitator
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It seems that everywhere we go these days there are articles, panel discussions, and energy experts talking about blockchains. When we facilitate our classes around the country and the topic comes up, about 50% of participants ask what a blockchain is, 25% think it is crazy hype, and 25% think that it is the future of energy transactions. So for those in the 50%, I’ll give a short description of what a blockchain is. Then for the rest of you, I’ll give some examples of how blockchains are being piloted in the energy world today. You can then decide whether it is hype or a transformational way of transacting.
What is a blockchain?
While discussions of blockchain can get technical real fast, the key to blockchain is that it's a technology that replaces centralized transaction administration and data control with a decentralized digital record of contractual terms and confirmed transactions. Duplicate copies of records are stored on multiple computers owned by multiple parties. The validity of transactions is verified by third parties who are paid to ensure no manipulation takes place and contract terms can be implemented automatically through smart contracts that are coded into the digital records. In essence, blockchain technology promises to replace credit checks, contract implementation, electronic or physical payment by checks, and contract clearing.
The following graphic from Scott Madden, Inc. demonstrates how a blockchain might simplify traditional energy trading:
Source: The Scott Madden Energy Industry Update, Volume 17, Issue 1
If successful, blockchains will have the capability to track and settle a very large number of transactions occurring continuously in very short time frames. Blockchains promise a number of key characteristics:
- High levels of security
- High levels of user trust and transparency
- Barriers to manipulation
- The ability to store large amounts of data
- High reliability against loss of data
- The ability to keep private data private
- Low transaction costs
- Speed to handle a huge volume of transactions
- The ability to handle a multitude of customized contractual agreements
- The ability to evolve quickly as markets evolve
Whether this will prove true remains to be seen, but numerous parties are working diligently to find out.
Examples of energy blockchains in action
Wholesale power trading
As demonstrated by the graphic above, blockchains could replace the current process of wholesale energy trading. Pilots have been implemented in Europe including the Enerchain platform which was developed working with 39 power and gas trading companies and reportedly has been used for trades between companies such as Italy-based Enel and Germany-based E.On.
Tracking car charging
An issue with electric vehicles (EV) is that the traditional stationary customer consuming energy behind a fixed meter has become a mobile customer charging at multiple locations. Numerous pilots are using blockchain technology to allow EV owners to charge anywhere and be charged the appropriate amount. Examples include a collaboration between BMW and PG&E that proposes to provide carbon credits to customers who charge their EVs with green energy and multiple projects in Europe by Share&Charge.
Peer-to-peer consumer energy trading
In today’s regulatory environment, consumers who produce power (also known as prosumers) typically can only consume the power internally or sell it to their local utility distribution company. Blockchains are being explored as a mechanism to allow consumers to buy and sell energy with each other, simply using the utility system as a means of physical delivery. Pilots include the Brooklyn Microgrid Project using blockchain technology developed by LO3 and Siemens and various pilots by the Australian firm Power Ledger.
Renewable energy project financing
Most renewable generation projects are built with upfront bilateral contracts with an entity that agrees to buy the generated power for a number of years. WePower is instead exploring allowing developers to finance projects by selling their production upfront via blockchain enabled smart contracts.
How soon might we see blockchains become mainstream?
Opinions on the question of when, and if, blockchains will become a common technology in the energy industry differ. At a recent Greentech Media Blockchain in Energy forum held in San Francisco, the audience gave a mixed answer:
Source: PG&E Details Planned Demonstrations at Blockchain in Energy Forum, PG&E Energy Currents, September 17, 2018
In the next year, it will be worth watching the many blockchain pilots to get a sense of how the technology is developing and how soon we might see it entering the mainstream.