When talking about blockchain, up till recently there was not much happening in the energy industry. At least not in the spotlights. But that is rapidly changing. In April 2016, the ‘said’ world’s first blockchain managed energy trading transaction took place in Brooklyn, New York. The owner of a solar roof panel sold excess energy (a few kilowatt hours) to a neighbour using a smart contract of the Ethereum blockchain. This happened with the Brooklyn micro-grid which is managed by startup company LO3 Energy. During the EMART Energy 2016 event on November 3-4 in Amsterdam the first European megawatt-hour energy trade over a blockchain was executed by the Belgian Yuso and the Dutch Priogen Trading. And more trials are expected to come soon.

These events should be seen as a clear sign the market is prepared to adapt new technologies including blockchain in preparation for the energy transition the market is facing. This however will require a new way of thinking from all parties involved in the energy market.

First European energy trade over blockchain

The EMART Energy 2016 event saw the launch of the first European energy trade over a blockchain, executed on the Enerchain platform. This platform, developed by PONTON, a German innovative software company, in Summer 2016 practically shows the power of the blockchain by creating a marketplace that does not require a physically centralised platform. Enerchain allows to anonymously send orders though a trading screen, whereby counterparties click on this screen to conclude a transaction – all done “peer-to-peer” without a marketplace operated by a third party. The tool supports energy products like day-ahead, monthly, quarterly and yearly baseload for power and gas. Enerchain demonstrates what can be expected for the future in related areas of energy trading, such as P2P wholesale trading, C2C trading in the microgrid, synchronising grid management processing etc.

Significant changes in energy sector …….

The energy sector has seen significant changes over the past few decades across generation, distribution, storage, and consumption. The result is a complex, non-transparent and inefficient energy market leading to a lot of waste. Put simply, there isn’t a single, publicly available ledger of all energy transactions that take place in the industry. Though the data is there, it is very fragmented, hard to interpret, and largely underused as a result.

“A good example of this (waste!) is revenue leakage (the gap between purchase and sales), which is a common problem for all energy suppliers, and can account for 2-4% of turnover. The reason for the gap is that it’s very difficult to account for usage at a meter level, so when it comes to paying the aggregate industry invoices, if things don’t tally up it’s nigh on impossible to explain why, and ultimately that unaccountable variance has to be written off”.

….. ask for new commercial models

Normally energy trade transactions take place between professional parties of a certain size via energy exchanges. In exchange for a high fee they offer their members a professional trading platform with the necessary liquidity. The energy production and its trading in the coming decennia however will fundamentally change. This given the fact that the use of centralised energy is declining – and battery storage is likely to exacerbate that.

Especially solar panels that are becoming all the more cheaper is said to become one of the future energy sources.

This changed environment and the various challenges it brings about, ask for new commercial models. For a future where a growing part of the energy is produced and traded by consumers, these trading platforms where the wholesale trade take place are unfit, from a cost point of view. Smaller parties already trade outside the exchange. They arrange their transaction via e-mail and pay via the bank. And these trades between smaller parties will further increase. Here blockchain could step in!

Growing interest in blockchain

Traditionally, the energy industry has been slow to adopt new technologies. But energy today is in the midst of a digital transformation and many companies are ready to leverage new technology developments to meet the new challenges. Utilities are trying to figure out how to participate in this new world of distributed energy. While the old system of a few big power plants and vertically-integrated utilities didn’t really need blockchain, the new more decentralised world does.

We can as a result see a growing blockchain interest in the energy sector. People in the industry are attempting to determine where this technology could be applied. They are exploring the new blockchain-based applications across generation, transmission, distribution and customer markets.

Blockchain potential

The blockchain technology holds great promise to improve the functioning of the energy markets. If it’s applied at an industry wide level, from the ground up, the energy blockchain could be the catalyst to a (complete) transformation of the energy industry.

First of all, the technology lowers the entry barriers, opening up electricity marketplaces to more participants and their potential energy flexibility. Such a blockchain infrastructure would provide an open, transparent and timely way to record transactions in the energy business, from generation through consumption.

Second, by offering energy companies a more efficient way to record and process data and customers an easier and more accurate way to manage their bills, the use of blockchain technology could increasingly streamline global distribution of energy. Customers could have access to and visibility of their data and the transactions taking place on their account.

Third, blockchain technology has also the ability to remove the need for manual metre reading and the inaccurate estimated bills that come with it. A blockchain solution identifying where the energy is coming from, at what price and any mark-up passed to the consumer will help to regain integrity in the energy industry. Smarter products could provide more accurate data of energy usage and service dates, ultimately providing consumers with a better experience.

This could all result in increased competition, streamlined energy distribution, reduced energy wastage, transparency, renewed trust between end consumers and energy suppliers and as a result could help cut electricity bills.

Blockchain and use cases

Blockchain technology has the potential to provide technology solutions to the various challenges in the energy sector: including data coordination between a myriad of devices; a low-friction, automated trading platform; and open access for innovative products and services.

Industry uses of this technology in the energy sector are vast as it leverages decentralized peer-to-peer internet technology, where both computers and people share a distributed ledger. Blockchain technology could be used to ‘send’ energy such as electricity or gas or solar, or a combination anywhere in the world via utility apps that are built utilising the blockchain. Via blockchain technology a trade could happen directly with another party without such a trading platform or intermediary and that at very low costs.

But the use cases of blockchain are much wider and may extent to all phases in the energy supply chain from generation (carbon markets with distributed registry), distribution (transactive grid settlement) and transmission (P2P settlement at the transmission level) to finally the customer (community P2P markets, transactive home energy management, EV charging management).

As blockchain enables to work with so-called smart contracts, consumers could also utilise blockchain based applications to join a smart grid. Participants can thereby publically track their own energy usage and production (such as via solar panels) and sell on any energy not used to others on the smart grid peer-to-peer.

Integration of the blockchain protocol would also enable smarter metering systems, and this in turn may enhance the efficiency with which the end-user pays for their energy. “With greater transparency comes fairer pricing”.

“Accenture’s energy research shows that 93% of consumers are interested in learning more about smart meter functionalities, how their bill could be affected and whether additional costs are involved.”

Blockchain trials and projects in the energy sector

A new ecosystem of energy blockchain start-ups is emerging. Investors, start-ups and giants like IBM are investing real money to set-up trials and projects for blockchain applications. China recently set up the world’s first energy blockchain laboratory. We are now seeing a growing number of start-ups from Australia, Austria, Germany, to the USA, South Africa and the Netherlands all exploring various real-world applications “across the grid and behind-the-meter”, thereby looking how blockchain could impact the energy system.

Most pilots are still in early stages across the energy value chain, with a primary focus on customer markets, especially in the area around peer-to-peer energy trading. These pilots range from micro grids and solar systems, to smart appliances, in-field distributed computing and energy management software. At this stage, a few early participants are also designing authentication systems specifically for energy and appliances.

Utilities

In terms of utility involvement within the blockchain space we are seeing more pilot partnerships emerge with utilities such as RWE and Vattenfall launching test applications.

Vattenfall, the largest Nordic utility, considers using a blockchain to handle both internal and external financial transactions, but that is still “theoretically”. The company intends to trial a blockchain app that permits customers to purchase and sell electricity independently of the utility. Powerpeer, a Dutch-based startup launched by Vattenfall, is therefore focusing on a digital, interactive P2P energy marketplace where supply and demand for self-generated energy converge

German electric utility RWE is testing a blockchain application with electric vehicle charging. A machine-to-machine economy will be set up in which machines carry out transactions among themselves. RWE is thereby working with German start-up Slock.it to develop electric vehicle charging stations that use blockchain-based smart contracts to authenticate users and manage the billing process. For this they use an accounting unit supported by different charging providers of energy, in order to provide drivers of electric cars with a uniform payment method.

Startups

The number of start-ups that have entered the blockchain area for the energy industry is growing. Globally, new companies to watch include (next to the above mentioned Stock.It and Powerpeer) Bankymoon, Grid Singularity, Lo3 Energy, SolarCoin, and others. They have started to combine Blockchain technology with smart metering systems, energy trading as well as creating new products and services allowing to integrate technology systems into everyday practices. Many of them are using Ethereum, a public decentralized blockchain-based platform, featuring smart contract functionality.

South African startup Bankymoon has built the world’s first blockchain smart metering solution for modern power and utility grids. This solution aims to enable African schools manage utility costs by leveraging the international donor market & receiving cryptocurrency payments directly to the meter.

The highlight of the Hackenergy 2016 event that was run from October 14-16, 2016 at the Energy Barn in Groningen, Netherlands was a blockchain-fuelled peer-to-peer (P2P) energy trading system called EcoCoin. This trading system, built on the open source Hyperledger blockchain managed by the Linux Foundation, is similar to other projects that have been worked on for over a year, such as the one being built by Lo3 Energy in the US (see earlier!)

Fortum, a Finnish energy company, offers a blockchain-based solution that enables consumers to control appliances over the internet in connected homes. This helps them to optimise their heating and improve awareness of household electricity consumption. An In-Home Display allows the customers to see the electricity consumption of their homes in real-time, easily and clearly. It calculates the number of needed heating hours and switches heating on automatically. By taking advantage of weather forecasts and hourly electricity prices, it automatically uses the cheapest hours of the day for heating. This may result in lower electricity bills.

Vienna-based startup Grid Singularity is also experimenting with blockchain to authenticate energy transactions. The company is now targeting developing nations, where it wishes to make “pay-as-you-go” solar more secure. The goal is to develop a blockchain-based platform for energy systems that can be applied to any type transaction on the grid. This may enable decentralised energy data exchange to facilitate data analytics, smart grid management, and trading band investment decisions. It plans to trial its Blockchain-based platform for buying and selling energy with power plants by the end of the year.

South African-based InviroHub, one of the largest providers of total environmental management solutions and services launched an integrated technology application that incorporates smart meters, telecoms infrastructure and proprietary software based on blockchain. Their aim is to develop smart electricity, water, and gas solutions to empower people with accurate detailed real time information.

US based Lo3 Energy builds tools and develops projects to support and accelerate proliferation of the distributed energy, utilities and computation sharing economy of the future. Lo3 Energy, is building an "open-source, cryptographically secure" blockchain to manage transactions across a microgrid. The start-up has launched TransActive Grid in Brooklyn, NY – a pilot delivering real-time metering of local energy generation and usage as well as other related data. For that they have built out two nodes that are collecting consumption and generation data across the microgrid and "feeding it into a blockchain" .

A Perth (Australia) start-up PowerLedger started a blockchain-based peer-to-peer solar energy trading trial in the city last August. This eight week trial involved 10 households and about 20 people on the Western Power network. The technology works to identify the ownership of energy as it is generated and then to manage multiple trading agreements between consumers who buy excess solar direct from the original owner/producer, without the addition of market costs and commercial margins.

And there is also SolarCoin, an alternative digital currency using blockchain technology, implemented to incentivise solar electricity generation. The technology allows quantifying securely the amount of useful energy that was generated and used from the sun. SolarCoin is claimed by individuals living in homes with Solar Energy panels on their roof or large solar electricity farms.

"SolarCoin holders will build the currency’s transactional value upon the belief that solar-powered electricity is worth more to the world than its value in traditional energy markets".

Prospects

Blockchain may play a major role in the future energy market. With China setting up the world’s first energy blockchain laboratory recently, and trials starting in Australia, America and Europe, progress is being made in this area. In the near-term we expect more blockchain activity in the energy and utility industry.

But it’s still early days conceptually for the energy blockchain. No one has yet a precise answer how blockchain would be adopted in the energy sector. Perhaps in smart meters first, then in appliances, and then across a microgrid. Moving beyond pilots short term is however unlikely. So don't expect much more than small pilots and conceptual frameworks for some years to come. We anticipate it will be quite a few years yet before any real change starts to happen. But that said, when technology and regulation eventually do find an equilibrium in the energy industry, the long-term potential of blockchain will prove to be transformative!