In the last year, the roughly 120 energy blockchain startups in existence collectively raised a total of $324 million. These fledgling energy companies comprise the majority of investment in energy-focused blockchain technology. Incumbent energy companies, however, also have skin in the game. They are exploring the cost-saving benefits of blockchain technology and forming consortiums to discuss future applications. So what is happening in the energy and blockchain space? We can break it down into two broad categories: innovations in the realm of the electricity grid, and innovations in the realm of incumbent oil and gas.

Energy, Blockchain, and the Electricity Grid:

“The Grid” — as a nation’s interconnected electricity structure is ominously called — is one of the ecosystems most heavily inundated with blockchain projects, companies, and research. Though the projects are various and globally-dispersed, three primary focuses have emerged: wholesale electricity distribution, peer-to-peer electricity distribution, and electricity data management.

Wholesale Electricity Distribution

Startups looking to implement blockchain technology into wholesale electricity distribution are focused on connecting end-users with the grid, allowing them to trade and buy energy directly from the grid rather than from retailers. Companies like Grid+, a blockchain energy startup focusing on wholesale, identifies these retailers as the driving source of inefficiency in the consumer electricity market. Retailers do not own any of the grid infrastructure. Rather, they manage only the kinds of services that blockchain technology is able to replace — billing and metering usage. By replacing retailers with a blockchain-based platform like Grid+, consumer bills have been shown to reduce by around 40%. By connecting users directly to the grid, Grid+ also allows users to buy energy from the grid at the cost they desire and to sell energy if they produce it through means such as solar panels. The result is a more equitable market, a more stable market, and lower electricity costs.

Peer to Peer Electricity

Though wholesale energy is a focus of many companies, a “Blockchain in Energy, 2018” study reports that 59% of blockchain energy projects focus on building a peer-to-peer grid network. The concept is to facilitate a distributed network of individuals and entities who trade and buy excess energy between one another, without a central or wholesale entity. As more and more countries reach energy parity — where the cost of renewable energy becomes equal to or lower than traditional retail energy — individuals who produce their own energy at home will have the ability to trade it to their neighbors and peers. Companies such as Australian-based Power Ledger have connected communities to one another to create “microgrids,” which are theoretically self-sustainable apart from the national grid. Though microgrids currently exist merely as a layer on top of the grid, p2p blockchain energy companies imagine a future with larger, entirely distributed, interconnected peer to peer grids that allow participants to buy and sell renewable energy at even cheaper costs than before.

Electricity Data Management

Apart from giving consumers more efficiency and control over their energy sources, blockchain technology has been implemented in the energy industry purely for its ability to be an immutable record. In April of this year, the Chilean National Energy Commission (CNE) announced it had launched a blockchain project — the first of its kind from the nation’s government — focused on energy. Specifically, the department will use the Ethereum blockchain to record, store, and track energy data, including market prices, marginal costs, energy law compliance, and fuel prices. The financial costs of intentional corruption and unintentional clerical errors from mis- or unreported data provided the impetus for the migration. In the spirit of transparency, the CNE will allow the public to access the records of transactions, prices, and the money of movement, further reducing the chances for exploitation.

Energy, Blockchain, and Oil & Gas

Sprawling, multi-faceted, and global, the oil & gas (O&G) industry has been the focus of political, social, and environmental campaigns as the globe shifts towards an economy of renewable resources. The fact remains, however, that oil and gas companies can benefit from blockchain technology and are exploring potential applications. Though more conservative than energy blockchain startups, large oil and gas conglomerates are seeking to invest in and implement resources that can lower environmental impact and cost. O&G companies are particularly concerned about privacy and trade secrets, which is antithetical to some of the first blockchain platforms, which were public and transparent. Innovative O&G entities, therefore, are recognizing the utility of private permissioned blockchains (where data and access is restricted, but can be permissioned selectively to other parties) or consortium blockchains (where data and access is completely visible, but to pre-selected parties). Broadly speaking, the incumbent O&G industry has explored blockchain technology through gas/commodity trading, supply and data tracking, and consortiums.

Gas/Commodity Trading

The gas & energy commodity trading industry is another realm of potential disruption using blockchain technology. Companies have invested millions in building proprietary trading platforms tailored to the unique energy trading industry. Significant costs are required to maintain, update, and secure these systems. Broadly speaking, trading of any kind in today’s market is the maintenance of a massive ledger that records trades and commodity prices at certain moments in time. At its core, blockchain technology is a distributed ledger — just cheaper and more efficient than existing proprietary systems. Immutability, security, and immediacy do not need to be additionally programmed and maintained in the blockchain — they are core tenets of the technology itself. The implementation of blockchain technology in O&G trading has the ability to reduce costs associated not only with the maintenance of a trading system, but also costs associated with labor costs, data management, data visibility, settlement delays, and inter-system communication. BTL Group, an enterprise blockchain company, recently completed a pilot with ENI, BP, and Wein Energie. The pilot demonstrated that the use of blockchain technology to facilitate and track gas trades reduced overall costs by 30–40%. The company plans to test the platform with other resources besides gas trades — a process as easy as manipulating the original smart contract to fit different commodities.

Supply and Data Tracking

The O&G industry can roughly be split into three categories — upstream, midstream, and downstream. Upstream refers to the parts of the industry having to do with resource exploration and extraction. Midstream refers to parts of the industry involved with storing and transporting resources once they are extracted. Downstream refers to parts of the industry that refine resources into the multiple final products and provides those products to end users such as gas stations. The journey of one drop of a resource through those three stages can include dozens, if not hundreds, of separate entities, companies, processes, and legal agreements. The coordination among all parties is impressive, but can certainly be improved. The ability of a blockchain technology platform to record and track supply chains could stop an immense amount of waste. A platform that places smart legal contracts on the blockchain can replace time, energy, and money currently required by all involved energy companies. Lastly, an immutable ledger can help manage and track any and all data that is necessary for all stages of O&G production, again saving time and money by ensuring nothing is misplaced, lost, or hard to find.

Consortium Development

More of an initiative towards opening up the industry to blockchain technology rather than direct application, consortiums consisting of multiple O&G companies have sprung up. Ondiflo, a blockchain-based O&G platform in Houston, TX, announced in February the formation of a consortium of many oil and gas partners. The Consortium will focus, in particular, on blockchain solutions to ticketing-based services, a common problem in the industry where the number of partners involved in one transaction means weeks or months between execution and payment. Ondiflo and other O&G Consortiums will also focus on the difficult issue of industry privacy and trade secrets. Entities in the oil and gas ecosystem often survive and succeed because of internal advancements and discoveries they are wary of sharing with others. Different iterations of blockchain technology require degrees of transparency and visibility. Establishing early on the types of information different entities are willing to share (and perhaps convincing greater inter-sharing than historically common) could accelerate the adoption of blockchain technology within these consortiums.

Looking Ahead (and Behind)

The “energy industry” is huge, multi-faceted, global, complex, and interconnected. There will not be one single blockchain solution to the entire industry. Rather, a constellation of blockchains, blockchain platforms, and blockchain companies will emerge to support and streamline the energy industry. Whether improving upon renewable resources or reducing cost and waste of more long-standing industries, blockchain technology is ripe to enter the energy ecosystem. Regulations and industry habits may slow down adoption, but we should be excited — and we should advocate for — a future where energy + blockchain is a standard rather than an exception.

Everett Muzzy, ConsenSys