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Pearl Street Dynamo, Manhattan (1882)
Ever since the dawn of the Industrial Revolution in the 1880s, and the opening of the first power plant in 1882 in Manhattan, the energy industry has been regulated in a myriad of ways. Energy is a basic human good with huge implications in an economy - such as driving huge manufacturing industries - so it seemed to make sense that governments would play a leading role in overseeing most of the value chain to ensure reliability, quality and an accessible price for the provided energy. Besides, a large and expensive transmission and distribution grid, with unimaginable sunk costs, would leave most private companies in debt for more years than any balance sheet would allow. Furthermore, in those days, the status quo of energy production was relatively simple: big centralized fossil-fueled power plants with dispatchable generation worked together with grid operators to balance supply and demand. Thus, for most of the electric age and in most countries around the world, governments have been in control of the production, transmission and retailing of energy.
Only (relatively) recently, did that status quo start to change. Distributed energy resources (DERs) such as solar, wind and batteries are gaining traction around the world as their costs have plummeted dramatically over the past decade and environmental concerns are starting to gain traction and influence policy globally. Users are now able to do something that was unthinkable 50 years ago: produce and consume your own energy. This means that generating assets functioning inside the grid infrastructure are growing exponentially, increasing the overall complexity of maintaining the grid. Currently, this is leaving grid operators with a huge question mark above their heads - to speak in comic book terms.
At the same time, since the early 1990s, energy markets around the world have slowly already started the process of deregulation (or liberalization), through which different parts of the value chain have been opened for competition. The retail part of the energy value chain, for example, has been liberalized in many European markets. This has lowered energy costs for end-consumers as competition drove prices down. The element of competition has also fostered a sense of innovation in the field. Still, not all parts of the energy value chain have been opened up to competition. The transmission and distribution part, due to its inherent properties as natural monopolies, are traditionally still under the watchful eye of governmental regulators. But one thing is for certain: energy markets are changing.
This process of deregulation is slowly making its march around the world, as its benefits are increasingly being claimed and enjoyed by consumers around the world. On November 1 2018, Singapore’s energy market was opened up to competition as the Open Electricity Market was extended to more than 1.4 million households. And this is not just happening in Singapore... Many Asian countries are following suit or have already done so, like Japan, South Korea, Malaysia, Thailand and several others. This opens a wealth of possibilities to consumers, producers, retailers and other energy-related businesses. How do we make sure that the increase in DERs and the process of deregulation work in harmony?
Blockchain, a cryptographic distributed ledger, shared between a network of users (and mostly known for the specific Bitcoin use case), has been upending energy markets around the world as a tool to handle this increased complexity. Blockchain is a novel method for the distribution and sharing of data between many users in a network. As mentioned earlier, the rise of DERs is increasing the complexity of energy markets. Blockchain is one of the tools that’s most suitably equipped to rise to this challenge and become a transformational instrument in the energy transition. Blockchain has the potential to change the energy industry as we know it.