Author: Marco Dorothal, Solarplaza
Are there any utility business models using blockchain technologies? Should energy providers consider blockchain technologies? What innovative uses of blockchain technologies have been active in the marketplace? These are all questions that utility companies are asking themselves before they can embrace blockchain technologies in their business models. On the 8th of January 2018, we will organize a webinar titled: “Blockchain-enabled use cases for utilities”, where we will present the opportunities that blockchain offers to utilities along with a real-world example.
Blockchain is certainly gaining momentum in the utilities industry, especially this past year gave rise to many interesting developments. Last month, we published a blockchain guide, namely, “Guide to Companies Involved in Blockchain & Energy”, in order to provide an overview of the current landscape. However, after just a month and a half, there has already been a significant amount of new additions to the guide, as new companies are quickly entering the market, as well as listed companies expanding their operations. All of these changes will be published in the updated guide during Future Grid week from the 8th of January until the 12th of January 2018.
Blockchain applications for utilities range from smart plugs, meters and solar PV systems to digital customer platforms. Security of data exchange and seamless transactions will be essential for effective market operation, especially in this enormous and anonymous environment. Tony Masella, Managing Director at Accenture Energy Consumers Services, believes that data security and system transparency may not be the only benefits that blockchain brings to the energy ecosystem. Blockchain also offers a distributed ledger, that makes it possible to facilitate machine-to-machine interactions and interactions based on smart-contracts. This could allow devices to understand, cooperate and transact automatically with one and other.
According to Masella, the most innovative use of blockchain technologies could be the use case for electric vehicle charging. He claims that key factors hindering EV adoption revolve around charging infrastructure, which is currently limited and poses financial concerns. Because this type of technology is still in its infancy, innovative collaboration between utilities and blockchain providers could offer innovative solutions on the way roaming EV charging costs are tracked and billed. “In the future, you could foresee automated authorization processes, paired with wireless charging devices, that allow vehicles to charge while waiting at traffic lights—with billing done automatically by interconnected devices,” Masella said. The potential and early experiences of Vehicle-to-grid (V2G) applications will be the focus of the second webinar we’ll be hosting during Future Grid week.
In spite of all of the potential use cases for the blockchain, the technology is not perfect and energy providers need to be aware of the limitations hindering rapid adoption. Regulatory constraints have caused a variability in the adoption, mainly due to the absence of standards for rates of verifications. There is also a lack of framework and legal precedents, causing an inability to coordinate with economies and global jurisdictions. This leads to inconsistent delay times and introduces uncertainty in the system.
Another aspect that needs to be taken into consideration is the ongoing maintenance. The blockchain requires a high level of scarce technical skills as well as assets and infrastructure to maintain and upgrade. All of these factors, including the immature nature of its applications and the uncertainties surrounding its long term viability, have a strong influence on the adoption of blockchain technologies.
Drift is a power utility company based in Seattle that uses a combination of blockchain, machine learning, artificial intelligence, high-frequency trading and other tools to provide their customers with cheaper wholesale energy prices, while predicting their energy consumption. The company currently operates in New York and has raised over 12 million USD so far, with future plans to expand to other markets. The idea behind Drift is that it can accurately forecast customers demand for energy relatively better than traditional utility companies, which predict demand based on a region’s average monthly consumption from the previous year.
Utilities generally determine how much power to provide 24 hours ahead of time. If consumer demand exceeds the utilities’ rough estimate, they would then rely on “peakers”. These peakers are power plants that command a much higher price than baseload power plants. In contrast, Drift provides more accurate daily forecast of customer demand, resulting in a lower price for electricity for their customers. In the case of a spike in demand, Drift engages its network of small-scale producers (homeowners with solar panels, family-owned hydro dams and large commercial building with excess power) to satisfy its customers demands with low-cost energy.
In the midst of the growth of the company, experts have doubts that the current electricity system will change easily. They also warningly inform customers to expect pricing to fluctuate as more free-market trading comes onto the grid.
It is important to point out that Drift does not own the distribution infrastructure that supplies electricity to its customers, but leases it from the grid operator, based only on how much power is needed. Drift is able to offer its customers savings by buying power through its independent network and selling it to the grid at prices more competitive than peaker prices.
"If we are profiting while your power bill doubles, we are at odds with each other. If we don't save you money, we want you to leave. That's what we tell customers."
- Greg Robinson, co-founder and CEO of Drift
Another feature that makes Drift unique is that the company does not believe in contracts. It offers customers the ability to use a dashboard to choose whether to prioritize cheap or low-carbon energy sources. The company then proceeds to deliver weekly bills that describes customer’s costs, and also details from what sources their power is coming from.
The success of Drift has been mainly attributed to the creation of its profitable economic model that is centered around technology and its customers. The company views itself as a firm dedicated to software services for both buyers and sellers of electricity that are willing to pay for a “subscription”, as long as Drift can provide its customers with low-cost electricity with the use of its proprietary operating system.