Author: Marco Dorothal, Solarplaza
David Groarke, managing director of Indigo Advisory Group, has been tracking the blockchain energy market for several years now, and according to him there has been a recent uptick in the market, particularly in the last 6 months. During the third quarter of 2017, over 15 energy startups have completed, or are in the process of completing, their own Initial Coin Offerings (ICOs). In terms of global activity, there is a huge concentration in Europe, with a majority of large ICOs focused on decentralized trading platforms and financing. Of those startups, around one third have exceeded $200 million in token sale proceeds, mostly concentrated in sectors related to insurance and financial services.
According to Killian Tobin, CEO of Omega Grid, blockchain technology is the best architecture for optimizing the peer-to-peer local energy market grid. By using blockchain, distributed generation risks can be removed, while encouraging renewable energy investment by property owners. He claims that blockchain features such as increased level of security; immediate sharing of market shares and real time transactions make blockchain technology essential for a peer-to-peer business model.
For energy companies, there are 4 typical steps when it comes to launching a blockchain program. The first step involves identifying a use case for a blockchain implementation. Once a course of implementation has been found, the utility needs to figure out if it has the capabilities to develop such technology internally or if it will look to vendor partners for a product that will fit its needs. During this stage, the utility has to also decide on the preferred blockchain platform such as, for example, Ethereum, Hyperledger, BigChain, or Tendermint.
The second step is the Proof of Concept (POC) phase, during which a blockchain implementation is experimented with for one to three months. Utilities are then able to see how the software operates in a simulated environment with real customer data and operational data. It is important to note that this would not impact customers, but that it would involve real operational data. For that reason, it is recommended to use private or permissioned blockchain technologies during the POC phase. This way simulations can be created without worrying about the hardware or about the impact to a utility’s existing network, especially if multiple organizations are involved.
After the POC phase, the following step consists of a field trial, where real data is put into production in a small contained trial. During this step, more customer-facing products and data volumes are involved, which in most cases would mean a small trial with around 5% of customer and operational areas. This step might have completely different requirements than a POC, because by this stage the utility is already comfortable with the software and can choose to broaden the implementation of the blockchain projects.
The final step involves a full-volume production roll-out of the technology, which so far, has not often been achieved successfully by utilities. The vast majority of utilities struggle to reach that stage, because most projects have been found to still be “stuck” in the POC phase.
So far, utilities have focused on a few use cases for blockchain, which include certificate of origin, billing, demand response and - the most talked about area - dynamic energy (P2P trading). In terms of time spending, utilities were found to spend the most amount of time on real-time metering of local energy generation and P2P transaction management.
One example is a company such as Alliander, which has focused on linking smart meters to blockchain technology for “real-time” settlement as an off-grid solution for the island of Texel. Wien Energy, on the other hand, have been testing the waters with wholesale energy alongside two other utilities. Experts believe that, over time, more use cases will emerge, because of the growing presence of data and assets to manage behind the grid, and a growing number of prosumers in the market. They also believe that the next interesting thing to look out for would be the relationship that is being built between emerging energy applications and the deployment of new intelligent assets and edge processing.
Looking forward, a lot of work still has to be done in order to overcome the challenges that are present with blockchain technologies and utilities. Because blockchain technology is still relatively young, there is a strong need for standards and regulation, in order to see if different applications could be equitable. Costs are also a key factor that play a role in the adoption of blockchain, which make utilities rely even more on POCs. However, certain trends provide a positive outlook for the development of blockchain applications. Service providers are expected to continue to focus on core infrastructure, such as protocol development and network development, while focusing more time on actual application development to make use cases more viable for the sector. More maturity is also expected around functional and technical requirements to further differentiate between using relational databases or other blockchain applications.