Blockchain: A Game Changer for Energy?

Published on 15th November, 2017

According to IBM, blockchain technology can be used to track the legal sale of cannabis – apparently it’s all part of the debate surrounding the possible legalisation of marijuana in Canada. Technology company Everledger is already using blockchain to verify the history of diamond transactions, whilst the best known application of blockchain is Bitcoin which uses the technology to transfer the “cryptocurrency” between individual users without any single authority being involved.

Big claims are being made for blockchain technology because of its potential to provide a trusted, secure environment for transactions which until now could only be facilitated via a central organising body of some kind. In some ways blockchain can be viewed as the ultimate disruptive technology as it threatens the roles of banks, electricity network operators, lawyers, commodity exchanges and financial clearing houses to name but a few – so far so good it might be said.

However, notwithstanding the hype, it has to be recognised that there is as yet little or no evidence that blockchain can succeed on a large scale in any industry or sector – with of course the obvious exception of Bitcoin, but this remains essentially a niche activity with limited relevance to the bulk of corporate life.

Nevertheless, those in the world of “tech” are not allowing the facts to get in the way of a good story and are getting very excited. There is a buzz around blockchain, both in Silicon Valley and around the world, which is seeing the likes of Alphabet (Google), Apple and the giant American banks as well as European and Japanese corporates pour millions into blockchain projects, fintech start-ups and equity raising ventures.

Now this is itself a paradox – as there is a tension between the disruptive potential of blockchain and the role of corporate funders with a large stake in preserving the status quo. Indeed, some blockchain pioneers are sceptical about the ability of corporate funding to pioneer true innovation.

So, what exactly is blockchain technology?

We may as well admit that not many people ( including this author ) know what it really is or how it works. But just because the inner workings of the ‘black box’ are not widely understood it does not mean that they may not have a profound effect on our lives – computer technology being a case in point. According to the experts, blockchain is a so-called ‘digital ledger’ – a file containing a list of data, transactions, etc – which is encrypted and maintained by a network of computers and which can then be shared between users on a confidential basis.
How is this relevant to those of us operating in the energy markets?

In recent weeks we’ve drawn attention to the falling costs of renewable energy – notably solar and wind – and the increased viability of battery storage as being potential “game changers” for the energy sector. Given the developments outlined above, we need to ask whether blockchain technology should also be seen in a similar light.

There is a link between these sources of disruption to the existing order. The impetus towards the adoption of renewable technology has brought battery storage to the fore as a solution to the problem of intermittency. This in turn has led to the growing interest in decentralised power and so-called ‘behind-the-meter’ and “off-grid” arrangements for the purchase and sale of electricity. Smart technology, of which blockchain is one element, is a crucial ingredient in such arrangements because of its ability to process large volumes of data quickly and efficiently and to facilitate small scale transactions at low cost.

So, where might blockchain technology have most impact on the energy sector?

One potential area is the ability of blockchain to provide a trusted environment for the growth of ‘peer to peer’ transactions. The exchange of large volumes of information presents an opportunity for energy transactions to be agreed between buyers and sellers without involving expensive and time-consuming intermediaries. Use of so-called ‘smart contracts’ is frequently mentioned in this context and, in a recent announcement, several major energy firms including BP, Shell, Statoil and some large European banks have said that they are supporting the development of a blockchain-based trading platform which will be operational by the end of 2018.

With the growth of decentralisation and off-grid activities in the power sector, the idea of smarter transactions enabled by blockchain can be extended to include localised power trading by households and small producers – at one extreme even including the owners of electric vehicles charging their cars or selling back their surplus electricity. Without blockchain, the logistical and transaction costs of managing and processing such large volumes of small individual data sets would be prohibitive.

Another example of the potential application of blockchain is to enable faster switching of domestic electricity customers between competing suppliers. Electron, a UK blockchain company, is developing a nationwide energy platform which it claims can switch customers in 15 seconds, compared with the 21 days it currently takes.

It seems that on face value these applications are indeed potential game changers – whether and how this potential can be converted into commercial reality remains to be seen.

One final thought –

For a technology that makes much of its ability to support our drive into a decentralised, renewable energy world there is some irony in the fact that one obstacle to progress may be the sheer energy intensity of the blockchain technology itself – apparently, a single Bitcoin transaction has been calculated to devour the equivalent of 1.5 American households’ daily energy consumption!

EnDCo works with smart technology providers and provides the open and transparent access to the wholesale market which is essential to maximise returns for both electricity consumers and generators.

For further information, please email me at: les.abbie@endco.co.uk

Les Abbie, CEO, EnDCo