Currently the EU is undoubtedly the most active region globally, not just in terms of blockchain in energy but also in terms of the broader core developer network. Indeed, we are seeing in Germany for example more than half of energy executives either carrying out or planning blockchain pilots.
Presently, there are approximately 40 startups operating globally in the energy blockchain space (see taxonomy later in this piece). These startups are working with the underlying technology of bitcoin and particularly on the Ethereum platform.
The technology still needs time to mature and the core developer network estimates that this may be 2-5 years away, however the emergence of initiatives such as the Enterprise Ethereum Alliance and the Energy Web Foundation will speed up standards and help to create both interoperability and shared design between public & private chains.
Although blockchain may provide an opportunity to transform some existing utility processes, the major opportunities in the near term will focus on the changes in the energy industry, and in particular, the interplay between distributed energy resources and utility analytics.
The map below highlights some of the global activity, head over to the resource center for an interactive view.
Emerging Applications and Vendors
In terms of evolving vendor and utility activity, we are seeing categories of use case activity emerge across the value chain. These can be broadly grouped across bitcoin bill pay, P2P trading, EV charging and sharing, renewable cryptocurrencies, wholesale trading and settlement and the creation of consortia and energy blockchain labs. In the taxonomy and paragraphs below, we have begun to categorize this activity and highlight some of the recent activity in the space.
Bitcoin Bill Payments – In 2014, BAS Nederland became the first energy company in the world to accept bitcoin bill payment, since then we have seen Enercity in Hannover, Elegant in Belgium and Marubeni in Japan roll out bitcoin bill pay. In this domain we have also seen Bankymoon in South Africa launch a social innovation project that enables anyone to “send” electricity, water and gas to anybody else in the world, from anywhere, by topping their utility meters. The key takeaway here is that as cryptocurrencies continue to gain traction globally, and as utilities continue to invest in customer engagement strategies, we expect those utilities with jurisdictions and geographies that have high bitcoin penetration continue to offer varied payment solutions to their customers.
P2P Trading – The trading of electrons with neighbors and within community microgrids on blockchain based solutions is the perhaps the most publicly acknowledged application of blockchain in the sector. In the past 12 months, we have seen vendors such as Power Ledger and LO3 energy offer solutions to consumers, and, utilities such as Alliander and Vector begin to experiment with the technology. While the potential in this category large, this market will take time to evolve and will depend heavily on regulation. In the medium term, we may however see blockchain extend itself to dynamic pricing, even lending itself to platforms envisaged by the REV process in NY, where a dynamic market below 115kV is a goal.
EV Charging and Sharing – The area of EV charging and sharing charging infrastructure is perhaps one of the greatest near-term opportunities for the technology in the sector. In 2016 we saw Swiss bank UBS team up with German power company innogy (RWE) and automotive technology company ZF to create blockchain-based eWallets for electric cars. The goal here is that car owners will be able to pay on-the-go for electric charging, parking fees, highway tolls and receive car-sharing fees in a sharing economy world. Indeed, earlier this year, the solution has been exported to the US with innogy partnering with California based ‘the Oxygen Initiative’ to roll out the technology. Overall, we expect this market to grow as EV charging infrastructure deployments accelerate.
Renewable Cryptocurrencies – We are seeing the emergence of renewable cryptocurrencies, for example, SolarCoin, which aims to motivate solar prosumers by rewarding them with SolarCoins, a take on how bitcoin incentivizes miners to commit processing power to the network by rewarding them with bitcoins for each block of transactions mined. SolarCoin is incentivizing 97,500 TWhs of global solar energy production over the next 40 years. 99% of the currency is distributed to Solar energy generators providing a proof of work. Additionally, in this area we are seeing collaboration emerge with home energy management and thermostat providers, for example, two-thirds of Smappee’s users have solar panels, which they can now use to earn SolarCoin in a seamless fashion as this is integrated into their meter technology.
Wholesale Trading and Settlement – Another very promising area for the application of blockchain technology in the industry is in the area of wholesale market trading and settlement – an area that has the potential for some real process improvement opportunities. In the past 6 months, we have seen several notable developments in this space. Firstly, at the EMART energy trading conference in Amsterdam in November 2016, the first European energy trade using blockchain technology occurred. The trades were executed by Yuso and Priogen Trading and both traders used the Enerchain trading tool, developed by PONTON. In addition, PONTON aims to deploy a Smart Market blockchain solution in the NEW 4.0 collaboration project in Schleswig-Holstein. The vision is to use blockchain technology as a joint data layer to coordinate market activities such as the submission of buy or sell orders and the execution of trades. System users will be DSO, TSO, industrial and private prosumers. In a similar vein, earlier this year BTL announced that they had launched a pilot with Wien Energie, Austria’s largest utility conglomerate that is focused on energy trading alongside two other utilities. Finally, in this space, Qiwi, a Russian payment system operator have launched a pilot to track energy transactions using blockchain technology in partnership with Tavrida Electric. Overall, and for multiple reasons, we view this area as having very bright prospects for blockchain application across the sector.
Consortia, Labs & Research – As we are at the very early stage of developing the technology and energy applications, and as the technology is currently too slow for the majority of industry scale use cases, much needed effort is being spent on developing the core technology and developing robust, research backed pilots. Notably in this area is the work of Grid Singularity and the Rocky Mountain Institute on the Energy Web Foundation. The aim of this effort is to act as a central convening platform to bring together energy-focused blockchain efforts and accelerate the pace of blockchain development through a combination of hackathons, boot camps, and other gatherings. Additionally, in this domain, we are also seeing notable activity by Endesa Energía who are establishing a blockchain Lab in Spain and by Wanxiang in China who are planning to invest $30 billion in a project that will integrate blockchain technologies with smart city innovations in Hangzhou.
Notable Startups – Finally across the value chain we are seeing the launch of some noteworthy startups that are using the technology to tackle a range of applications in the sector. For example, Volt Markets in the US aims to use Ethereum smart contracts to issue and track Renewable energy certificates (RECs), UK startup Electron is working on solutions for the UK market with a focus on a meter registration platform, a flexibility trading platform and smart meter encryption techniques and M-PAYG a Danish venture-backed startup is aiming to improve access to renewable energy for people living below the poverty line in developing countries. Using blockchain they are developing prepaid energy solutions through small-scale mobile money installments. Overall, we forecast that the startup ‘blockchain in energy’ space will become very active over the next several months and we expect to see an evolving maturity around business models, “as-a-service” opportunities and continued pilots.
Developing a Utility Blockchain Strategy
From our initial analysis, blockchain may provide an opportunity to transform some existing utility processes. For example, beyond the much-talked-about applications behind the meter, utilities may be able to leverage this technology for supply chain, asset management and organizational performance applications. In reality, there will be largely three types of impacts of blockchain technology on the utility value chain. Firstly, there will be those areas where there is limited-to-no impact, for other areas the technology may support existing processes and make them even more robust and efficient, for other areas however, we may see some level of disruption. Overall, we have begun to analyze these types of impacts across the utility value chain in the resource center and expect this view to evolve as the technology matures.
At Indigo, we help utilities navigate this new domain through executive workshops, use case screening, technology partnership identification and market analysis. Our approach is focused on launching successful pilots that are defined by conducting robust requirements analysis. At this stage of the technologies’ development it is important to realize that many other non-blockchain based solutions, and relational databases may have a decisive advantage when it comes to solution performance, however, blockchain may have longer a term advantages when it comes to providing a robust, fault-tolerant way to store critical data and manage smart contracts. As a result, we encourage the use of an extensive set of use case screening criteria backed by market analysis and rapid prototyping for energy companies. By beginning to interact with the technology now however, utilities will be well placed to understand the true impact of blockchain, beyond the market hype, and where this technology may both support and disrupt their processes and business model.
By David Groarke, Managing Director, Indigo Advisory Group