Blockchain Distributed Ledger Technology Develops As Energy Market Grows

Companies are moving beyond trials to commercial projects, leveraging the distributed ledger technology for payments and trading on a city-wide and even national scale.

“What the net did for communications, blockchain is going to do for trusted transactions, along with the power and utilities industry is no exception,” said Stephen Callahan, Vice President, Energy, Environment & Utilities, Global Strategy, in IBM.

The tendency illustrates how blockchain is swiftly moving past financial services and cryptocurrencies, and provides a glimpse of a growing challenge to the $2 trillion energy market.

Blockchain is a database of trades distributed among multiple computers. It solves two important issues in the internet world: transacting without needing a trusted intermediary, and making sure those trades can not later be changed, eliminated or reversed.

This appeals to the energy sector in many ways. Since the market liberalizes and renewable energy develops, blockchain delivers a way to better handle the increasingly intricate and decentralized trades between consumers, big- and small-scale producers, retailers and even traders and utilities.

Blockchain's use of tokens also supplies a means to reward users for saving energy, and for small-scale trades between individual consumers with solar panels who are both consumers and manufacturers – known as “prosumers”.

Being able to include “smart contracts” onto a blockchain would also make it possible for actions to create automatic trades down to the lowest level, where computers and meters could autonomously reconcile supply and demand.

“The possibility of having the ability to track particular electrons via a blockchain since they proceed onto or off the energy grid has captured the imagination of several companies,” explained Daniel Sieck of U.S. law firm Pepper Hamilton.

All of this would spend less and could alter how we produce, save and consume electricity, what DHL Energy president Steve Harley calls the “net of electricity.”

Room To Grow

The World Energy Council predicts that such decentralized or dispersed energy will grow from 5 percent of the market today to 25 percent in 2025. Few electricity companies, but are making significant investments into blockchain engineering, says Shane Randolph, managing director at Opportune LLP, an energy consulting company based in Houston.

“The ones that are engaging in the dialog are largely performing ‘blockchain tourism' without developing applications.” That leaves opportunities for newcomers.

Power Ledger, an Australian startup that raised A$34 million ($26 million) in a first coin offering, or ICO, in October, is building platforms to enable commercial performance of microgrids in Thailand and India and 2 commercial buildings in West Australia.

It also recently launched a 200-customer trial microgrid with electricity merchant Origin Energy (ORG.AX) in Sydney. Energi Mine, a UK-based startup, has produced a blockchain-based platform to benefit energy-saving users with tokens they can use to cover their electricity bills or control their electrical vehicles.

It says it's already making money, albeit out of the artificial intelligence aspect of its organization.

A Singapore company called Electrify has been conducting a cost comparison market as the country liberalizes its power marketplace. Electrify intends to launch a blockchain-based exchange for all customers and manufacturers next year, also is speaking to one of Japan's biggest utilities about doing something similar to there.

Grid+, a U.S. startup, will start its first retail apparatus next year in Texas, using the Ethereum blockchain to allow users, whether they are traditional consumers or owners of solar panels and batteries, to buy and sell power at wholesale rates.

More jobs are on the road. Energy startups will have increased about $200 million in initial coin offerings this season, with a dozen planned next year, based on data gathered by Reuters.

But barriers remain. They include the entrenched nature of the incumbents, and queries about blockchain itself, which is under a decade old.

Martha Bennett, an IT industry analyst at Forrester, points to some “misunderstanding just how immature the tech is.” Then there is the regulatory landscape. “Since the energy industry is a regulated industry,” said Pepper Hamilton's Sieck, “widespread adoption of several potential blockchain use cases will demand regulator buy-in.”

There are signs of this. Singapore's Energy Market Authority launched a sandbox for energy inventions in October, while U.S. states including Vermont have passed legislation intended to help apply blockchain technology.

Skeptics state blockchain may help incumbents instead of interrupt them.

However many people decide to capture, store and sell power, there will still be a lot of users who won't disturb, says Hugh Halford-Thompson, of BTL Group, which has this year completed gas trading pilots on its own internet blockchain with BP, Eni (ENI.MI) and Wien Energie.

“As a result we're likely to see a great deal of the larger companies embracing blockchain and consuming it.” Others disagree, asserting blockchain will empower individuals by automating a lot of the drudgery of switching between sending power to the grid and receiving it. Omar Rahim, CEO and co-founder of Energi Mine, states blockchain will alter user behaviour and utilities will only be utilized when prosumers' supply and demand do not match.

Most likely, says Tony Masella, an energy consultant at Accenture, it is going to be more of a development. Like the network protocols at the early days of the world wide web, blockchain “will drive dramatic transformation of the energy business and unlock value” for everybody involved.

“However, it will not do this overnight.”