What does blockchain mean for energy?
We get asked this a lot, so we decided to set out our thoughts here. We think blockchain has the potential to change three key aspects of the energy industry:
1. Who (or what) can trade
2. What can be traded
3. How markets are organised
We’ll delve into each of these ideas below:
1. Who can trade: Everyone… even machines!
At its core, blockchain technology is deeply democratic and inclusive, allowing all members of a network to transact on an equal footing.
A blockchain platform and its protocols can stand in for many of the trust functions for which we have typically looked to large, established & expensive corporates e.g. verified identity, staked reputation, transaction processing systems etc.. Using blockchain platforms, small companies can transact on an equal footing with larger companies, and individuals can trade directly between themselves in a peer to peer (“P2P”) economy. In energy this might manifest itself in enabling solar panel or battery owners to engage directly in the market and transact “local” or “green” energy with one another.
Sort of like a “local market” for energy then — where the marketplace is owned by the shoppers and stall-owners, and there is no single controlling company to demand access or trading fees.
On blockchain, users can extend the functionality of a platform themselves by deploying their own pieces of code (aka “smart contracts”). The result is a cost efficient, user-directed platform that will evolve at the speed of the fastest innovator, not at that of a single governing corporate.
This same ability to deploy smart contracts that automate business logic is also a key enabler of the machine to machine (“M2M”) economy. Using blockchain, machines can be equipped with wallets and a set of behavioral instructions that enable them to function autonomously — for example, we might expect Electric Vehicles to be able to purchase and pay for their own services. They could even trade their own power, re-selling it to the grid when the price was right.
Eventually the M2M economy will enable all connected devices to transact vertically along supply lines, reducing cost and friction along the way.
2. What can be traded: e.g. tokens & data
Blockchain technology is the first native medium for transferring value digitally, without involving intermediaries such as banks and credit card companies. The blockchain itself provides a record of ownership and an assurance against double-spending.
Native tokens can be introduced on blockchains to represent of something with a perceived value. Many instances of “tokens” in the energy sector pre-date blockchain e.g. carbon credits and renewable obligation certificates. Some companies are already investigating whether these existing tokens can be more efficiently and securely managed on a blockchain, whilst other companies are creating new tokens for products that previously had no value ascribed to them. For example, SolarCoin is a new crypto-currency that rewards owners of solar panels with one coin per MWh of production wherever they are in the world. These coins are exchanged for the production data of participating solar panels and can either be used to purchase solar related goods, or converted into fiat currency.
Indeed, blockchains enable new, fairer data valuation and ownership propositions in general. Our increasingly digitised, AI-enhanced world feeds off data, and yet few mechanisms exist to compensate those generating it. Currently data generators, interacting individuals, IoT devices, smart meters etc. have little visibility or control over how their data is collected and used. In some instances (e.g. on trading platforms) they are even paying for it to be aggregated and sold back to them. Blockchain technology allows for network participants to retain control of their own data. This means that they individuals can choose whether to keep data private, share it, or monetise it.
These new models for data ownership and permissions foreshadow interesting future partnerships across industries e.g. electrical equipment manufacturers teaming up with energy suppliers to offer free electricity in return for operational data.
3. How business is done: micropayments and collaboration
Blockchain systems create economic alignment between multiple parties interacting for a shared purpose. And it achieves this at a fraction of the cost of the alternatives (being A) expensive and complex legal frameworks or B) separate entities paid to coordinate and provide certain guarantees). This may result in:
1) Smaller scale transactions becoming economically viable. These might include micropayments for micro-services such as charging an EV in front of a traffic light, or flexibility actions from domestic household appliances.
2) The industry fostering newer, better models of co-operation, as de jure monopolies created to co-ordinate and share industry data are no longer necessary. Instead, market participants can collaboratively maintain and co-operate their own data platforms, thus removing a cost base, processing time, a barrier to innovation and a single point of failure or attack.
Drawing on the above we can conclude that blockchain is:
- A way to transfer- not copy- digital assets without an intermediary
- Both a technology and a completely new way of doing business
Capable of delivering fairer, more efficient and more inclusive market places where multi-party coordination is required.