The most exciting thing about blockchain right now may not be the technology.
If someone asked you what the most exciting thing aboutblockchainin energy is right now, what would you say?
Most would point first to the immutability of data and the associated benefits garnered from a “single source of truth” to be shared among many market participants (e.g., transparency, traceability). Others might say the biggest selling point is automation, process efficiencies and reduced transaction costs resulting from smart contracts. Some would say it’s cybersecurity for distributed devices or perhaps data privacy controls and data provenance.
While these blockchain characteristics have created a lot of hype, the best thing about blockchain right now is arguably the hype itself. Blockchain has been a catalyst that brings a wide range of stakeholders together, almost by necessity. As power generation becomes more distributed, storage becomes more cost-effective and transportation begins to electrify, we not only have many more energy-producing and -consuming devices that need to be orchestrated; we also have many more settlement, aggregation and ownership models to consider. This, of course, all sits in the context of a complex web of global regulatory and market structures — ever struggling to keep pace with technology.
The problem is not insurmountable. The data required to orchestrate the grid, design efficient markets and inform effective policy is now streaming from every new device sold. But because this data is all owned and/or controlled by a huge number of players, all with different drivers and motivations, it has thus far been difficult for the relevant parties (e.g., utilities, distribution system operators, independent system operators, regulators, third-party energy services providers) to gain access to the data that is relevant to them.
Blockchain has been an exceedingly useful tool at getting many of these stakeholders in the same room to actively discuss which parties need what data and at what level of aggregation, anonymization, permissions and timescale.
This brings us to the second-best thing about blockchain. Because many stakeholders consider blockchain to be a foundational technology, people are more likely to think about complex problems from a basic principles perspective — where is the existing system unnecessarily complex? What would this look like if we started from scratch? A diverse group of relevant stakeholders talking about solving core industry problems with the latest in technology can be a powerful tool, regardless of whether blockchain is the technology of choice at the end of the day.
Conversely, one of the challenges in expanding the use of blockchain in regulated energy markets is the hard truth that change in economic regulation and utility business models has been glacial compared to the rapid pace of technological innovation. While blockchain is good at convening stakeholders and encouraging them to think innovatively, we are quickly grounded by the reality of how to get from here to there, given the current state of regulation.
As pilots begin to scale, there will be conflict over which actors create or retain a place in the value chain, and these conversations will play out differently in different regulatory jurisdictions. Those that are successful will have made strong proof points to regulators in terms of cost efficiency, customer satisfaction, reliability and security.
Further adding to the complexity (and further down the road), what happens when an energy blockchain needs to interoperate with blockchains from adjacent industries like transportation, insurance and carbon markets? Those industries will experience their own versions of the scenario described above and their decisions will be influenced by a completely different set of actors and priorities. The odds of all these industries adopting the same platform and an interoperable solution in parallel with the energy industry are quite small.
In the coming years, it is likely that we will see blockchain develop along several paths, influenced by the unique needs of each market and the interplay between regional economies, governments and regulatory bodies. The big winners will be the organizations who can bridge the gap between the disparate implementations, as both single-industry and cross-industry standardization will be long in coming, if it arrives at all.
While we are on the topic of interoperability, it is worth highlighting one additional problem with blockchain that isn’t often addressed. Immutable databases are only worthwhile if they contain data that are accurate and usable. Everyone points to the need for better data-sharing and better interoperability — better visibility into the dynamics of the grid. However, many analysts in the energy industry will tell you they spend upwards of 80 percent of their time cleaning and transforming data. While blockchain could reduce these efforts to some extent by eliminating database reconciliation-type errors, using blockchain to store data does not automatically make data clean or of a common format.
This problem points to the need for robust sensing of distributed resources with automated validation prior to entry into the ledger. It also suggests the need for an increased reliance on open data standards. In the absence of strict requirements governing interoperability, new companies may emerge that offer data translation and transfer services to address this problem. However, this may also be problematic because if those services require taking data out of the blockchain, it isn’t immutable anymore, exposing numerous vulnerabilities in interoperability.
The grid design principle of the past was to create enough capacity in the distribution networks to provide energy on demand for any foreseeable circumstance. It worked well over the past century, but the grid of today is much more dynamic, and it is becoming too expensive to continue using outdated design principles. The emerging design philosophy is more about understanding the status and condition of the network at an individual node and component level, having the granular visibility of energy production and use, and being able to understand dynamically what will happen under any given circumstances of customer demand.
We cannot do this blindly. The next critical objective is being able to influence energy demand (when and how energy is used) and local supply through efficient market signals and effective service models. Blockchain is one of several new technologies (such as IOT, machine learning, and other buzzwords) that may help make this new approach viable.
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19 December 2018
20 December 2018