Today, Blockchain has emerged as a harbinger to the financial sector for its digital transformation. As a crypto technology, it started off by enabling the most-buzzed about virtual currency, i.e. Bitcoin. However, it is now expanding its range to other sectors as well, such as energy and energy-related sectors. For example, industrial, transportation, and residential.
To find out whether Blockchain becomes an evolutionary or a revolutionary element in the energy ecosystem – the World Energy Council (WEC) has prepared an advanced-level Brief in partnership with PricewaterhouseCooper (PwC). This Brief contains key insights gathered from interviews of 39 top-level management energy leader in the industries like electricity and oil & gas. The 39 energy leaders that were interviewed, includes technology providers, regulators, start-ups and think-tanks from around the globe.
With this, the Council aims to comprehend the effect of new technologies on existing energy systems. It also intends to understand the impending role of new technologies in promoting a fruitful energy transition.
GROWING INVESTMENT IN ENERGY SECTOR
The year 2017 marked an investment of around $100-300 million in more than 100 energy-sector associated blockchain applications. On a global level, the power sector observed the investment growth of above 20 percent per annum in digital infrastructure since 2014 and touched the mark of $47 billion by 2017. While as per the International Energy Agency (IEA), this digital investment came up to nearly more than 40 percent that was made by the entire sector of gas-fired power generation.
As per GreenTech Media, more than $324 million were raised in the previous year alone by 122 blockchain start-ups that are currently functional in the energy sector. Apart from start-ups, established players like IBM, Siemens, Equinor, TEPCO, etc., are also driving the blockchain investments in the energy space.
KEY INSIGHTS DRAWN FROM THE INTERVIEWS
There were some major insights extracted from these 39 interviews.
1. Blockchain Uses Differ & Applications at Different Development Stages –
Seven different uses of blockchain were identified across the energy space – flexible energy trading systems, emissions trading systems (ETS), supply chain tracking, e-mobility, tokenization and project financing, bitcoin mining, and P2P trading. It was found that around 45% of the companies that were interviewed are carrying out tests for P2P projects. These projects would help the system to adopt Distributed Energy Resources (DER) for consumer-centric transformation. In addition to P2P, other existing evaluations also look promising applications for blockchain despite they are still at the nascent stage of development.
2. Potential of Grid Transformation Through P2P Apps
Many businesses are developing growing interest in the implementation of P2P applications. However, they are still looming at the least mature phase and pose several regulatory challenges in expediting renewables, such as demand side management, dynamic load balancing, data monopoly, customer engagement, infrastructure investment, and cyber security. The role of energy blockchain in combination with its P2P applications rely on the link between different components, for example grouping with other technologies like renewables, EV, etc.. This bridges the gap between energy and energy-associated sectors (including transport, industry, buildings), new consumer logics (such as prosumerism, sharing economy) and societal requirements (such as sensitivity towards locally developed products, sustainability, income from assets, and transparency).
3. Emerging Substitutes to Energy Blockchain
With an aim to enable a complete transactive energy marketplace, the Faraday Grid in addition to its Emergent platform offers a new network of electricity architecture that facilitates a higher penetration of Distributed Energy Resources (DERs) to attain lowest possible cost. Despite not being an established substitute to energy blockchain, it is still one of the alternatives in the disruptive and rapidly moving landscape of the emerging blockchain technology, even though the platform of Faraday Grid software is governed by Distributed Ledger Technology (DLT), which is not particularly blockchain.
4. Challenges to Full Adoption & Customer Inertia
At present, the major hurdle on the pathway of its full adoption is to measure the technological scalability and feasibility. Time, testing, and technological refinement are the three factors that will play a key role in order to determine both the aforementioned elements. Moreover, customer engagement and regulation may or may not add to the industry transformation, since it is not applicable in all types of businesses pertaining to energy space.
5. Unclear Role of Regulation
Most of the interviewees concur that certain degree of regulation, specifically in P2P, is justified for maintaining a balance between customer protection and innovation. This perspective was based on the fact that market participants might resist to come onboard, if regulation was perceived as a deterrent to the business models influenced by the new energy blockchain. However, if regulators are to be believed, it should not even be considered until blockchain technology attains the state of maturity, because it slows down the market. But if at any point in time, stability and/or security of supply were to land in jeopardy due to the adoption of new technologies, we would definitely observe regulator’s intervention.
6. Disruptive Impact of Energy Blockchain
While energy blockchain can expedite disruption of existing value chains, any new consumer logics or active energy behaviors stay ambiguous. In addition, accelerating decentralization and decarbonisation also increases the risk of new energy jolts – for example, dynamic load management, grid investment and cyber risks. In fact, deep decarbonisation of energy systems (i.e., more than 70% energy reductions) need added ways to electrification for preventing economic shocks – such as heat-generating, chemicals, and those comprising of liquids – and to meet industrial and long distance travel/ heavy duty demand. Eventually, and perhaps more than the above-mentioned scenarios, the potential ability of blockchain disruption is currently looming under the clouds of uncertainty as to whether in the long run, the digital economy will increase or decrease overall demand of energy.
The future prospect of energy blockchain is both unpredictable and uncertain. Even at this budding stage, a host of possibilities emerge and required to be considered. It is because the technology is looming at the nascent stage and therefore it is a challenge to precisely forecast as to whether its development pertaining to any given application will bear full fruition in the marketspace or not. Furthermore, in the short-term and without considering the impediments of regulatory reforms and customer engagement, a complete transformative disruption may not be viable. Although, the energy blockchain will persist to optimise the ongoing practices of energy eco-system.
Notably, it was also observed that Transformative Disruption is attainable only when there is new regulatory framework and a readiness from consumer’s end to engage. In the backdrop of this situation, the present energy ecosystem will undergo the most dramatic disruption, known as a revolution. While in other situations, an evolution of current market and current practices will gain from the implementation of blockchain technology.
About the Author: Vikram Pandya
Vikram Pandya is Director FinTech at SP Jain School of Global Management where he has designedAsia’s first interactive classroom led FinTech program featuring Blockchain, API Banking, AI/ML and IoT labs. He has authored several white papers and articles on FinTech domain. He has an extensive experience in banking, financial services, Fintech, consultancy and training domain. He is also associated as a mentor with various FinTech startups across the globe. He has been associated with YES Bank for more than a decade where he has made key contributions to Financial & Investor Strategy, Business Intelligence, and Business Development & Technology Solutions unit. He has been a visiting faculty at the Institute of Chartered Accounts of India (ICAI)