What every utility CEO should know about blockchain
Blockchain
technology can streamline transactions along the utility value chain. Here is a
look at six emerging applications.
WHAT IS
BLOCKCHAIN
In a conventional transaction, institutions such as
banks and utilities centralize the flow of information. These intermediaries
provide the security, transaction integrity, and official certifications that
allow contracting parties to create value. Companies with scale and strong
enterprise-software IT platforms have an advantage.
Costs associated with intermediated transactions,
however, can create inefficient markets. For example, institutions use their
own accounting systems and must reconcile entries with counterparties. This
creates the possibility of error and dispute in the absence of a common
real-time view. Additionally, relatively high operating costs can preclude
smaller or less liquid vendors from participating.
Blockchain technology remedies these inefficiencies by
enabling parties to transact directly using digitally encrypted, decentralized
ledgers. Identical copies of the ledgers are shared and viewable by all members
of the network, and a consensus process is used to agree on additions. The
database itself can be used to confirm identities, apply time stamps, conduct
transactions, and create records. So-called smart contracts can also be set up
on a blockchain to execute processes according to predetermined rules.
By establishing an indelible "golden copy" of
asset provenance and transaction history, these capabilities minimize the
potential for fraud and for legal disputes over whether contracts have been
fulfilled. Once a transaction is validated, it cannot be changed or removed.
Since this permanent ledger is stored on each node of the network, no single
member can tamper with the ledger. In this way, blockchain is both transparent
and secure.
In
a public blockchain like bitcoin, the validation process is based on
game-theory concepts and theoretically prevents single or multiple validators
from controlling the ledger. Computational power is used as a kind of
validation currency, and several "miners" work to solve a highly
complex math problem that validates the transaction and adds it to the
blockchain. Blockchains can also be private—accessible only to invited members
and validated by administrator(s) or a semi-autonomous guiding algorithm.
Public blockchains are truly open disintermediated networks, but private
blockchains are often used to coordinate closed networks holding sensitive
information. These private blockchains will likely be the prevailing means for
storing disintermediated energy information like meter and payment data.
THE ARTICLE STARTS BELOW
E.Bitcoin has attracted wide
interest in recent months, but it’s blockchain—the technology that underpins
bitcoin and other cryptocurrencies—that has the potential to remake important
aspects of the utility industry. Leading utilities have begun to ask how they
could take advantage of these uses while withstanding threats from
blockchain-enabled challengers. The emergence of blockchain introduces a new
measure of uncertainty at a time when the industry is changing rapidly due to
renewable and distributed energy, energy efficiency, energy storage, and
digitization.
Blockchain technology
could provide the infrastructure for sophisticated networks that manage
payments, sales, trading, and distribution. Given their potential to streamline
transactions and cut costs, blockchains and smart contracts could help to
remove pain points and friction throughout the power value chain. That said,
blockchain technologies are still in their infancy, and questions remain about
security, scalability, and governance.
In this article, we
look at six ways that energy players are beginning to use these technologies,
and we consider the prospects for blockchain’s development within the industry.
1. Issue and trade renewable-energy
certificates
Renewable energy
certificates (RECs) are currently given to solar producers based on generation
estimates and forecasts rather than on actual generation. Inaccuracies could be
reduced using sensors paired with smart contracts that record data to a
blockchain ledger and issue or trade RECs based on actual energy produced.
There is no need for a central agency to verify generation data or work through
costly and inaccurate estimates because accurate data is instantly viewable and
actionable on the secure ledger. Blockchain can reduce costs for public
agencies administering RECs by streamlining trade verification and data
indexing.
Companies such as Volt
Markets (an energy origination, tracking, and trading platform powered by smart
contracts on the Ethereum blockchain), solar-panel designer Ideo CoLab, sensor
maker Filament, and exchange operator Nasdaq are experimenting with services
that allow power generators and others to sell certificates arising from energy
generation. Ideo CoLab, for example, has integrated its capabilities with
Nasdaq’s Linq platform as well as Filament’s hardware—which uses digital sensors
with blockchain capabilities—to issue RECs to producers for each kWH their
solar panels generate, enabling even small solar producers to easily track,
prove, and trade power.
2. Enable peer-to-peer power generation and
distribution through microgrids
Blockchain technology’s
relatively low transaction costs allow smaller energy producers to sell excess
energy, thereby increasing competition and grid efficiency. Smart contracts
facilitate the real-time coordination of production data from solar panels and
other installations, and execute sales contracts that allow for two-way energy
flows throughout the network.
The State of New York,
for example, is working to rebuild its power grid as a distributed platform,
leveraging a framework that allows power companies and new entrants to
collaborate. Start-up LO3 is using the Ethereum blockchain to allow consumers
to buy power either directly from local producers or from a microgrid that sits
on existing infrastructure. Brooklyn Microgrid, a project supported by LO3 and
Siemens, is working to create such a microgrid in the New York City borough of
Brooklyn. Blockchain-enabled metering allows power to be exchanged between
members of the microgrid without a centralized authority or expensive
infrastructure to manage flows. Members can control their energy-use
preferences with a mobile app or smart-home system; their blockchain meters
will purchase energy from solar owners based on preset cost preferences.
3. Electrify undeveloped markets
Many regions around the
world have limited access to energy. Blockchains, combined with smart financing
schemes, mobile applications, and digital sensors, can help distribute energy
in small, discrete packets in these regions, allowing a local owner of a
solar-generation system to sell power to neighbors. The solar-system owner
installs a blockchain-enabled solar panel on credit from the installer, using a
mobile phone to pay for the hardware in installments and incurring minimal
fees. Once the solar installation is paid for, the owner can sell small,
discrete amounts of solar power to nearby consumers as they need energy. Power
requests and payments can be made via mobile phone. The lighter fixed
infrastructure involved with blockchain and mobile micropayments allows these
networks to thrive where other infrastructure—wires, traditional loan
structures, and centralized energy authorities, for example—would be too
cumbersome.
In one pioneering
social initiative, the crowd-funding platform Usizo connected to
blockchain-enabled smart meters in underfunded South African schools so that
donors can pay the school’s electricity bills. Blockchain-based payments allow
donors to ensure that 100 percent of each donation is used for its intended
purpose. Similar methods can be used to provide electricity to new or
underserved markets. M-PAYG, a Danish company, provides prepaid solar-energy
systems to people living below the poverty line in developing markets and is
leading a major project to electrify Uganda’s largest refugee camp.
For the power industry,
the result is more individuals with power access and an increasing number of
microgrids to support the main grid infrastructure. Owners of small
solar-generation systems gain access to new income streams.
4. Enable real-time transactions to balance supply
and demand
As solar and wind
energy scale, power markets are increasingly challenged to balance supply and
demand. Power supply was once provided by mostly “on call” or dispatchable
sources of energy, such as coal and gas generation. In many markets, power
supply varies with the wind and the sunshine. This has created demand for new
“flexibility” services, to either adjust power demand to better match supply,
or compensate backup sources of supply that can respond quickly in times of
shortage.
The Northern European
transmission-system operator TenneT has launched pilots in Germany and the
Netherlands to use blockchain technology to provide such flexibility services
to the grid. TenneT’s pilots integrate storage assets, from electric cars and
household batteries, into power markets.
UK-based Electron is
using blockchain to develop a platform for a flexibility marketplace, to allow
real-time transactions to balance power supply and demand. This has been dubbed
an “energy eBay,” as it opens up participation in power markets. The trading
platform would compensate consumers for adjusting their energy consumption,
encouraging higher consumption in periods of high renewable power supply and
lower consumption in periods of relatively low supply. It allows power generators
and storage providers to transact in response to real-time price signals.
The flexibility
marketplace leverages a blockchain-based asset register that Electron has been
developing over the past two years. The register does not require a central coordinator
and aims to ultimately allow for direct transactions between all included
assets, such as smart-home technologies.
5. Manage infrastructure in real time
Blockchain can enable
more efficient monitoring and maintenance of power-industry infrastructure,
based on secure, real-time data communicated by sensors. If an anomaly is
detected, maintenance can be facilitated and paid for by smart contracts,
leading to faster response times. Data is secure because it is only available
to nodes in the blockchain network. Again, blockchain adds a layer of security
and coordination to current digital pilots, enabling quick, accurate data
gathering and communication between hardware suppliers, utility maintenance,
and emergency response teams.
6. Connect electric-vehicle charging stations
In transport,
blockchain offers opportunities to coordinate electric-vehicle (EV) charging.
Blockchain facilitates energy payments at charging stations, allowing EV
drivers to view maps of the charging network that highlight choices based on
each user’s preference and real-time pricing data. If blockchain microgrids
have been set up in the area, power prices at each station can be established
by grid and residential power suppliers. Drivers can pay securely and instantly
using a blockchain wallet.
By facilitating a
larger and more efficient charging network, blockchain can catalyze faster
adoption of electric vehicles. Blockchain coordinates the charging-station
network autonomously, showing drivers where nearby stations are located and how
they are being used (Exhibit 3). Smart contracts allow for automatic, secure,
peer-to-peer energy payments. In Germany, Share&Charge is an app based on
Ethereum technology that connects electric cars with available residential and
commercial charging stations and facilitates payments. The technology has also
been piloted in California using eMotorwerks’ JuiceBox EV chargers.
For utilities,
blockchain is a double-edged sword. New challengers can use blockchain to
displace incumbents, but incumbents that use blockchain wisely stand to realize
substantial benefits. By applying blockchain to their vast stores of data,
utilities can unlock new revenue streams from better-coordinated markets,
“smarter” hardware, and wider electrification. And all of this activity will
depend on solving some of the problems that could prevent blockchain technology
from being used at scale.
Many utilities have
started to assess the potential of blockchain technology to create both
internal and industry-wide efficiencies. Some have gone a step further and
launched pilots in such areas as trading, distribution, and data management.
Europe has emerged as the leading region for blockchain innovation, with
companies launching a range of initiatives. RWE is piloting an electric- vehicle
charging-station network based on smart contracts, while Vattenfall has
launched a pilot peer-to-peer energy-trading network. In Asia, energy manager
and power-marketing company Eneres is partnering with Aizu Laboratory to launch
a peer-to-peer network. Development in the United States has tended to be led
by players outside the power industry, including the Department of Energy.
Blockchains enable
“trustless” transactions ruled by incorruptible algorithms and free of
intermediaries, governments, and industry watchdogs. There are not yet
consistent, coordinated rules for markets based on the technology, but
standard-setting efforts are ramping up. The Energy Web Foundation (EWF), for
example, which comprises 24 affiliates around the world, is working with
regulators and technology providers to catalyze technological and regulatory
advances. EWF’s goal is to support development and create open-source
blockchains with common standards and features specific to the energy industry.
Additionally, energy-specific forums, such as China’s Wanxiang Blockchain labs
and Endesa Blockchain labs, host summits and challenges aimed at helping
standardize processes and catalyze solutions.
Even in this initial
phase of commercial pilots, there is clear potential for blockchain technology
to catalyze current disruptions transforming the power industry. Equally clear
is that some stakeholders will benefit, others will see their business models
change, and others could lose out. Among the former group are likely to be consumers,
owners of solar-generation systems, microgrid participants, electric-vehicle
owners, and others whose energy use involves the Internet of Things. Utilities
and equipment and device makers may see their roles evolve, while the impact on
exchanges, information providers, and administrators may be more disruptive as
they are replaced by automated processes.
As the technological
playing field takes shape, a diverse range of opportunities should appear for
power-industry participants. For companies taking a medium-term view, that
means acting now to put in place the strategic tools to respond to blockchain.
Utilities should consider how it might create either a competitive advantage or
risk of disintermediation. Utilities that participate in collaborative
blockchain consortia and understand the risks and opportunities of the
technology will be better prepared to act when the time is right.
https://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/what-every-utility-ceo-should-know-about-blockchain?cid=other-eml-alt-mip-mck-oth-1804&hlkid=8bb420a64d444915ac5fb7f8cd4fd9c6&hctky=1627601&hdpid=1ee2d406-c940-469b-a2d4-7df99f6ae7b5
No comments:
Post a Comment