Is blockchain all it’s cracked up to be


Smart Energy International spoke with Jo-Jo Hubbard, chief operating officer and co-founder of Electron, a start-up which utilises decentralised technology to advance the shared infrastructure of the energy markets.

The team aims to create innovative, collaborative solutions, based on the blockchain’s guarantees of a secure, robust and transparent platform.

This article was originally published in Smart Energy International 5-2018.  You have access to our digital magazine here.

In this interview, Hubbard speaks about why blockchain is important in the utility sector, and why the hype is focused on the wrong things.

What is the true significance of blockchain?

Perhaps the most important thing to know about blockchain is that it has solved the problem of how to coordinate transactions without a single intermediary.

In a market platforms environment, it is in the interest of all the parties that they coordinate, as it makes the market more liquid and brings together more buyers and sellers. However, up until recently, they always needed an intermediary to facilitate this process – and that is what makes blockchain important – it removes the need for an intermediary.

But is it secure?

There are three technologies that underpin a blockchain platform. There is the public key-private key encryption that governs how you control your own accounts, values or rule sets. More intuitively, this is the same encryption that secures your right to access your online banking. Public key-private key cryptography, plus the use of

the Elliptic Curve1 is what secures online banking. I feel like people always miss that out and it’s actually quite important. It’s how you prove that you have the right to log into your online banking account and propose your own transactions.

Then there is the peer-to-peer connection protocol which was popularised by things like Bit Torrent. This basically dictates how multiple nodes in a network connect with nearby nodes and how everyone ends up being connected in a mesh-like network.

The third technology is that of incentive or gaming mechanisms. If we look at the game theory technology piece in more detail, essentially, we examine how all of the different parties are incentivised to ‘be good and bet on the right outcome’.

It’s secure because of the combination of the three technologies and because you stand to lose by being a bad actor.

You are incentivised to be a good actor, which means that unless a bad actor is controlling the vast majority of the network, essentially the right outcome is being determined by a group of parties, instead of just one party.

The three technologies that make blockchain work are combined to be highly, highly fault tolerant; and this makes it possible to coordinate across lots of different parties instead of setting one party up as the ultimate arbiter.

What is the tolerance level within a blockchain network?

It depends on the blockchain – every individual blockchain is a combination of a set of rules that enable coordination but, for example, in the bitcoin network, people talk about a 51% attack vector, meaning that 51% of the network would need to be taken over by a bad actor for there to be any impact. Ultimately, however, people think it’s more likely 70-80% would have to be taken over by a bad actor for them to continually, in a row, win the right to add the next block in the chain.

Depending on the use case, people pick different security vs speed trade-offs.

Bitcoin was designed for as many parties as possible to secure the network in a completely pseudo-anonymous fashion; whereas what is being done in the energy space means we are trying to solve the multi-party coordination problem, but we don’t require the same level of anonymity and actually, probably wouldn’t be allowed it by many regulators anyway.

How is this being utilised in the energy sector? What are the use cases?

Blockchain is the ultimate coordination and cooperation technology because it allows lots of different parties to coordinate across the same system and the same data sets.

I would say that the electricity system is the ultimate coordination problem and I’ll explain why. Essentially, 15 years ago, we had an entire top down electricity system. We had big power plants exporting power down to consumers.

But the renewable revolution has put lots and lots of different wind turbines, solar panels, batteries and controllable devices like electric vehicles throughout the grid.

We now have a two-way flow of power and consumers are becoming prosumers; they are exporting power as well as importing it; their cars may be able to take independent decisions as to when to import and when to export and all of this is happening over an electricity system that needs balancing on a moment-bymoment basis.

Essentially there is a huge amount of coordination needing to happen across this shared, physical electricity grid. The grid was never designed for that kind of coordination.

Thus, most of the energy blockchain projects are looking at this coordination challenge –whether it is coordinating data, coordinating trading interest or coordinating providence of green energy.

The main use of blockchain in energy is coordination.

Where does Electron fit into this ecosystem?

We have taken a fundamental view on this.

What we are trying to build is the digital backbone of this new interactive energy system where you have to coordinate three specific sets of information in order to create new markets and new services.

One of them is coordinating information around what assets are on the system, where they are and who owns and operates them. That’s essentially the identification module of what we are doing. That is really important because given the really fast rollout of renewable and electric vehicles and other devices, the central grid operators just don’t have that kind of insight. A lot of these devices are invisible to them and are therefore completely un-engageable by them.

Secondly, we are creating a shared marketplace infrastructure that lets utilities and grid operators engage with those small assets. What happens without that shared marketplace is every time they need to balance the system, they keep on relying on the existing coal, gas or diesel generation.

In the world in which they can identify all the capabilities at the edge of the grid you start producing much cleaner, cheaper, resilient energy systems by talking to those assets too and factoring them into the idea of whole system value.

The third module is essentially a data repository module whereby we are coordinating a set of access permissions that allow parties to grant or rescind access to the data that sits behind those assets.

Let’s say I have an electric vehicle and a battery and a controllable fridge in my house, but I have a job, so I might not want to be the manager of those assets. I will be able to give over control of that trading to a third party or service provider and they are basically able to act as my aggregator and trade on my behalf. A bit like a stock portfolio manager, right? Just the existence of that fundamental data infrastructure enables the concept of ‘energy as a service’ which we are already hearing so much about now and facilitates your asset taking part in the broader system, under the rules and governance instructions which you have set for your asset. For example, “You can trade the energy in my car battery but make sure that it never drops below 50%.”

We are building a broader grid coordination market place for local grid operators, national grid operators and all of the asset operators in that structure.

In a recent report by the Council for Foreign Relations, there was a pie chart that sets out what is happening in the sector and the focus of work. It’s very interesting.

The majority of the players are enabling peer-to-peer transactions, basically looking at how you coordinate between different assets and trading requirements at a household level. The next most common one is grid management, which is where we are, and this examines how the broader energy industry coordinates all those assets and the trading interests.

Further down, for instance, there are those companies that are tokenising the right of ownership of an asset, such as a solar panel or battery. This represents your right to any cashflow generated by those assets.

The peer to peer trading opportunity is really extraordinary. A lot of people are questioning whether they want to trade their electricity. The really important thing about the promise of that market is you don’t have to do it yourself, but you can have really fine-grained control over the bits you care about – while essentially permitting someone else to run your assets. You benefit from either cheaper electricity or earned value. It opens up a whole space of new value propositions. I personally think a lot of consumers would like the opportunity to pass operational control to someone else, while continuing to earn value.

The most important thing to remember is that with blockchain you never get someone running it. It’s always cooperated!

That’s a very important distinction to make. If you have someone operating it, you end up centralising again and that’s contrary to the idea behind blockchain.

Control for the utility is very closely monitored by the set of rules which are applicable to everyone who operates on that blockchain network, but then there are specific rules, or smart contracts, which are applicable to individuals.

Blockchain provides utilities with a coordination framework that allows them to interact with the assets on their network better and there are a lot of different ways they can interact with the assets. Sometimes they may actually want to have direct control of that asset but sometimes they may be comfortable with contracting with a retailer or aggregator, because they just want access to the different parties in the same coordinated marketplace.

I believe that the asset owner doesn’t need to be aware that they are running off a blockchain platform – all they need to know if that they have the ability to monetise their assets more efficiently. Blockchain isn’t a consumer product. I do see the new ways you can engage with asset operators,or service providers as a consumer product, but blockchain itself is completely in the background, coordinating it all.

It’s been made way too sexy by the press for people to think about it as just a coordination mechanism. Essentially though, that’s what it is. An enabler for a utility or group of people to coordinate information. It’s a good thing for utilities because it allows them to engage with an entirely new market of distributed assets in a more efficient way. it gives many different options for managing the grid if you are a grid operator. If you are a service provider, there is a deeper, more tailored service proposition that you can offer to consumers.

That’s why we are engaging with utilities, but there is a whole layer of different service providers who sit on top of that platform and offer specific services, such as trading for fridges or optimising energy production for houses with specific attributes in particular areas. These are much more tailored value propositions and energy stops being a commodity where you as a consumer think about it as a kilowatt hour for a set price, and you start thinking about it as an interactive system in which you decide what kind of value you want to get from the assets; and that is realised through a set of rules or by the service providers whom you decide to trust or with whom you have a relationship.

I don’t think it’s as disruptive to that world as it’s made out to be. I think it’s much more of an enabler.

What is your business model?

We provide a platform and could be paid management fees, for example, by users of the platform or we could take a small fee per trade; but we could also be a service provider on that platform. We get to provide some of the applications that run on our platform. We know people may want to be able to sell their aggregated data of energy consumption, or assets in their house; and on the other side, people may want to be able to buy it. We can build and roll out that data sales portal that allows those parties to interact as part of the platform. We get to be one of the competitive service providers within this newer, broader digital ecosystem in energy.

How far along are you?

In general, it’s still relatively early. We have got over the phase of “What is blockchain and does it work, and can it add value for me?”

We have found a lot of utilities who believe in the value it adds. We built a commercialisation consortium with 12 key energy players: three grid operators, three suppliers, three aggregators and three professional service providers. We ran through a monthly series of workshops on the data architecture, how it could work and what the use cases were and what you could actually do with it.

We have defined four initial products that these parties want to trade today that didn’t either have a market or the necessary infrastructure to trade, so we are going to be trialling those. We facilitated first trade between EDF Energy and UK Power Reserve on 13 September [see Current Affairs pg 8 – Ed]. Our model is working with a consortium of local stakeholders with the aim of creating a coowned, co-opted platform. I have spoken to between 12 and 16 grid operators around the world. The outpouring of interest and interest in having these conversations about how these old traditional energy processes could be done has been amazing!

Innovating in energy is like open heart surgery – you want to move slowly and define what the ultimate outcome will be, but you also want to add value from ‘day one’ and that is not always realistic.

Our approach is ‘slow and incremental’ and the first trade we announce will be made on the back of all our learnings about regulatory frameworks, information barriers and the linkages we have to include to confirm these trades – and then we scale. We are in the early days of trials, in the late days of industry acceptance, and over the next five years we are going to be hearing a lot more about this technology and what is going to be happening.

Is blockchain overhyped?

It’s overhyped for the wrong reasons. I think that the kind of hype about one trade occurring between one household and another is too much – we are still reading about the same trades three years later.

What is not overhyped, because it’s not understood, is how this whole, huge industry could be transformed when you have market access to millions of assets and devices, instead of just 100.

Electricity will therefore become cheaper for everyone, because we will be more efficient users of all the assets we already put in the system or people’s houses which are either invisible or completely unengaged today. We will then have higher renewable penetration since you have a responsive system and you can therefore put in more intermittent generation and not be worried about a systemic collapse.

The energy system today has been built for multiple, multiple redundancy but if you give people a price option at which to turn their lights off – and there is a price at which people will accept it – you can take out the repetition and asset wastage the people are paying for in the system.

Overhyped in the short term, underhyped in the long term. We are operating in a highly regulated industry and understanding the journey. In reality, ‘day one’ is not that exciting, even though it’s already been completely over-reported, but the final outcome is going to be really, really exciting.

All the hype, while it could be potentially harmful, has brought a number of parties to the table that would never have come to the table before and that is enabling us to do all the real, fundamental change with some of the really big players. SEI

About JO-JO Hubbard

Jo-Jo is the COO and co-founder of Electron. She is also a speaker at this year’s European Utility Week.

She started her energy career in the early days of the renewable build-out on the asset financing side before transitioning into cleantech VC. In 2015 she joined the international strategy consultancy firm McKinsey & Co, where she focused on digital transformation. Here, she understood that the full decarbonisation and transformation of the energy sector will not happen without new, shared digital infrastructure and marketplaces that incentivise cooperation. This provided the basis on which Electron was founded.

1 *According to Wikipedia: “Elliptic-curve cryptography (ECC) is an approach to public-key cryptography based on the algebraic structure of elliptic curves over finite fields. ECC requires smaller keys compared to non-ECC cryptography (based on plain Galois fields) to provide equivalent security.

Elliptic curves are applicable for key agreement, digital signatures, pseudo-random generators and other tasks. Indirectly, they can be used for encryption by combining the key agreement with a symmetric encryption scheme.