What is blockchain and should the utility industry care?


“Blockchain technology is the missing link to settle scalability, privacy, and reliability concerns in the Internet of Things,”

i. “Blockchain holds key to reinventing energy grid”

ii. and “How blockchain technology can reinvent the power grid”

iii. are just some of the promises being made about the use of blockchain in the utility industry.

As the hype around the Internet of Things continues, blockchain is being touted as the elusive missing link that will enable IoT deployments to be more secure, and enable the organisation and co-ordination of a true peer-to-peer power grid.

What is blockchain and why does it matter?

With some 50 billion devices predicted to be online by 2020 sending and receiving instructions, the amount of data needed to process and transmit these instructions will be enormous, and come at an equally enormous cost.

Of equal importance are considerations around managing billions of connected devices and storing all the associated metadata in a secure, reliable manner.

“Blockchain technologies could perhaps be the silver bullet needed by the IoT industry. Blockchain technology can be used in tracking billions of connected devices, enable the processing of transactions and coordination between devices,” thus allowing for significant savings to IoT industry manufacturers, according to blockchaintechnologies.com

“This decentralized approach would eliminate single points of failure, creating a more resilient ecosystem for devices to run on. The cryptographic algorithms used by blockchains would make consumer data more private.”

Blockchain utilises distributed ledger technology, offering all parties involved in the network a synchronised and secure record of transactions.

Every element of a transaction is recorded from beginning to end in a blockchain ledger, regardless of the number of steps needed to complete the transaction. Once completed, the transaction is put into a block which is connected to the transaction before and the transaction after. Groups of transactions are blocked together with a fingerprint of each block added to the next, thus creating an unalterable chain.

An important detail to emphasise regarding the use of blockchain is that no transaction can be added to the chain without consensus amongst the participants. This means that any addition or alteration to the blocks is permanently recorded. Not even a system administrator can delete a transaction. By having these safety measures in place, the blockchain is highly secure and is tamper-resistant. Therefore, in theory, this would eliminate the risk of fraud and error. iv

Where and how is blockchain being used by utilities?

There are a significant number of examples of how and where blockchain is already being utilised by utilities, most notably “Vector in NZ, Alliander in Holland, Marubeni in Japan, RWE/innogy in Germany, Wien Energie in Austria, and Fortum in Finland.”

According to Indigo Advisory Group, the EU is the most active region globally, with a number of pilot projects in progress. These range from peer-to-peer trading, IoT appliance level control, and bitcoin enabled bill payment.

Commenting on the use of blockchain to manage the grid, Lawrence Orsini, cofounder of LO3 Energy, says: “Instead of the command-and-control system the utilities have now, where a handful of people are actually running a utility grid, you could design the grid so that it runs itself. The network becomes far more resilient because all of the assets in the grid are helping maintain and run it.”

This distributed, peer-to-peer, IoT model uses software to execute and self-enforce and should, in theory, allow the grid to quickly and automatically reroute power to prevent a massive blackout in the event of an extreme weather event or disruption to normal grid operations.

LO3 Energy has been working with Consensus systems on a microgrid project which utilises blockchain technology in New York. The ‘TransActive Grid’ matches those who generate electricity with those who need it, “executing sales automatically using smart contracts with little-to-no human involvement.”

“The potential to shift from nationwide-controlled energy companies to locally managed transactive grids offers a major opportunity to change the entire concept of energy consumption,” says Orsini.

While many of the current pilots for blockchain technology are exploring leveraging peer-to-peer technology, the Indigo Advisory Group believes “networks of blockchains may interact over time to fundamentally change the market.” There are currently over 100 use cases of the technology in the energy industry, and the utility and management consultancy believes many of the opportunities lie in the interplay between distributed energy resources and utility analytics.

While the technology still needs time to mature, with an estimated time of 2–5 years before major initiatives are realised, associations such as the Enterprise Ethereum Alliance and Energy Web Foundation are working to develop standards and create interoperability and shared design between public and private chains.

Use cases of note

Bitcoin bill payments

BAS Nederland became the first energy company in the world to accept bitcoin bill payment in 2014. Since then, utilities such as Enercity in Hannover, Elegant in Belgium and Marubeni in Japan have all rolled out bitcoin bill payment.

Additionally, South Africa’s Bankymoon has launched a social innovation project enabling anyone to “send” electricity, water and gas to anybody in the world, from anywhere, by topping up their utility meters.

Peer-to-peer trading

Trading electrons within neighbourhoods and community microgrids through a blockchain based solution is the bestknown application for blockchain. In the past year, vendors including Power Ledger and LO3 Energy have been offering these solutions to consumers, and Alliander and Vector have begun to utilise the technology.

The Brooklyn Microgrid (BMG) mentioned earlier makes use of a peer-to-peer energy platform used exclusively for the trading of energy within a community in Brooklyn. The platform enables the sale of solar energy directly between neighbours. BMG has plans to include demand response through device control and location-based pricing in the future. Additionally, BMG recently released its app to the residents of Brooklyn, and this allows users to pinpoint where solar panels are located or identify potential sites for hosting solar panels.

The blockchain platform on which BMG works is a private blockchain platform developed by LO3 Energy, specifically with distributed grids and energy in mind. Both software and hardware are important in the setup, with participants needing a TransActive Grid-element (TAG-e), a hybrid meter/computer, to be able to measure their energy and share the information in the network.

Wholesale trading and settlement

Another area which is starting to see the use of blockchain technology is wholesale market trading and settlement. During EMART in November 2016, the first European energy trade using blockchain technology was undertaken. The trades were undertaken using the Enerchain trading tool, developed by PONTON. Almost one year later, also at EMART, the world’s first real end-to-end live trades over the blockchain were made by E.on, Enel, Neas Energy and Wien Energie.

PONTON is the driving force behind the Enerchain project, a decentralized energy trading platform for the wholesale energy market which is supported by more than 33 leading European energy trading companies. Enerchain will ultimately support a wide range of commodities, but the initial focus will be on power and gas products.

In addition, PONTON is developing other blockchain based applications, among them an application which improves communication in the grid management process between different stakeholders such as TSOs, DSOs, aggregators, suppliers and generators.

New business models

With blockchain technology, a South African company, The Sun Exchange, makes it possible to own solar panels installed in the sunniest locations on earth and lease them to businesses and communities in developing nations.

The owners of the solar panels then receive rental income through bitcoin and/or national currency. By breaking down ownership to a single solar cell, they have reduced the cost of going solar by two orders of magnitude.

Solar projects that The Sun Exchange has hosted so far are four commercial rooftops (15, 17, 45 and 60 kW) with over 100 MW in the making.

The Sun Exchange has won several awards for its work including:

  • Best Blockchain and Bitcoin Business in Africa 2016 and 2017
  • 2017 SDO Global Blockchain Challenge in Dubai
  • 2017 Mondato Award for Social Impact in Sub-Saharan Africa.

The Sun Exchange raised $1.6 million in seed funding in October 2017, having previously raised over £16,000 in an Indiegogo crowdfunding campaign.

Caveat emptor

The utilisation of blockchain in the utility sector is still fairly new and despite the seemingly significant momentum behind the technology, Gartner cautions that “many blockchain technologies are immature and unproven, and are largely unregulated.” The global technology analysts further warn that “a practical approach to blockchain demands a clear understanding of the business opportunity, the capabilities and limitations of blockchain, a trust architecture and the necessary implementation skills. Before embarking on a distributed-ledger project, ensure your team has the cryptographic skills to understand what is and isn’t possible. Identify the integration points with existing infrastructures, and monitor the platform evolution and maturation. Use extreme caution when interacting with vendors, and ensure you are clearly identifying how the term “blockchain” is being used. v MI


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