If you are involved in the future of energy, then you will have heard of blockchain, a decentralised technology that is offering the promise of transforming every aspect of our industry’s value chain, writes Wayne Pales, CEO of the Chapel Group. The primary claim is that physical trusted central authorities can be replaced, reducing costs and improving outcomes. Despite all the hype, blockchain technology is still in its infancy.
This article first appeared in Metering & Smart Energy International issue 3-2018. Read the full digital magazine here or subscribe to receive a print copy.
As someone whose job it is to advise energy executives on their digital roadmaps, this is a technology I need to pay attention to. At this point I must stress, I still have my learner plates on. The more I read and the more ‘experts’ I talk to, the more questions I have. So when, a few weeks ago, I was asked by Matt Grantham of Beyond Zero Emissions to take part in a podcast about the blockchain, I jumped at the chance. In recent months Matt and his co-host, Anthony Daniele, had been interviewing the likes of Dr Jemma Green (co-founder and Chair of Powerledger), Julius Tan (CEO of ElectrifyAsia), and Nikolaj Martyniuk, (CEO and co-founder of WePower).
During the podcast, Matt introduced the audience to the GRNTHM protocol. This play on his surname described the framework as relating to “how these platforms address the value streams associated with generation, retailing, network costs along with more platform-specific factors such as technology risk (i.e. scalability, privacy, security), hardware risk and market decentralisation ratio (centralised vs decentralised).”
A bit of a mouthful, but I feel Matt is onto something. Executives who know very little about blockchain need a framework so they can ask the right questions. While the GRNTHM protocol is not perfect, it’s a good starting point to build on. For anyone who knows me, or has read my books, you will know I am a fan of frameworks. Frameworks enable us to break down complex problems into manageable chunks.
So, with the GRNTHM protocol as my starting point, I set about looking at how this can be further developed and put into a format that would be useful to utility executives. With further research complete, we now have the fully-fledged GRANTHAM protocol, which stands for generation, retail, architecture, networks, technology risk, hardware lock-in, assets in scope, and markets. As you will see from the following breakdown, this is not a step by step process but a series of domains that you, as a decision maker, need to be thinking about when considering the applicability of blockchain to help solve a problem.
In the generation space, we see many blockchain start-ups. For example, WePower is a green energy-based trading platform and Positive EnergyCommunity is a social platform for renewable energy accumulation and distribution and are just two of many blockchain-enabled start-ups entering the market, primarily looking to lower the barriers to entry to invest in renewable energy projects. Any executive responsible for investments in, or access to, generation capacity must understand what problems these start-ups are trying to solve, which markets they are focused on, and what challenges they face to then determine how and when to start getting involved.
The retail part of the energy value chain is no less exciting. New entrants such as ENOSI are looking to disrupt the existing status quo, lowering the barriers to entry for new community-based energy retailers, enabling peer to peer trading and reducing the cost of doing business through smart contracts. For retailers, they need to be clear what problems these start-ups are trying to solve and whether they are potential partners or competitors. If the latter, they need to decide how to respond.
The architecture piece of the protocol is about understanding how everything works together. Blockchain, like TCP/IP, is an enabling technology. Blockchain in and of itself will not disrupt anything. It is the applications that leverage blockchain technologies that have the potential to disrupt. Think BitCoin; it is an application leveraging blockchain, threatening to disrupt the financial sector. However, until the general public adopts Bitcoin, it must interface with high street banks so Bitcoin must convert into a fiat currency.
You will face the same challenge in the energy industry. Very few processes that can leverage blockchain can do so without interfacing with other technologies and business processes. The most obvious example is where a blockchain solution needs to source consumption data from a smart meter. Carefully think through how your solution will work end to end, with a focus on the edge cases, to work through how blockchain deals with exceptions.
I can imagine network businesses must have a love-hate relationship with blockchain. If we look at Powerledger, at one end of the spectrum, they are working with network businesses, encouraging consumers to trade energy across the grid, thus increasing its value. At the other end of the spectrum the same company is working with retailers, helping them improve the value of their embedded (private) network solution by also offering peer to peer trading, thus reducing a network business’s footprint and therefore revenue.
Network businesses should be exploring how blockchain can be used to identify where electricity was generated from and dispatched to, helping with the introduction of cost reflective pricing.
Blockchain has a series of well-documented issues, such as throughput, latency, security, usability, and so on. While it is essential to understand these issues, they should not scare you off. We are starting to see many different blockchain technologies coming to market that address one or more of the known problems.
The flipside to all of these blockchain technologies coming to market is that there are no globally agreed standards. It is the Wild West out there when it comes to blockchain technologies. I would state that, more than any other technology on the market today, you must clearly understand what problem you are trying to solve, and methodically work through what you need from your blockchain solution before making any bold investment decisions, given none of them will be without their challenges.
In a way, this is an extension to the ‘technology-risks’ part of the protool, but worthy of its own section due to the adverse impact it would have on outcomes if overlooked. During Beyond Zero Emissions’ interview with ElectrifyAsia, they mentioned the need to install a hardware device at the consumer’s premises for their solution to work. Other blockchain solutions have said they must have granular and timely consumption data from smart meters, or similar devices.
Be sure to find out what hardware, if any, you need to install, and where. Your business case would look very different if you omitted to factor in the costs associated with connecting devices at your customers’ premises.
Assets in scope
Blockchain in its purest form is the transfer of value (an asset) from one party to another. Therefore, you need to know what assets are in the scope of your opportunity. If we take Electron in the UK as an example, the problem they are looking to solve is to eradicate errors when customers are moving from one retailer to another, and to expedite the process so it takes minutes or even seconds, as opposed to the days and weeks it takes at the moment. In this example, this is about having a central register of all the premises in the UK and who their retailers are. In this example, there are tens of millions of assets in scope, distributed across every property in the UK. To capture and maintain the accuracy of such information is an enormous task and one that you need to understand before embarking on scaling out.
Finally, you need to think about markets. Are you operating in a liberalised market such as the UK or Australia? Are you on the journey to become a distribution service operator (DSO) like in New York? Are you now rewarded based on outcomes and not assets, such as in Hawaii? Alternatively, you may be in a more traditional market that is fully regulated and integrated. Your market doesn’t determine if a blockchain solution is relevant or not, but it does profoundly influence some of the challenges you will face. Every marketplace has its challenges. The more players in a market, arguably the more significant the opportunity blockchain has to add value; however, it also means the more complicated it will be to gain consensus and implement a solution. On the flipside, a vertically integrated utility, operating in a regulated market is unlikely to be as interested, or have as many opportunities for a blockchain solution to deliver value.
I am hopeful that, over time and with your feedback, we can build on and refine the GRANTHAM protocol and make it the industry-standard approach to assessing the applicability of blockchain solutions in our industry. MI