Blockchain technology in the energy sector has a steep climb to live up to its initial hype, although it continues to make steady progress as more utilities are starting to test possible applications. But a lack of standardization and challenges in valuation are posing barriers to faster adoption, according to new research from the Electric Power Research Institute (EPRI) and Indigo Advisory Group.
Based on a survey of utilities and one US regional transmission operator focusing on how organizations are approaching and thinking about blockchain, the report authors conclude that the technology needs to mature for it to become a viable tool. The top barrier to investment is business model uncertainty, followed by organizational challenges and a lack of standards, but most companies are optimistic and have made efforts to research and test the technology.
David Groarke, managing director of Indigo Advisory Group and report co-author, says: “Although 70% of respondents believe the utility blockchain market is still emerging, there is a great deal of activity across the sector with several utilities conducting pilots, developing proof of concepts, and fostering internal research.”
The top advantages of blockchain and distributed ledger technology are considered to be greater efficiency and transaction speed, improved traceability, and better transparency, as well as reduced costs and enhanced security. The greatest opportunities are believed to be in areas in which there is little existing infrastructure, thereby creating new business models. Where energy companies have existing systems and mature deployments, for example grid management applications, systems to monitor meters, core billing system etc., utilities will wait to depreciate these investments over time and get a regulated rate of return on their investments rather than swap them out with new technologies. As a result, blockchain applications may have more adoption in “new” service areas such as systems to manage transactive energy, trading of more micro renewable energy credits, tokenization of demand response etc.
Leading utilities are trying to identify how to justify future investments, but the value of peer-to-peer applications and reliability improvements are reported as the most difficult benefits to quantify. Determining the cost of integration and the savings related to transparency of data and reporting can also prove challenging. The three most commonly cited challenges include business model uncertainty, internal culture or organizational issues, and lack of standardization or interoperability.
“There certainly are challenges, some of the biggest due to regulation, business models and culture. And yes blockchain technologies have to mature a lot more but don’t underestimate the pace at which they are maturing,” says Kevin O’Donovan, Technology Evangelist, A Bit of This and That. Blockchain is not the answer to every problem, he says, but he disagrees with the conclusion that blockchain is “not a viable tool” today. “Sitting back and simply having a small R&D project that will never impact your business is no longer an option … And now with the emergence of dApps (Decentralized App’s), ah well, sit back and ignore all this at your peril…”
Several utility consortia are emerging to develop wholesale trading markets, electric vehicles charging or renewable energy certificate trading schemes. EPRI has a Utility Blockchain Interest Group, and the Energy Web Foundation launched a public, open-source blockchain this spring with more than ten affiliates that includes renewables trading, EV charging and demand response. The US Energy Blockchain Consortium is a non-profit seeking to develop an open blockchain framework with use cases, interoperability standards and reference architecture. Other examples include the New York Utilities Consortium and Energy Chain. The most common protocols being investigated are EWF Origin and Ethereum.
A number of other initiatives are underway, such as Enerchain 1.0 allowing over-the-counter trading in power and gas products with more than 40 European energy companies. Blockchain will also enable peer-to-peer trading, where prosumers can trade power amongst themselves. EPRI carried out a ‘Blockchain Village” modeling study with the University of Tennessee with an Ethereum-based smart contract exchanging electricity between homes and the findings are summarized in the 2019 report Blockchain Market Simulation Using Ethereum: “Blockchain Village”. Such blockchain-based marketplaces are already going live elsewhere, for example LO3 Energy’s community-based energy projects in Denmark and the US backed by Shell and Sumitomo, Power Ledger’s blockchain platform with up to 55,000 rooftop solar generating consumers in Japan, and EDF Energy’s pilot project Repowering London for customers in a housing estate in the south of London, one of Ofgem’s Regulatory Sandbox projects.
The lack of standardisation is being addressed in the US by the North American Energy Standards Board (NAESB), which will discuss a distributed ledger proof of concept at its next strategy meeting in September in Houston. "NAESB is focused on establishing distributed ledger technology (DLT) standards for the natural gas market today. The electricity market will leverage what is created in the natural gas DLT proof of concept,” says Cade Burks, Chief Digital Officer, Chairman and Founder of Big Data Energy Services.