Energy x Blockchain
Normally we’re pretty cautious when we hear the term “X + blockchain”. I liken it to something I heard a lot in the VC world — “Uber for X”, or the “Uberization of X”. This mix-and-match approach to entrepreneurship is often the basis of ideas for new ventures. By applying new technologies to new use-cases, or innovative business models to new sectors, or successful ideas to new regions. Don’t get me wrong, some of these companies have been massively successful. For consumer companies, the most successful of them adapt their business models to suit the local market (known as “localization”). Today, we’re being flooded by news of multinationals across sectors adopting blockchain for one thing or another. Some are legit use-cases, some aren’t. Something that recently caught our eye was the action occurring in the energy blockchain space. We decided to give it a closer look.
Today we’ll discuss Energy Blockchain: Should it even exist? What makes energy uniquely suitable for a blockchain? What are some of the most coherent use-cases? Who’s using it today? If you want your fill of energy X blockchain, look no further.
How Do We Even Get Energy Today?
Energy, as a utility, is probably the most useful thing one can think of. Imagine living in your house without electricity, without gas and without heating. That means no appliances, no cooking, and no hot water. Sounds pretty miserable. As far as basic necessities go, there are some more important ones — like food, shelter and clothing. But, assuming that most people in developed countries don’t need to worry about that today, we would argue that the very next most important thing is energy. So, let’s first agree that energy is a very important asset, and systems need to ensure that energy gets to consumers efficiently, reliably and seamlessly.
So, how do we, as consumers, get power today? In most countries, this is the process:
Electricity is generated at a local power plant. This power plant is typically coal or natural gas-powered, but an increasing number are being powered by clean energy, like solar or wind. Once the electricity is generated, it is immediately distributed through voltage transmission lines, first to your area, then to your building/home. At each step along the way, the voltage is changed to be optimized for the distance traveled and its end-use. As of today, we don’t have strong enough energy storage solutions to store the electricity that has been generated but not used. Each building has a certain power consumption limit, in order to de-risk the situation of one node using up all the power. However, if this were to happen, power weans off rather than shuts off, and other power plants help supply the additional power needed. Large power producers often trade wholesale energy with each other, when there are demand and supply differentials.
Why is that important? It’s useful to know how the energy market works today, in order to understand what the issues are, and where, if anywhere, new technologies can be used to improve processes.
What Are the Issues? Or Is Everything Perfect?
- Energy Storage — We are good at producing energy, but storing energy, especially renewable energy, is the need of the hour. It’s through energy storage systems that renewables will see an inflection point.
- P2P Energy Trading — Without adequate energy storage solutions, the next best case is to trade energy efficiently between peers that own Distributed Energy Resources (DERs). This way, if “prosumers” don’t use all the energy they produce, they can sell it to others they are connected with. Microgrids are attempting to enable this solution.
- Monopoly of Power Suppliers — In most developed cities, there are a few massive centralized power suppliers, that own the majority of market share. Consumers are forced to select amongst a handful of companies for their energy needs. For such a core asset, should distribution really be in the hands of a few, extremely large, private entities?
- Trading Without an Intermediary — Wholesale trading between large power producers typically goes through an objective third-party, used to validate the transaction and make sure both sides hold up their end of the contract. Hm, I wonder if there’s an alternative that doesn’t require a third-party?
- Exchanging Power Produced by Clean Energy — Clean energy is typically produced through DERs, which are most effective across a wide surface area. Think wind farms or solar panels. These DERs are connected through microgrids, which are in turn connected to homes directly. But today, the system is messy. We need a better way to aggregate power from a set of disparate sources.
We highlight one overarching theme — the modern day energy industry is being fundamentally disrupted by the existence of clean energy, and curtailed by the threat of global warming. Many of blockchain technology’s best use-cases will likely be applied to improving the next generation of power — not to legacy systems.
Give Me Some Coherent Use-Cases.
Company: Energy Web Foundation (EWF)
Use-Case: Ranging from validating electricity transactions to monitoring grid equipment to P2P power trading. EWF is set up as a non-profit consortium specifically for energy applications. It eventually plans to enable inter-blockchain communication and collaboration between dApps, to effectively create a new energy ecosystem. It has 70+ Affiliate Members on board, including some heavy hitters like Shell, Duke Energy, TEPCO; Blockchain VC’s including Blockchain Capital & Scytale Horizon; and dApps like Raiden and Polkadot. It’s currently running its test network, Tobalaba, with 30 dApps on board. Launch is scheduled for Q2 2019.
Company: Brooklyn Microgrid
Description: P2P energy exchange platform
Use-Case: Based in Brooklyn, BM enables trading of energy between consumers. It has created Exergy, a permissioned data platform where “prosumers” creating their own energy using their own renewable resource, can trade excess energy with other consumers in their local marketplace. They are all connected via a microgrid, where a Distributed System Operator manages energy use and distributes energy in the most efficient manner, reducing wastage and increasing profits for the prosumers.
Description: Swytch tracks carbon impact and rewards entities for sustainable behavior
Use-Case: Swytch is preparing for a renewable energy world, by betting that its data on how much clean energy is produced, how much carbon has been displaced, and ROI estimates on production will be in high demand by governments, cities, NGOs, etc. It uses information from renewable energy sensors to determine how much carbon was offset as a result of the clean energy produced, and then rewards producers with a commensurate number of Swytch tokens. It has basically tokenized the process of rewarding producers of renewable energy, while collecting useful data in the process.
Description: Decentralized European marketplace for energy trading
Use-Case: Targeting large power producers that want to trade wholesale power with each other, without the need to consistently go through a central third-party intermediary. A third-party is used for validating whether both parties have held up their sides of the agreement. Enerchain’s PONTON network introduces smart contracts in order to algorithmically validate this. It was the first platform to host a peer-to-peer transaction, between Yuso and Priogen, back in November 2016. Since then, other established firms such as E.on, BP, Eni, Enel have been testing trades on the network.
And The Verdict Is…
This is by no means an exhaustive list; but merely a representative one to indicate the activity and innovation occurring in energy. The interesting part is that for most of these applications, blockchain is being utilized specifically because the problems necessitate this technology. In many other use-cases we’ve seen, blockchain is being utilized when centralized solutions could do the job just as well, if not better.
Most online material today will focus on the leading energy blockchain firms to date, but it’s important to understand that this is a grassroots initiative. Almost every large energy corporation today has had some level of discussion on whether to incorporate blockchain, and how integral it should be to their processes going forward. You’ll see the more forward looking institutions continue to pop up in energy initiatives to come.
The verdict is yet to be out on how useful energy blockchain will be, but the use-cases seem promising and the proposed advantages seem legitimate. Particularly if blockchain were to support the push towards a renewable world, we would gladly help facilitate that revolution.