Blockchain and its potential as a disruptor in the energy sector

Industry 4.0 is chance and challenge for utilities. Today's utilities have to get fit to meet the challenges of advancing digitization and leverage the opportunities of new business opportunities that arise from it. Disruptive blockchain future scenario should be taken into account in their long-term business strategy.

by Holger Malz (CSO) and Ignacio Porto (CTO), both olivoENERGY

INDUSTRY 4.0

Industrial processes more and more will to be integrated by using modern information and communication technologies. The technical basis for this are intelligent and digitally networked systems. Entire industry branches experience a value change, digitalization and A.I. are becoming the big game changers. This manifest itself most striking in the highly aggressive disruption-politics of today’s well-known companies. It is a basic scheme to recognize that each of the “middle man” is cut out (and the humanless middleman created). For example, Uber does not use its own vehicles, Airbnb does not have any own hotels and Facebook news does not employ any journalists. Soon, that is the vision, taxis will be chauffeur-less-driven and trucks will be transporting goods without a driver.

Even if it is seen as a phenomenon of modern times, there is nothing new about technological disruption. Steam, production lines, even electricity itself destroyed industries that existed before them and forced governments to change their approach. Nevertheless, it seems that a new phase of disruption has just started. And blockchain is the one most discussed to be a possible disrupter in future scenarios. What is it about, and will it affect the energy sector?

THE EVOLUTION – DIGITALISATION IN THE ENERGY TRANSITION

In this environment, electricity- as well as gas utilities have to keep their eyes wide open to market movements and should not be sleepily about their exposed position. They also should be aware of other industries alarming developments, for example, traditional, so far undisputed automakers that are losing connection with Asia’s high tech electric car manufacturers. In the energy sector there is a strong tendency of decentralization foreseeable, integrating demand side in the value chain of renewable energy resources.

Traditionally the electric power system has worked under a model in which generation follows demand. A system composed by integrated grids, central fossil fuels generation, stochastic predictable loads and unidirectional flows. However, as a result of technological changes, scarcity of resources and climate change, since early 21th century the sector-evolution is speeding up and we are experiencing a transition to the new electricity era.

The new electricity era is being predominated by unpredictable distributed generation, consumers that produces their own electricity and become “prosumers”, smart grids, and bidirectional flows. The system is evolving into a new electricity model in which demand will follow generation since the system will need more and more flexibility.

Today consumers are not just demanding electricity, they are likely to become the central point of the power value chain. They demand better security and quality of supply, cost competition is increasing. At the same time, consumers demand the right to generate their own electricity or asking to be provided with “green” electricity and sustainable services. Embracing the new possibilities of digitalisation, they want to be able to control and monitor their devices and DERs at any time anywhere. Utilities have already begun to adapt their business models in order to meet consumer expectations. But further change and moves are to be expected on top.

A POSSIBLE DISRUPTOR – BLOCKCHAIN IN THE ENERGY TRANSITION
Whether as an electricity trading tool or for asset management: Blockchain could become something serious for the digitization and flexibility process of the energy system, as the transaction technology simplifies the exchange, validation and documentation of data.

What is blockchain?

Blockchain is a digital transaction technology, initially developed to create digital currencies like Bitcoin, now across many more areas, allows two or more parties to deal directly with each other without the need for an intermediary such as a bank or a merchant. The data generated during the transactions is stored remotely on a large number of computers, which together form the hardware framework of the blockchain. When a new record is created, all the machines in the blockchain are updated so that each of them maintains all transaction data at all times, what it makes manipulation extraordinary difficult. But there is a lot more to it. Blockchain could reduce the cost of processes and transactions by eliminating intermediary instances. For this it is necessary to reduce the still high computational effort for the validation of the data, what developers are currently working on.

Blockchain for processes, platforms and new business models in the energy sector

In general, blockchain could be applicated for the optimization of processes and the organization of platforms, for example for direct electricity trading between owners of photovoltaic plants and consumers. Christoph Burger of the private university ESMT Berlin calls the management of infrastructure facilities such as networks or power plants – so-called asset management – another example of a possible application.

And the potential is even greater: Burger’s assessment is that technology could theoretically make even classic utilities superfluous. Because with Blockchain it would be possible to automatically adjust energy production and consumption in a region or island network. “The essential function of an energy supplier or network operator – namely the coordination of an ever-larger group of households, farmers and industrial companies, who feed their self-generated electricity into the grid – could thus become obsolete,” explains Burger.

Philipp Richard, Project manager of the “Deutsche Energie-Agentur” dena explains that blockchain is especially interesting where it enables new processes and business models for which no other digital solutions exist so far. In future, for example, digital energy consumption data collected by smart meters could first be transferred to the blockchain and only passed on after approval by the customer. The customer would have more control over his data in this way. “The number of interactions would be so large and they would be so small-scale that this would probably not be done efficiently with conventional IT solutions,” he says.

In a survey of dena and ESMT Berlin among seventy executives of the energy industry, half of the participants stated that they were already experimenting or planning with Blockchain. No doubt, blockchain competes with established IT systems, it will have a harder time displacing them. But especially utilities should have blockchain as the potential disruptor on their account when they look at their long-term business strategy.

The survey: “Blockchain in der Energiewende. Eine Umfrage unter Führungskräften der deutschen Energiewirtschaft”

https://shop.dena.de/fileadmin/denashop/media/Downloads_Dateien/esd/9165_Blockchain_in_der_Energiewende_deutsch.pdf

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