Blockchain is best known as the technology supporting cryptocurrencies such as Bitcoin. But it is blockchain’s wider applications that have caught the attention of global businesses and governments. Holding the potential to redefine business models across almost every industry, blockchain is today’s great disruptor.
So what is blockchain and why is it hailed as a game changer? Designed as a distributed ledger, blockchain facilitates the movement and storage of validated, incorruptible data ‘blocks’. Typically, these blocks are records of transactions between multiple parties, linked across dispersed systems and secured using cryptography. By generating a transparent, accessible ‘paper trail’ that cannot be altered, blockchain represents a new way of sharing and validating almost any kind of value point. This validation capability extends to managing ‘smart contracts’, not only through collecting digital signatures but by also enforcing a contract’s performance.
What can blockchain do for the energy industry?
Energy and Utilities (E&U) businesses are already negotiating a rapidly changing landscape with the evolution of renewable and distributed energy, energy efficiency, energy storage and digitisation. Blockchain technology undoubtedly presents yet another challenge in this dynamic environment.
Global energy players have begun to use blockchain technology in ways that signal possibilities for the Australian industry. That is, to:
- Facilitate the management of renewable energy certificates
- Enable peer-to-peer trading of energy vis smart contracting particularly at a localized level. This smart contracting capability can also be used to support Electric-Vehicles billing transactions.
- Enable wholesale trading of energy
- Identity management to support billing.
Already some Australian utility businesses are investigating blockchain for records management and using it to build smart contracts for transaction management. Numerous trials have been run within embedded networks to test blockchain for peer-to-peer trading of excess energy between network participants. We see blockchain enabling more individual relationships – via peer-to-peer power generation and distribution through microgrids – creating new ‘flexibility’ services to balance the supply and demand of power.
Blockchain’s integral characteristics of robust cybersecurity, low-cost transaction, and automation lend themselves well to the development of new business models in the E&U market. The technology offers profound benefits for both individual companies and the industry at large.
Explore the opportunities
The capability of blockchain makes it much more than a financial tool. Importantly, it ushers in a range of prospects for the Australian energy and utility (E&U) industry. With the secure recording of any type of data, blockchain is perfectly suited to, for example, records management activities such as identity management and transactions processes.
The increasing rollout of digital meters across Australia under the national Power of Choice program also poses an opportunity for employing blockchain technology. It can provide the infrastructure to drive commercial opportunities and greater efficiencies, including new business models centred on data-monetisation. Blockchain offers real potential for streamlining the power value chain.
Energy companies (operators/distributors/retailers) can start the journey by piloting and testing blockchain concepts with an easily contained activity that can be scaled. Select a manageable initiative that can demonstrate real value in a short period of time. For regulated businesses it is worth capitalising on the efficiency components of blockchain; for example, how it can better manage records. For retailers, ground zero piloting could be business engagement models for new energy services, such as the solar PV battery and mechanisms for selling excess energy.
Trialling concepts now is highly recommended. Key to future success with blockchain-based systems and business models will be the early investment made in piloting and learning what works and what doesn’t. Companies may uncover aspects of their business that need to fundamentally change in order to make use of blockchain technology.
Understand the challenges
Blockchain technology remains in its early stages of evolution, with greater assurances/development needed to resolve issues of security, scalability and governance. For the E&U industry to realise the transformational potential of blockchain, operators must overcome several challenges. However, we believe these are surmountable and the benefits far outweigh current constraints.
The most glaring obstacles include blockchain’s required scale of investment and its underdeveloped regulatory framework. Public blockchain requires a huge amount of computing power to scale for commercial uses. Private blockchains can execute faster transactions with minimal energy use, but require large initial investment to build the adequate infrastructure. Currently, public blockchains like Bitcoin and Ethereum can only handle seven and 30 transactions per second, respectively. To digitise and incorporate all energy-producing and consuming devices into a transactive grid demands blockchain to handle millions of transactions per second.
On the regulation front, Australia (along with most other countries) has not kept pace with emerging technology. This has created legal loopholes in smart contracts and dispute procedures. Meanwhile, specific legislation is yet to be defined even for storing and accessing information on a blockchain, using that information, and representing it to the customer. Regulatory reform is needed to standardise blockchain-based energy market policies and frameworks to align approaches for transaction clearing (dubbed the ‘consensus’ in the blockchain community).
A blockchain-ready energy industry
As the first native digital medium for value, blockchain represents unprecedented opportunities for the Australian E&U industry. Businesses can begin to position themselves now to best realise its future potential. Through judicious investment in scalable pilot programs and approaching this new world with an open mind, the energy industry is poised for radical reinvention in the years to come.
Written by Paul Minnock, Partner.