Blockchain: building blocks of better energy
18th April 2017
Blockchain, the technology behind the digital currency Bitcoin, could present the UK energy market and its customers with an exciting opportunity.
For the industry, it could mean huge efficiency and flexibility gains. For customers, it could cut energy bills, make switching faster, and give greater control over the energy they generate.
Having already broken ground in a host of industries – from tracking diamonds and fine wines to making international payments – blockchain has the potential to radically transform how energy is traded, distributed, and managed.
A recent GmbH poll of energy executives in Germany revealed over 50% were either planning to or had already started to use blockchain, and more recently Indigo Advisory identified over 100 use cases for energy in blockchain.
Bringing the fruits of this new technology to bear will require a significant refresh of the energy industry. Stakeholders and regulators will need to work together to create the framework in which blockchain can flourish, but in theory, the cost and efficiency savings should make it an easy sell.
Let's take a closer look...
What is blockchain technology?
Essentially, the blockchain is a network of information (a bit like the internet); what makes blockchain special is how it’s updated and stored.
In a blockchain, everyone with access (each member, or “node” in the blockchain) shares a copy of it. When someone updates a piece of information or “block”, it automatically updates everyone else’s copies – including who made the change and when – so there’s a verified record with a clear, instantly accessible audit trail.
A useful analogy is Google Documents. Permitted users access a shared document online, then when one person makes an edit, the changes are reflected on everyone else's computer. Like blockchain, you can see who made the edit and when. Contrast this with the alternative, where a document would be emailed person to person until all the changes were saved and passed back to the original handler, and it's clear which is the more efficient.
The blockchain is also very secure. Transactions that occur on a blockchain can’t be reversed or altered. All information is stored cryptographically and spread between every network member, so it's very difficult to hack. A cybercriminal would need to access not just one block, but all blocks connected to it in the chain, and on each network member’s computer (the more members, or nodes, the more resistant to hacking).
Importantly, no-one owns the blockchain. With no centralised middlemen controlling it, costs are lower and there are no conflicts of interest between those who use and run the system, as can be found in other situations. It allows direct “peer-to-peer” communication between members, with a record of all activity. This also lessens the likelihood of mistakes or missing information, since no central authority is responsible for updating and maintaining it.
Everyone does their own bit, while not owning any of it. This frees network members to innovate. They can add their own program code in what are called “smart contracts”, which execute pre-written sets of instructions over the blockchain, making interactions much more flexible.
Joanna Hubbard, Chief Operating Officer and co-founder of energy blockchain startup Electron, says:
“Blockchain is not just a new technology - it is a new way of doing business. By removing the need for a central trusted intermediary, blockchain can remove a cost base, a single point of failure, and facilitate new ways of collaboration between businesses.”
How is it being used already?
Santander is piloting Ripple’s blockchain technology to process international payments safely, quickly, and in compliance with banking regulations – something that would usually take several days. Using Santander’s app, users can send payments of between £10 and £10,000 and have them arrive at the destination account the next working day. It’s only available to staff at the moment, but demonstrates blockchain’s potential.
Everledger, a London-based blockchain solutions company, is using blockchain to track and certify diamonds, which helps ensure they’re from conflict-free zones. They’ve also partnered with Maureen Downey, a wine authenticator, to provide a traceable history of fine wine which helps prove authenticity and weed out counterfeits.
Blockchain is affecting the music industry, too. Ujo Music is using blockchain technology to give artists greater ownership of their work by creating a more open platform for sharing music across different services. It makes payments simpler and more transparent, and puts artists in control of how their music is distributed and used.
How will it affect energy?
The blockchain could change energy in a number of different ways. The most immediate is in switching energy suppliers. If you read our blogs regularly, you’ll know we’re very keen on making switching much faster – preferably instantly – as we know customers want immediate results on their decisions. Each day of delay is another where you could be paying more than you need to.
Currently, when you choose to move to a new supplier, your information is transferred to various parties, each one holding it while they process your data. Not only is this inefficient, but it also causes unnecessary delays and exposes your data to error, which in turn might delay your switch further. This continuous back and forth is an administrative nightmare and adds costs that customers ultimately bear.
Energy blockchain startup Electron has shortened the switching process significantly. Using simulated data to represent the UK energy market, Electron built a blockchain-based registration database of all the electricity and gas meter points in the UK. The new platform made switching faster, cheaper, and more resilient (it can handle 20 times the volume of switches currently performed).
With very little investment needed to adopt the new technology, it’s easy to see why Electron has received so much support so far: Joanna said of the project, “Electron have leveraged blockchain technology to build a platform that supports faster switching, at a low cost, which can easily facilitate additional functionalities as required, such as data cleaning incentives.”
If you generate electricity yourself, perhaps through rooftop solar panels, then theoretically, the blockchain would allow you to sell that energy back to the grid, or to a neighbour, at your own prices. These peer-to-peer “micro-trades” would enable a more distributed energy economy, with local generation being spread around connected members. You wouldn’t even need to decide when to buy; a smart contract could automatically sell when a pre-agreed trigger price is reached. Better yet, transactions that might’ve been too small to process cost-effectively become valid in the blockchain: fewer data handlers, and therefore fewer processes, mean transactions of any size can be done automatically and added to the blockchain (and your wallet).
Slock.it, another company championing the benefits of blockchain, are working with Innogy to develop Share and Charge, where you can rent your electric vehicle (EV) charging station to other EV drivers. You set your own tariffs, and payments for allowing fellow app users charge their EVs at your charging station are sent directly to your electronic wallet. You can then cash-out your earnings, use them to charge at other stations, or even donate them to charity. This would likely run in tandem with EV sharing, where you could do the entire cycle securely – from signing a digital contract to unlocking the vehicle – from a smartphone using blockchain technology.
An energy market fit for the 21st century
But the wider efficiency gains are perhaps most significant. With all interested parties – from meter validation companies to National Grid – connected to the blockchain, each can work on their copy (or use a smart contract to do it for them) and update it. This creates a chain of blocks, each timestamped and validated, that as a whole acts as a snapshot of the chain at that particular time. Everyone then works from the new version until another block is added. The cycle repeats continuously, and the blockchain runs 24/7 (as long as there are nodes on the network).
Right now, the energy industry is a Frankenstein’s Monster made of various bits of old software and older hardware, with new tech bolted on top. Trust in it is low, and the disconnects only muddy the waters further. Removing technological and regulatory chokepoints drastically reduces time and cost, but crucially, makes the energy market much more transparent. With transparency comes trust, and with trust comes happiness and peace of mind – which until recently has been in very short supply.
Joanna sums up blockchain's potential quite nicely: “There are many good reasons to use blockchains - they’re very cost effective, you don’t require third party intermediaries to operate shared platforms, and they provide a way to remove the cost inefficiencies and the barriers to innovation that a central service provider would necessarily bring.”
We’re in a data-driven age. The grid that connects households and businesses with generators, suppliers, and infrastructure managers, will eventually be smart. It’ll deliver greater volumes of data in near-real-time. To avoid unnecessary traffic jams, and to use all that data in a way that benefits customers and society, we need the right technology.
Blockchain could be the answer.
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