Blockchain in the energy sector – three takeaways from the EUW2017
Last week, the European Utility Week 2017 took place in Amsterdam. Blockchain was one of the many interesting topics discussed there. So far, most discussions focused on the theoretical potential of different applications that make use of blockchain technology. Even today, blockchain technology and its applications that go beyond financial transactions via the BitCoin blockchain are far away from entering the mass market. Still, the different discussions on the EUW2017 supported our impression that the application of blockchain technology to the energy sector is currently in a transition from concept development to the proof-of-concept stage. More specifically, what we can see now and will see in the next few months is that different blockchains with different applications are entering the first demonstration phases and thereby proceed further towards a proof-of-concept stage. At the EUW2017 three different projects stood out and we want to briefly introduce them here.
If you are not yet familiar with blockchain and its potential applications in the energy sector we recommend to first read these posts about blockchains in the energy sector and their potential for disruptive innovation as an introduction of blockchain technology.
Enerchain: First live trade via a blockchain at the European Utility Week 2017 in Amsterdam
Marius Buchmann, the author behind enerquire, was hosting the morning session at the EMART conference (side conference of the European Utility Week) on 4th October where the first public gas and electricity trade via the enerchain blockchain was executed live on stage. To find out more about the enerchain project take a look here. Enerchain is a private blockchain that was developed and is operated by Ponton, a consultant from the energy trading business in Germany. Basically, enerchain is based on the Tendermint blockchain (proof-of-stake and private) and provides a basis for most established trading (electricity and gas) products. Currently, about 40 companies from the energy sector in Europe are part of the enerchain network. Among these are E.on and Enel, who performed the live-electricity-trade at the EMART. The gas trade was executed by Wien Energie and Neas energy. The live-trade nicely illustrated how fast the blockchain technology is diffusing into the energy sector. One year ago, the enerchain was operated on one laptop at the EMART 2016. Now, in 2017, the system is operable and can facilitate trades between market parties based on a network of nodes. The execution of the live trade illustrated that applications like the enerchain are already beyond the conceptual phase. In the specific case of the enerchain, the proof-of-concept phase has begun in September 2017 and will last till April 2018. Then, we will see which next steps will be conducted by the enerchain consortium.
Energy Web Foundation & GridSingularity
Another milestone for blockchain applications in the energy sector that was achieved at the EUW2017 was the official launch of the test network of the Energy Web Foundation (EWF) blockchain and application layer. The EWF is a non-profit institution (founded by Grid Singularity and the Rocky Mountain Institute) that strives to develop a public blockchain as a basis for new applications in the energy sector. Most remarkably, the EWF aims at making their client an open source application, providing a basis for other companies and institutions to develop new applications. In a nutshell, the current test network that will be available to the public starting from the 1st November 2017 (codenamed Tobalaba) applies the Parity Ethereum client but uses a different permission and validation process as does the Ethereum blockchain. With the publication of the test network, EWF enters the next stage towards a proof-of-concept and opens its client to other developers to investigate the potential of their solution for the energy sector. The next step towards a further dissemination of the EWF-blockchain will be taken at the Event Horizon 2018 in April 2018.
Electron
Another remarkable blockchain startup is electron, which won the Initiate! Startup Award for the best startup in the energy sector at the EUW2017. This doesn’t come as a surprise, because electron, which was founded in 2015 in the UK, takes a very compelling problem-solving focus, which is very hands-on two key challenges in the energy sector in Europe. Currently, electron has three applications running that are based on the Ethereum-blockchain. What makes electron special from our perspective is that they focus on existing problems in the energy sector and develop blockchain-based solutions to overcome these challenges. Most prominently, electron developed a blockchain-based switching process that allows consumers to switch suppliers 20 times faster than the existing processes (maybe even down to 15 seconds). At least this is what a simulation shows that is based on data from 53 million metering points and 60 energy suppliers. Thereby, electron might provide an approach to overcome one of the key hurdles for competition in the energy sector: the rather low switching rates of private consumers. In most European markets, only 5-10% of all private households switch their suppliers within the course of a year, even though switching could save more than 100€ annually, as this study by the EU commission (2010) shows. Especially in the UK (about 200€ annual saving) and Germany (up to 400€ savings), savings from switching the supplier could be rather high, according to this study by ACER (2016). Still, even in these countries only 12% (UK) and 8% (Germany) actually switched their supplier in 2015 (ACER, 2016).
Figure 1: Switching Rates in Europe compared to potential annual savings (ACER 2016)
While consumers’ stickiness with their established energy provider cannot be addressed by the application provided by electron, their solution might increase the switching rates by reducing the complexity of the switching process. As data from this EU study (2010) shows, only 60% of those customers that wanted to switch suppliers in Europe did succeed in doing so without any problems. The other 40% struggled in the process, with 30% ending up not switching the supplier. Here, the solution of electron might offer the right problem solution, by automation of processes and reducing barriers to identify and switch to the new supplier.
Besides their second application, which provides a blockchain-based solution for an asset registry, which could be used for the metering registry, electron is currently working on a platform for flexibility services. The UK government as well as Siemens and National Grid are supporting this project that has the aim to develop a platform for trading flexibility capacity from demand-response and other decentralized sources. Importantly, this is a different approach than the one taken in most P2P-projects that aim at P2P-trading on the local level to substitute retailers (cf. P2P-projects PowerLedger in Australia and the Brooklyn MicroGrid in New York). Electron rather wants to apply the blockchain technology to existing processes but wants to exploit new flexibility potentials that are currently not accessible, either due to market rules or high transaction costs. Especially the challenge of high transaction costs for rather small amounts of flexibility might be a perfect show-case for blockchcain applications. We have discussed the issue of flexibility in these posts (German debate here, EU debate here) before, but while we focused on regional flexibility markets in these posts, a blockchain application as the one developed by electron might provide the technological basis to operate such regional flexibility markets at low transaction costs. This is actually one important topic that we will pick up again here on enerquire soon.
EUW2017 marked the transition from concept development to proof-of-concept for the first blockchain technology applications in the energy sector
The cases of enerchain, the Energy Web Foundation and Grid Singularity, show, that the first blockchain technologies for the energy sector are now evolving from the conceptual phase to the proof-of-concept stage. Though these are only three examples for these developments, it became obvious at the EUW2017 that the next concepts will soon be ready to enter the proof-of-concept stage, e.g. the products developed by electron and others. Importantly, proving the feasibility of one’s concept is a significant but challenging task and we will see in the next 6 to 12 months whether the existing blockchain applications will provide the proof that they are feasible. While some applications might succeed to meet the demands from the industry in this phase, other will not. We will of course observe these developments here on enerquire. Stay tuned!
Are distribution network operators in Europe threatened by a potential application of blockchain technology in the energy sector? This seems to be the pressing question that was at least partially the motivation for a recent report on blockchain in the energy sector by eurelectric, which is the European association of the distribution grid operators. From our perspective, this report reads like an attempt by the industry to reassure itself that its core business model – asset ownership and operation of the electricity networks – is not threatened by blockchain. While this might be true for asset ownership, this is different in the case of network operation.