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Blockchain for Utilities – Disintermediation as a Double-Edged Sword

image credit: Photo 142512525 © Siarhei Yurchanka - Dreamstime

This item is part of the Special Issue - 2019-09 - Blockchain in Utilities, click here for more

Blockchain – the distributed ledger, smart contract technology – is positioned to either assist, modify, or further undermine the traditional utility business model. Depending on how blockchain and associated utility technologies (meters, wires, IoT devices, solar panels, microgrids, communication protocols) are structured and implemented, blockchain systems can act as either a benefit or a detriment to the utility bottom line.

In one scenario, a blockchain-based microgrid project establishes itself built on an isolated, standalone hardware and software architecture. This configuration is entirely separate from the existing grid operator. All electricity and payment transactions are achieved internally between blockchain-connected microgrid participants. In this case, the utility has been “disintermediated” from the island microgrid and its peer-to-peer (P2P) energy trading system. That is, the utility has been completely removed as the energy and payment middleman. In this scenario, the utility gains no financial benefit. On the other hand, in a tradeoff, nor does the utility have to maintain and support that island infrastructure.

In another scenario, a microgrid is configured so that it retains interconnection to the grid. The microgrid may operate largely as an island in energy production, but P2P electricity flow and payment transactions use the utility’s infrastructure. In this scenario, the utility gets a small percentage of transaction costs. Multiplied thousands of times, this income may represent a substantial revenue stream, making continued maintenance and operation of that grid segment worthwhile to the utility.

Or, in yet another blockchain-microgrid scenario, to reduce maintenance and operation costs, the utility itself may choose to disintermediate the microgrid and its blockchain-based energy trading nodes. Microgrid electric meters would be equipped with blockchain connected and controlled IoT sensors. These nodes would be connected to a power exchange device that would monitor and conduct all P2P electricity and financial transactions. The utility would again be out of the loop, playing no role in transactions, maintenance or operations.

Whether mediating or disintermediating the utility from blockchain-based electric transactions, blockchain at scale, as a major utility business model disruptor, remains in the future. Standards, technology and industry protocols have yet to provide the critical mass for widescale blockchain adoption at scale.

More immediately, however, blockchain offers the utility itself a wealth of potential value in the form of grid asset management and optimization, carbon credit tracking and regulatory compliance, and, importantly, can help the utility transition its business model from being solely an electricity provider, weighing the cost-benefit of becoming a services-based actor as a P2P, eBay-like energy transaction trading platform.

Discussions

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Matt Chester's picture
Matt Chester on Sep 24, 2019

Whether mediating or disintermediating the utility from blockchain-based electric transactions, blockchain at scale, as a major utility business model disruptor, remains in in the future. Standards, technology and industry protocols have yet to provide the critical mass for widescale blockchain adoption at scale.

Interesting view of the inevitability of it all, I would likely agree. Given that, what should the top priority be-- to start to standardize it? To adapt technologically? 

Michael Albrecht's picture
Michael Albrecht on Sep 25, 2019

Matt - Thanks for reading! Bearing in mind Gartner's Hype Cycle for techologies, and though still in its infancy, blockchain for utilities, especially its smart contract capability, appears poised for significant impact on the industry. I recommend initiating research on and experimentation with the techology as soon as possible to stay ahead of the curve. Good resources to start with are the Energy Web Foundation and the Energy Blockchain Consortium. 

Matt Chester's picture
Matt Chester on Sep 25, 2019

Thanks for the reply, and also for the education on Gartner's Hype Cycle-- apparently I had missed this phenomenon. Linking here for any others like me who want to know more about it: https://www.diamandis.com/blog/5-stages-of-the-hype-cycle

Michael Albrecht's picture
Michael Albrecht on Sep 26, 2019

Excelllent. Thanks for the resource, Matt.

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