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The Promise of Blockchain - A Reality Check

Rakesh  Sharma's picture
Journalist Freelance Journalist

I am a New York-based freelance journalist interested in energy markets. I write about energy policy, trading markets, and energy management topics. You can see more of my writing...

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  • Sep 30, 2019

This item is part of the Blockchain in Utilities - Fall 2019 SPECIAL ISSUE, click here for more

The blockchain hype was inescapable at one point of time. 

The technology was often held up as a possible solution to almost all of humanity’s problems from helping manage the refugee crisis to fixing advertising. Within the energy industry, blockchain was expected to streamline and, in some cases, rework the energy grid. An example of the latter was the establishment of peer-to-peer marketplaces for energy consumers, enabling them to make their own purchase decisions. 

Of course, none of that has actually come to pass. Peer-to-peer marketplaces are still being developed and there is no word yet on the refashioned grid. Instead, data privacy has emerged as an elephant in the room because putting energy data on a public blockchain constitutes violation of privacy. 

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So was blockchain a failed promise? 

An Incomplete Understanding of Blockchain? 

Part of the problem lies in an incomplete understanding of blockchain, the technology. As it is currently portrayed in the media, blockchain is a radical innovation. It is not. In very crude terms, it is a distributed database that decentralizes trust and integrates various players onto the same platform. 

As an example, consider the renewable energy certificate market which has multiple players and standards. The use of a blockchain can create a single platform for trading these certificates by utilizing attributes from multiple databases. To that extent then, blockchain is best used in complex markets that span borders and regulations. In other words, the promise of blockchain is best realized in a flexible grid with different levels of power structures. 

Here’s an example. 

During the recent GTM blockchain for energy conference, Neil Gerber from IBM discussed a use case with TenneT - a transmission system operator (TSO) in Germany and the Netherlands. According to Gerber, they chose blockchain because the TSO wanted to provide “thousands and thousands” of flex services or ancillary products at electric vehicle (EV) charging stations. Essentially the idea is to connect to one network and get access to multiple jurisdictions, he said. To accomplish the development of such a marketplace, TenneT joined hands with TSOs in neighboring countries and formed a governance system that translates to a collaborative business for everyone involved.       

Current Blockchain Use Cases 

Meanwhile, a couple of near-term use cases have become low-hanging fruit for the technology. The first one is fairly well-known and pertains to blockchain’s use in the renewable energy certificate markets. According to some, blockchain has the potential to agglomerate multiple standards and requirements onto a single platform. But that promise must be tempered with a realistic assessment of possibilities.  One of the most illuminating moments at the GTM conference occurred during a panel discussion about adoption of blockchain in utility operations. CK Umachi, a product manager at PG&E, told audiences that his effort from reconciling various vendor contracts for renewable energy credits for the utility resulted in a “nightmare and headache” due to the task’s complexity. Eventually he gave up on the project. Unfortunately, Umachi’s opinion about the difficulty of converting physical documentation into smart contracts is not unique. During another panel discussion, Andrew Bruce, CEO of Data Gumbo - a startup that works with smart contracts in the oil&gas industry , said converting the terms of a physical contracts into executable code for smart contracts took up most of their time and was the most difficult part of their job.       

The second important use case for blockchain is its integration of Distributed Energy Resources (DERs), such as wind farms and solar panels, into a grid. Most DERs exist in a silo at the grid’s edge, disconnected from the main system. This is mainly because they are operated by prosumers and also because integrating them into the grid would require modification of control software which may not be possible. Besides this, there are other issues to consider, such as data transfer between legacy systems. The complexity referred to earlier is evident in this case because control and management of the power system is distributed between multiple stakeholders. 

The use of blockchain in transactive energy systems (TES) is being touted as a possible solution to this problem. Smart contracts, which automate various tasks associated with the energy grid, can be used in conjunction with the decentralized trust engendered by blockchain. Blockchain’s decentralized system will ensure that multiple stakeholders (as opposed to all or just one) control the levers at the grid’s edge. 

Such a system may work through nodes or validator systems responsible for approving a transaction. The nodes will be the responsibility of various stakeholders, in this case the grid operator and DERs connecting to it. They will approve all transactions and create a shared and semi-transparent ledger for all stakeholders, thereby eliminating the headache of maintaining records for multiple DERs for a utility.

A Nascent Technology  

While these use cases have generated considerable enthusiasm, there are still a number of problems that blockchain must overcome before it can make serious inroads into the energy industry. The problem of data privacy and ownership is still to be solved. Governance is another problem. How can the needs of multiple stakeholders be arranged in a way to ensure fair governance of complex platforms?

For example, a regulator might need different access levels as compared to an aggregator or a utility on the same platform. Ditto for a customer versus an ISO/RTO. Public blockchains also have scaling issues. Then there’s the fact that energy is a heavily-regulated industry and any possible changes to its current configuration and architecture will require government vetting and approval.  

The promise of blockchain is a complex, multi-tiered energy platform in which multiple stakeholders can participate. But it might take years before that platform is realized. 

Richard Brooks's picture
Richard Brooks on Sep 30, 2019

"In very crude terms, it is a distributed database that decentralizes trust and integrates various players onto the same platform. "

So true, it's just a data storage technology with embedded integrity controls that can support anonymity. No magic there - just another technology filling a niche requirement in the crypto-currency domain that may have application elsewhere.

I sincerely question which aspect of REC processing blockchain may apply to that isn't already handled satisfactorily by other extisting and mature technologies.

Matt Chester's picture
Matt Chester on Sep 30, 2019

I sincerely question which aspect of REC processing blockchain may apply to that isn't already handled satisfactorily by other extisting and mature technologies.

It does seem like sometimes we're stuck in a cycle of trying to find new applications in which the new and shiny technology (blockchain, in this case) can help. It'll be a trial and error and the areas where it's not actually adding any value will be dropped-- but hopefully if it proves not fruitful we find that out before too many resources are used!

Rakesh  Sharma's picture
Rakesh Sharma on Oct 1, 2019

Unfortunately, I do not have enough familiarity with the REC market to intelligently answer that question. That said, from what I understand, smart contracts on blockchain can help digitize and streamline operations for the multiple standards and REC trading systems and bring them onto a standard platform. For example, EWF launched a pilot last year with a subsidiary of PJM Interconnection to create and test a platform that will track REC certificates at the kWh scale (as opposed to the current mWh scale for which their current system is designed). 

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