Thursday, January 9, 2020

Can Blockchain Be a Blockbuster?

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Sorting Out the Hype and Reality of Distributed Ledger Technology in the Utility Industry

In late 2015, when the hype around blockchain was particularly intense, Diego Dal Canto dedicated many workday hours examining the technology’s potential impacts on the electric power industry. Dal Canto works in the Innovation department at Italy-based utility Enel and is always on the lookout for disruptive technologies.

“It was really hard to make sense of all these big statements that everybody was making about blockchain and how it will change everything,” said Dal Canto. “In 2017, the European Parliament published a report pointing to blockchain’s potentially profound impacts across society. This was a very strong statement from a reliable institution.”

In 2016, Enel formed an “Innovation Community” of 20 employees from different divisions to investigate blockchain and its potential benefits for the utility’s operations and customers. Enel participated in a blockchain working group formed under the European industry association Eurelectric as well as in EPRI’s Utility Blockchain Interest Group—involving nearly 70 U.S. and international utilities to share lessons and best practices and identify possible applications.

Enel was among the first members of the Enerchain project, which brought together more than 40 utilities to launch a blockchain-based wholesale energy trading platform. In 2018, Enerchain facilitated the first wholesale energy transaction using blockchain, including a deal for 5.95 gigawatt-hours of natural gas–fired power generation between Enel’s Spanish subsidiary, Endesa, and the utility Gas Natural Fenosa, now known as Naturgy.

Even with all this attention and activity, blockchain’s future remains unclear. “In 2018, the Eurelectric working group published a couple of reports concluding that the technology is very immature and difficult to implement and scale in business applications,” said Dal Canto. “In 2019, we are still in the same limbo, though we continue to scout blockchain and have well-trained staff who are ready to move fast on the technology if needed.”

Enel’s position reflects the attitudes of many utilities toward blockchain technology—intense interest in its transformative potential, yet persistent uncertainty about its use and benefits.

Blockchain, also known as distributed ledger technology, is a collection of continuously growing records (bundled together in blocks) that are linked together and secured using cryptography.

What makes it a potentially disruptive technology is its ability to record transactions between parties in a secure, transparent, cost-efficient, and unmodifiable way. Its distributed nature means that a single authority doesn’t manage and control the transactions.

“In the past with smart contracts, participants were locked into using a particular vendor’s system and needed to trust the vendor to keep the system secure,” said EPRI Senior Program Manager Gerald Gray. “Blockchain is a peer-to-peer network. A contract facilitated by blockchain is executed automatically when the terms are met. You have a buyer, a seller, a payment, and an exchange of goods. The advantage of blockchain is that you’re not locked into a vendor that may or may not be trustworthy. The potential downside is that you must trust a large, decentralized digital network to be secure. Blockchain networks may still be vulnerable to cyber attacks.”

A recent EPRI survey of blockchain-related activities and attitudes among 15 European and U.S. utilities and one U.S. regional transmission operator reveals intense interest and ongoing challenges to developing compelling business cases. Key insights:

  • Business model uncertainty and lack of standards are among the top reported barriers to blockchain investment.
  • The respondents singled out transactive energy as the most promising application.

“Today, transactive energy is limited to homeowners and businesses selling generation from their rooftop solar to the utility at a price set by the utility or a regulator,” said Gray. “Imagine a future where the price is set by the market, and you can buy from and sell to whomever you want. When these transactions occur at all levels of the grid, transmission system operators can sell to one another and to distribution system operators while utility customers can sell to both types of companies as well as to their neighbors. Blockchain can potentially facilitate these diverse transactions.”

Other survey results:

  • There are more than 100 blockchain applications across electricity generation, transmission, and distribution, and more than 150 startups globally are working on energy-related blockchain applications.
  • Three of the 5 European utilities surveyed have active blockchain projects.
  • Five of the 16 respondents are engaged in research.
  • Eight respondents have proof-of-concept or pilot projects.
  • One respondent has no blockchain efforts underway.
  • Blockchain-related staffing varies among respondents with respect to numbers and approach. Most reported cross-organizational teams from information technology, R&D, strategy, operations, and business development, with staff working part-time on blockchain issues.

Electric vehicle (EV) charging is also of interest. EV owners want the ability to charge anywhere at any time.

“Your home utility might be different from the utility where you shop or the utility where you work,” said Gray. “Blockchain can potentially enable you to charge or discharge your EV in all jurisdictions by resolving variations in rate structures and payees in an instant, transparent way. In contrast, credit card payments go through several payment processors and then through the utility and its power suppliers in a way that’s invisible to the customer. Like a credit card, you can carry blockchain in your pocket in the sense that you have a blockchain payment app on your smart phone that allows you to exchange Bitcoin or whatever digital currency you’ve signed up for.”

But Gray adds that the value of this blockchain application is unclear. “Mobile wallet schemes such as Apple Pay and Google Pay have emerged as payment methods of choice,” he said. “Consumers may like the convenience of simply tapping their smart phones to an EV charger to make a payment via their credit or debit card.”

According to European respondents, grid asset provenance is particularly important for verifying carbon emissions related to the manufacture of transformers and other equipment made outside of Europe. “If a component is made in China using coal power, it will have a higher carbon intensity than the same component made in Denmark with wind power,” said EPRI International Executive Director Neil Hughes. “Blockchain can provide an irrefutable way to track where and how equipment is made.”

Launched in 2018, EPRI’s Utility Blockchain Interest Group is helping utilities sift through blockchain hype and identify the most promising applications.

“Our monthly webcasts feature a utility presenter who describes their blockchain journey and the applications that are getting their attention,” said Hannah Davis, an EPRI analyst who leads the monthly webcasts.

“EPRI is educating vendors about how utilities do business today,” said Gray. “This information can equip them to develop blockchain technologies that are better, faster, or cheaper solutions.”

Stay tuned. As an independent research institute, EPRI will continue to work with vendors and utilities to help vet specific blockchain uses. “Blockchain could have value for the energy system, and our challenge is to establish exactly where that value is and quantify it,” said Hughes. “We are testing and refining ideas with our utility members to identify the most valuable possible uses.”

Key EPRI Technical Experts:

Gerald Gray, Hannah Davis, Neil Hughes
For more information, contact techexpert@eprijournal.com.

Artwork by Ariel Davis


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