Could Blockchain Upend A Century-Old Global Energy System?
October 16, 2018 12:03 AM
The World Energy Council has produced its blockchain-focused World Energy Insights Brief 2018. After consulting with 39 global energy leaders and stakeholders, the report finds that blockchain is in its infancy, but it could have an immediate impact and holds the potential to “upend” the global energy system.
The new paper, produced in partnership with PricewaterhouseCoopers, was delivered at World Energy Week in Milan, Italy, last week. It follows a previous World Energy Council (WEC) report in 2017, titled «The Developing Role of Blockchain.»
Rather than a scientific or statistically based approach, the WEC interviewed 39 companies and organizations with the goal of understanding what stage of maturity blockchain has reached in the energy sector, the technology’s potential, and possible impediments. The interviewees range from innovative companies and traditional oil and gas businesses to regulators and utilities.
The report did not state how many, or what percentage, of interviewees represented companies investigating use cases. However, of that unspecified sample, the WEC found that 85 percent of companies investigating blockchain use cases said they were in the early stages and mostly had immature blockchain pilots. The authors estimate that between $100 to $300 million dollars was invested in 2017 in blockchain development for the energy sector alone. However, this amount is relatively small in comparison to the sector’s total investment in broader digital infrastructure, which reached $47 billion the same year.
These blockchain projects and pilots-in-progress range from energy trading platforms, emissions trading systems, and peer-to-peer (P2P) trading to supply chain applications, tokenization and project financing systems, and even off-grid bitcoin mining. A majority of the projects in development involve P2P trading and emissions trading systems, with blockchain-based solutions to P2P trading accounting for 45 percent of the total.
Most of those interviewed were confident that blockchain issues of feasibility and scalability would be resolved as the sector matured. The report also summarized:
«The success of blockchain is very much dependent on a reframing of regulation and large scale customer engagement, but that doesn’t mean blockchain cannot bring immediate optimisation for the existing system.»
For blockchain to be truly transformative for global energy systems, regulatory frameworks may need to be addressed. For such frameworks to be successful, they should balance innovation and customer protection to prevent market participants from pushing back if regulation became a barrier. The paper indicated:
«Key questions surround whether and at what point regulation should be updated to allow the full potential of blockchain technology to transform the grid.»
Of the interviewees, established energy companies generally felt that regulations were sufficient, innovators saw regulation as a «necessary enabler,» and the regulators themselves were inclined to wait until blockchain technology reached maturity before regulating.
The report also found that interviewees were concerned about consumer adoption of P2P trading systems because it has been historically difficult to change consumer behavior. To counter this, many pointed to the importance of developing appropriate incentives and ease of use. The paper suggested:
«A ‘tipping point’ for wholesale consumer adoption might be induced by high-volume, e-commerce retailers incentivized to scale blockchain rapidly (e.g. Amazon and Alibaba).»
In summary, blockchain in the energy sector has the potential to be disruptive and could enable a «transactive grid,» but its disruptive power is dependent on a number of factors. Regulatory action plays a part, as does the development and maturity of the technology itself – and perhaps most elusively, customer engagement. While interviewees agreed that blockchain was very promising and well suited to the sector, it would not be an «essential requisite for decentralisation and democratisation of energy.» The sector, said some, is moving toward decentralisation and democratisation regardless.
One of the report’s authors, Marzia Zafar, noted:
«Blockchain in energy has the potential to upend the energy system that was created over a century ago, but it has a long way to go.»
Melanie Kramer is a freelance FinTech, blockchain, and cryptocurrency writer based between France and Canada. Melanie has studied, and retains an avid interest in, global politics, business, and economics.
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