Blockchain for Power Utilities: Preparing for the New Industry Landscape
Power utilities should take action now to understand how they can leverage blockchain networks to improve efficiency, reduce costs and establish the trust needed for new business models based on shared infrastructures and collaborative ecosystems.
The traditional business model for power utilities is evolving into a new landscape characterized by distributed power generation, including a focus on sustainability, and the penetration of smart devices such as smart meters and thermostats. Utilities are responding by investing in smart technology and upgrading grid infrastructures required to make the emerging power grid a reality.
As the power grid becomes more distributed, establishing trust among disparate stakeholders will be essential. Blockchain technology offers one promising approach. Blockchain provides a way for multiple parties to conduct and record transactions through a peer-to-peer network that replaces the traditional role of a central trusted authority. Blockchain platforms can be public (i.e., permissionless) like Bitcoin, with anyone allowed to submit a transaction and take part in validating other transactions. Or they can be private (i.e., permissioned), where only authorized participants can share and validate information. (For more information on how blockchain works, read our e-book, “Demystifying Blockchain”)
Blockchain can be applied to increase the efficiency of numerous processes in utilities. Beyond simply reducing costs, blockchain-based networks could help utilities disintermediate suppliers and even retailers throughout the energy market. While the potential benefits are substantial, utilities will need to understand the strengths and weaknesses of blockchain technology and assess how it can be best applied to solve their business challenges and achieve their strategic objectives.
The Blockchain Opportunity
We believe utilities will progress through three capability levels as the industry adopts this new technology.
Level 1: Foundational Technology
Since a core capability of a blockchain network is the security and reliability of transactions, a permissioned blockchain network can be readily implemented for many utility processes including:
Bill pay: Start-up platforms are using cryptocurrencies like Bitcoin to address bill payment and prepaid recharge of smart meters.
Solar renewable energy certificates: Blockchain networks can facilitate authenticating and trading renewable energy credit certificates.
Electric vehicle charging: Start-ups are providing blockchain-based charging, authentication and billing for electric vehicles.
Level 2: Viable for Sustaining Business
At Level 2, blockchain becomes a business-critical technology, which will require utilities to have the ability to maintain and integrate blockchain technology with traditional utility systems. Once blockchain networks deliver services to a critical mass of retail and commercial users, the current loose regulatory framework will need to adapt to clarify the regulatory requirements for utilities deploying the technology.
Although still in the pilot stage, examples of experimental permissioned blockchain applications at this level include the following:
Microgrids: Blockchain networks can manage transactions within microgrids, which are distributed energy systems that function independently from a centralized grid.
Independent power producer (IPP) settlements: Blockchain can support energy trading among utilities.
Grid settlements and wholesale market trading: While microgrids and IPP link a small number of participants, grid settlements and wholesale market trading involve many participants. This will require blockchain networks with more scalability as well as compliance with industry regulations.
Level 3: Robust and Scalable for Business
Over the long term, blockchain has the potential to disrupt the utility landscape by allowing a traditional utility or supplier to play the role of business facilitator. In Level 3, blockchain will become a mainstream technology, eventually replacing existing systems.
Blockchain applications that envision new industry processes and business models include the following:
Local energy market/P2P energy networks: Blockchain can provide the infrastructure for peer-to-peer (P2P) energy markets and smart grid networks.
Decentralized exchange: By establishing trust among disparate stakeholders, blockchain can make decentralized energy exchanges feasible.
Retail trading and settlement: Blockchain networks can support retail energy trading, including green energy trading.
Blockchain Potential for Critical Industry Processes
Assessing Blockchain Applicability
Utilities should now begin to identify those business processes in which blockchain can help improve operations and achieve strategic objectives. To evaluate blockchain compared with other technology options, a first step is to develop a composite metric for each process including parameters such as process security, criticality, risk, frequency, overhead/transaction costs, speed, etc.
Typical characteristics of processes in which blockchain may be the right technology choice include:
Issue/problem cannot be addressed adequately with traditional methods.
Multiple writers to the database and a need to establish trust among them.
Dependency exists between transactions.
High levels of security are required.
Rapid data sharing or data that require complex controls are not needed (given the current maturity of blockchain technology capabilities).
Regulatory requirements, such as privacy, do not preclude a blockchain solution.
While blockchain technology is in an experimental phase today, utilities should begin identifying where the technology has the greatest potential in their operations and how it can be deployed to generate business value.
As they do so, utilities are well advised to focus on a select set of viable solutions that address important challenges; quickly test and learn from a series of pilot projects; build alliances/partnerships with technology providers, consulting firms and universities; and closely monitor the likely regulatory changes.
Utilities should act now to get in the game. Those that sit on the sidelines, waiting for the future direction of blockchain to become clear, run the risk of falling and may find it difficult to catch up with their proactive competitors.