The previous article focused on ICO in the energy sector. The conclusion was that strengthening financial regulation is an irreversible global trend and that regulation-compliant security tokens and utility tokens for decentralized protocols are future possibilities. This article, the final article of the series, wraps up blockchain application in the energy sector as of June 2019.

What business can take advantage of blockchain technology?

I will try to analyze the area of application of blockchain technology in the energy sector. Setting aside whether it is good or not, many applications are seed oriented. In other words, it is not that solutions are developed out of social issues to solve, but that applications developed out of functionalities and characteristics of blockchain technology are proposed.

 

A short description of characteristics of blockchain technology, or distributed ledger technology to be exact, is that multiple participants that are connected in a peer-to-peer fashion in computer network approve transactions by following defined protocol and maintain record of transaction records. Cases of applications that take advantage of the characteristics of the technology can be organized as follows:

 

Many existing cases use the characteristic of “decentralized transactions” that trade energy (or ancillary objects to electricity such as attribute values associated with electricity and flexibility [1]). Those include cases that makes measured electricity digital assets, ones that performs settlements (financial transactions), and ones that combine the both.

[1] Ability to respond to variations of demand and supply, not the value of electricity per-se

 

Energy transaction applications include peer-to-peer energy trading that is the most popular application in the energy sector, trading in wholesale market, grid management applications such as flexibility trading and virtual power plant (VPP), and disintermediation model that proposes means for consumers to access directly to wholesale market. Financial transaction applications include fundraising platform, renewable energy-based cryptocurrencies, and management of electric vehicle (EVs) charging.

 

The second group of applications takes advantage of the characteristic of immutability of record made on blockchain. Of course above-mentioned applications of transactions also has record immutability, but this group of applications do not involve transactions or have much more emphasis on recording than transactions. Renewable energy tracking that proves origin of generation with qualitative attribute of generation source, demand response, EV charging, applications that record charge/discharge operations of batteries.

 

Data recorded on blockchain will, of course, be used for other uses such as billing, settlement, and analytics. Those applications can be used in conjunction with energy transaction or financial transaction applications. However, data recording is the core part of application, therefore a distinction is made. Figure 1 summarizes the concept.

Which area reached commercial operation?

What is the progress of applications categorized as above? To simplify, cases of applications of blockchain technology in the energy sector are categorized into the below three development stages based on publicized information as Figure 2.

• Planning: project is announced, but it is still in planning stage where product development (including prototype/proof of concept) and planning or implementation of pilot projects cannot be confirmed
• Development and demonstration: development of products (including prototypes), proof of concept, and/or pilot project is implemented, or commenced
• Commercial stage: “commercial” “real” is claimed, or judged regular operation beyond proof-of-concept and pilot stage

 

Figure 2 indicates that many projects are still in development and demonstration stage. Some cases reached real operation, although the number is smaller than ones in development stage. Cases that have reached regular operation has the following characteristics:

1. Many applications can operate stand alone without major change of existing system or business process, or major integration with those. For example, microgrid [2] can be operated more easily stand alone, while peer-to-peer energy trading that uses existing grid requires major integration of existing utility system.
2. Those applications has no conflict with regulations, or require no coordination with regulation. For example, Rakuten launched REts (Rakuten Energy Trading System), a marketplace for environmental values. This changed how values are traded, but does not change regulation of environmental values.
3. The number of stakeholders involved is relatively small. Unlike financial and banking industry, there is no project where tens of corporations participate to develop common platform or application. For example, Minden commercialized renewable tracking system, but it is basically in-house system that relates to generation facilities and customers. It does not relate to standard of the entire industry or does not involve industry-wide system integration.

[2] Private network that consists of generation, load, and other equipment. It can be operated connected to grid, or independent from grid.

Some has claimed that major benefit such as cost reduction can be gained not by applying blockchain technology, but by changing business processes in accordance with the introduction of blockchain technology [3]. In addition, the value of blockchain technology can be demonstrated when business processes are changed in such a way that blockchain technology can be utilized among multiple stakeholders that share information [4]. Above commercial applications that reached real operation within a few years tend to be self-contained in one organization and not to involve major business process change. Isn’t still there a room for major benefit to be gained?

[3] For example, https://www.itmedia.co.jp/news/articles/1709/06/news062_2.html (in Japanese)
[4] For example, https://medium.com/corda-japan/poc%E3%81%A7%E3%83%93%E3%82%B8%E3%83%8D%E3%82%B9%E3%82%92%E5%86%8D%E8%80%83%E3%81%99%E3%82%8B-c1cbfa6fffc2 (in Japanese)

Notable projects in the future are multi-stakeholder projects

From 2017 to 2018, startup companies that work on blockchain technology in the energy sector, in particular energy trading platform, have emerged one after another. Now this movement seems to have settled.

 

Then, what is notable trend in the future? One type of activity that can draw attention is multiple stakeholders utilizing blockchain technology and gaining benefit from it. The Enerchain Project, led by Ponton in Germany, organized a consortium consisting of 40 organizations in attempt to innovate trading platform, grid management, and wholesale transactions.

 

Likewise, Electron in the U.K. also organized a consortium of 10 companies to develop flexibility trading platform. This is intended to change business process from bilateral transactions to multilateral ones.

 

If true values of blockchain technology can be realized in applications that require information sharing among multiple stakeholders, aren’t the above two examples promising? It is more challenging because of multiple stakeholders and business process changes, but benefit should be bigger all the because of more challenge. I am looking forward seeing how those applications that implement industry-wide change turn out in the future.