Energy's Missing Link

Blockchain may still be in its infancy, but with the global market expected to hit US$2.3 billion by 2021 and clear use cases emerging in the renewables space, it could well prove a game-changer in the energy sector. Initially used in Bitcoin transactions, the decentralized, public ledger can now be deployed to track and monitor the exchange of information or value in multiple forms, with significant implications for utilities. Of course, as with any technology, blockchain should not be regarded as a panacea, but with investment and a solid strategic approach, it stands to play a vital role in the much-needed transition to a resilient, cost-effective and low-carbon grid.

In fact, the rise of blockchain could not come at a better time for the energy industry. According to a report from Bloomberg New Energy Finance, the world will generate almost half its electricity from renewables by 2050 and the GCC is already doing its part, with ambitious targets including the installation of more than 80 gigawatts of renewable energy capacity by 2030.

The transition to renewables, however, is far from straight forward. Sustainable success requires effective institutional frameworks, reliable financing for innovation and infrastructure development, and solutions to the uncertainty created by variability in renewable energy generation. Only with these boxes ticked can utilities begin exploring the true potential of blockchain.

Fortunately, with the right direction, these challenges are not insurmountable, and once the groundwork is laid, utilities can turn their attention to the technologies and strategies that will underpin their renewable futures. To this end, Booz Allen has identified three ways in which blockchain can facilitate the integration of renewable energy in the GCC’s electricity grids:

• Peer-to-Peer (P2P) Trading: While pure P2P scenarios are unlikely to occur due to regulatory constraints and consumer hesitance, investigations from GTM Research indicate that 57 percent of the money raised by blockchain startups operating in the energy space is being channeled towards transactive energy. What’s more, the energy sector’s first blockchain experiment - The Brooklyn Microgrid - was a transactive energy project. In the 2016 pilot led by startup LO3 Energy, residents with photovoltaic systems were able to bypass utilities and sell their power using the Ethereum blockchain, an open-source, distributed platform that enables smart contract functionality.
  
  
• Tracking Renewable Energy Certificates (RECs): RECs can be a useful way of tracking renewables as they flow into the grid, but their authenticity is sometimes challenged. To address this, one alternative now rising to the fore is blockchain tokens, which enable consumers to obtain tokenized REC directly from the producers and circumvent energy providers in the process.
  
  
• Smart Contracts: Smart contracts are self-executing programs that respond to a pre-defined trigger and operate without the need for third-party involvement, thus boosting transactional efficiency and reducing both error and fraud. In one use case, German energy provider, RWE, deployed hundreds of electric vehicle (EV) charging stations across the country using smart contracts, again based on the Ethereum blockchain. Next, it plans to enable a fully-automated authentication, charging and billing solution for EVs, with no middleman involved.

In addition to harnessing these three facilitators, the following recommendations could help GCC utilities to embrace blockchain as part of their renewables quest:

• Look beyond energy delivery: Last decade, the deployment of broadband and smartphone penetration transformed the telecom industry, forcing operators to look beyond their traditional business and become channel and content providers. Today, the energy industry is witnessing a similar tech-driven shift. With this in mind, utilities should note how telecom leaders were able to adapt, capture opportunities and develop new business models.
  
  
• Solve real business needs: with any technology deployment, the business need must remain central to considerations. As such, utilities should explore how blockchain could help solve issues or enhance business processes across the industry value chain. As just one of many technologies that could underlie the next-generation service infrastructure, blockchain should not be seen as a goal in itself, but as a tool to achieve specific aims.
  
  
• Focus on scalability: Scalability is the biggest challenge for industry-wide applications based on blockchain. Therefore, planning and investing in blockchain proofs of concept are vital to understanding the effectiveness of the technology in real business scenarios. Once a use case is validated, applications should then be carefully tested through comprehensive pilots. Here, it is important that utilities plan for technical challenges and prepare to invest in risk mitigation before reaching the production stage.
  
  
• Enablers: The success of blockchain-based applications in the renewable energy space is directly linked to multiple enablers that relate to regulatory environments, technical issues and internal capabilities. On the regulatory side, the development of government-led blockchain strategies are essential, while on the technical front, different types of distributed ledger technologies can be used to achieve varying goals. Currently, these ledger technologies include permission-less public systems, private permissioned systems and hybrid systems. Last but not least, examples of internal enablers include real-time data, analytics capabilities and strategic partnerships.

The world is still discovering the power of blockchain, but with the right kind of investment, frameworks, and strategies in place, the GCC could join the global front-runners as they edge ever closer, not just to a sustainable grid, but a sustainable future. 

[i]  ‘Size of the blockchain technology market worldwide from 2016 to 2021’, Statista.com