The United States power industry is inquisitively examining the applications of blockchain technology behind closed doors. During a webinar hosted by Advanced Energy Economy (AEE) on Sept. 26, “Blockchain in Advanced Energy – Applications, Opportunities and Challenges,” participants submitted over 200 questions to the speakers. That shows how compelling blockchain is to utility decision makers right now.
“I think it would be foolish to not start looking at it now,” said Doug McMahon, vice president of strategy at New York Power Authority. “It would not be good to play catch-up.”
A blockchain is a shared digital decentralized ledger that records transactions across a peer-to-peer network. It can be used for transactions related to energy and/or carbon.
Tony Giroti, chairman of Energy Blockchain Consortium (EBC), said blockchain has the potential to reframe how transactions are done in the electric-power industry.
“Why is blockchain so different?” Giroti said. “Today, we have companies that own products, technology and databases. There is a centralized level of control. We all trust these companies. In the future, with blockchain, there is a different model. The data is scattered across a distributed ledger. The control is distributed across multiple companies.”
Currently, not all energy companies are viewed as equally trustworthy. Their level of trust depends on their customers’ views of them.
What will it take to build trust in this new system so that the industry can participate in it? That’s one of the questions Giroti is examining.
“When you distribute the control, you are able to not depend on a single company,” Giroti said. “Instead, you can decentralize the operation of the system and let the machine and code provide the governance. We can create a contract that does not require human intervention.”
Machine-managed transactions do not always inspire confidence in customers. But in this case, there appear to be substantial advantages based on the way that blockchain works.
“Provenance, identity, security and record-keeping are the capabilities of blockchain that we believe are valuable to the utility system,” McMahon said.
Provenance is defined as trackability and immutability of transactions, Giroti said. “The transaction has a finality to it. It is a system of record that is immutable, cannot change, and is a decentralized system.”
Blockchain provides a variety of advantages for regulators, Giroti said. The immutability of the transactions is very helpful. The transactions are also transparent, which is useful as well.
“The regulators have a lot to benefit from blockchain, but there is a lot of uncertainty around the regulatory environment on the part of utilities and others,” Giroti said. “Blockchain simplifies a lot of regulatory reporting.”
Blockchain systems can be structured as either public or private. The industry is developing sets of trust protocols for both private and public blockchain systems.
In public systems, Giroti said, cheating is difficult. “If you can solve a math puzzle, you can become the leader of the blockchain and verify transactions.”
Giroti said there are solutions to the problem of ensuring reliable management for public blockchain systems. However, he did not fully explain what they are.
Private systems use one of two approaches to establish who manages the blockchain. A leader with an established reputation can claim “proof of authority.” Alternatively, a leader with a certain percentage of “stake” in the deals can step up and operate the system.
EBC has developed a use case catalog that includes:
- Energy Trading
- Grid Management and Operations
- Customer Empowerment
- Distributed Energy and Electric Vehicles
- Emission Tracking
- Energy Data and Metering
- Regulatory Compliance
- Grid Security
AEE and EBC signed a Memorandum of Understanding on July 18 and are collaborating to explore how blockchain can benefit utility stakeholders.
Coordinating the Transition
There are a lot of complicating factors that need to be tackled to bring in all these actors, said Luke Scheidler, senior manager of new business innovation at Itron Idea Labs.
This is part of the larger transformation of the utility system that is taking place now, so stakeholders need to coordinate their efforts as part of that forward movement. Scheidler said he recommends the establishment of open data standards and interoperability protocols. He also supports the idea of coordinating transactions across different markets. For example, a carbon market could coordinate its transactions with a power market.
There is a tradeoff between customer equity and utility efficiency, Scheidler said. “There’s inefficient market signals across the grid relative to the cost to serve customers. There’s an equality issue across ratepayers that we need to maintain. Sending efficient market signals would have an effect on deploying the technologies where they’re needed, but there’s an equality question related to whether there’s been previous transmission and distribution investments in your area.”
In other words, utilities that phase in blockchain should be aware that customers in areas where there has been less transmission and distribution investment – which may be communities with fewer economic resources – will also want access to new technologies.
It’s important not to simply route these technologies toward communities where there is already extensive utility-system investment.
“What we are seeing at the moment is the early versions of blockchain,” Giroti said. “Blockchain is being used more internally to optimize operations and supply-chain management. Most of the people we have spoken with are looking to develop this project for internal use.”
Regulatory and legislative decisions are starting to move forward as well.
“Arizona opened a docket on blockchain in early July,” Giroti said. “I also spoke with Wyoming. Wyoming has [started] five legislative rulings about the use of blockchain.”
“The regulators are starting to look at this with greater fervor. There are things such as peer-to-peer training and more progressive applications of blockchain that are really exciting,” McMahon said. “There is such complexity - not just in terms of making sure market mechanisms are in place, but also in terms of the technology.”
Giroti said EBC hasn’t made regulatory recommendations yet.
“We’re still in the early stages of exploring and understanding the technology,” Giroti said. “Blockchain is just one example of a platform technology that is going to be using data.”
McMahon said he is currently working on a customer-trust proof of concept. Blockchain vendors reached out to utilities in New York for 12 to 18 months. This led to these utilities deciding to do some initial exploration. They are now going through a staged process of discovering potential applications.
At this time, utilities are taking their initial steps toward putting blockchain in place for some uses. Based on the level of enthusiasm surrounding this event, it looks as if blockchain is certainly catching power companies’ attention.