Blockchain probably isn’t the answer, but it prompts compelling questions

Is blockchain “a solution in search of a problem”?

I recently took a day trip to New York City to attend GTM’s Blockchain in Energy Forum 2018. Obviously, the question above wasn’t the premise of the event — as the smart folks at GTM are clearly intrigued by the potential of the technology in the electric power space — but it was a sentiment expressed by some of the utility representatives and investors on the stage. It was also one of the questions uppermost in my mind as I stepped off the train at Penn Station, and as I discovered, on the minds of most of the other attendees as well.

By the time I headed back to Washington, D.C., at the end of the day, my understanding of the potential of blockchain — and appreciation for the technology’s potential use cases — had broadened. But so had my skepticism in the face of a lot of hype and even greater uncertainty.

What are the potential use cases?

A rising tide of voices make the claim that “blockchain could change everything.” Others make compelling cases that the applications are much narrower. In New York, I gathered four potential blockchain applications that might be compelling for the electric power sector.

1. Managing Transactions with Multiple Attributes and Multiple Parties. Power generation facilities produce more than energy; they can provide tangible benefits such as ancillary services, including voltage and frequency support, ramping and inertia. They can also provide more abstract benefits — renewable energy credits (RECs), capacity commitments and risk management value. Monetizing the full value of all these benefits through traditional contracting and market mechanisms can be cumbersome and, in practice, maybe even impossible.

For example a single photovoltaic solar installation with an advanced inverter can simultaneously deliver energy, voltage support, RECs and financial hedges, each of which may have separate values at the same point in time for a residential consumer, grid operator, eco-aware business or an industrial consumer. By allowing these different parties to securely and easily participate in a single transaction, a blockchain-enabled market might allow for more optimal price formation, with the maximum value for attribute being realized.

2. Nearly Instantaneous Financial Settlement for New Energy Resources Across Multiple Meters. This might be useful for consumers managing multiple loads within a system. For example, a business with storefronts, warehouses and a fleet of electric vehicles might want to to optimize its electricity use across its various loads for maximum value at minimum cost on a system-wide basis. Keeping a holistic view of this cost-benefit balance could be difficult, risking sub-optimization occurring at individual loads, while missing opportunities for one load to deliver demand response to offset another load’s spike in usage due to a compelling business purpose. Such optimization might, perhaps, be impossible without some sort of system to track, dispatch and signal each load’s needs and capacity.

3. Alternative Solution to Upgrading Utility Billing Systems. This application was perhaps the most compelling case that came out of the conference, with options ranging from utility payments for smart thermostat control to community solar subscriptions. The reality is that utilities’ billing systems are expensive to upgrade. A utility-managed, blockchain-based system may well be much cheaper to develop, roll out, interface with and upgrade.

Vikram Singh from Alectra Utilities made this point during a demonstration of a demand response gamification pilot the utility is working on. The pilot allows consumers to dispatch their demand response resources a day ahead or in real-time to meet utility needs — like generators on the bulk power system do in wholesale power markets — in exchange for rewards points redeemable at local businesses. Incorporating the settlement of these transactions would be cost-prohibitive using most utilities’ legacy accounting and billing systems, and would disconnect the consumers’ actions from the instantaneous rewards necessary for effective gamification. The blockchain-based pilot is much cheaper and delivers a superior consumer experience.

4. Alternative Platform for Distributed Energy Resource Management Systems. This use case is a bit trickier. With current technology, blockchains can take minutes, sometimes even hours, to settle a transaction. But, with electricity moving over the grid at the speed of light, such time frames are too long for physical dispatch. One might imagine instead a hybrid architecture, with a series of blockchain layers to solve the interoperability, flexibility and modification challenges of distributed energy resource management systems (DERMS).

Right now, I’m unaware of any DERMS providers offering or developing blockchain (or other distributed ledger) DERMS. But it is something to track both at the distributed and wholesale levels as blockchain and DERMS technologies mature, and faster communications (such as 5G) are rolled out.

So what is the problem that blockchain might solve?

Given the relative maturity of blockchain and its multiple potential applications, it is difficult to answer this question succinctly. Generally, the technology seems to have the most potential in the Integration of and compensation for energy products and services.

At the wholesale level, solutions for these uses are well established, though blockchain might be applied to make those systems more efficient.

At the distribution level, products to enable optimal dispatch of energy resources are much less mature, so it may be more valuable for blockchain – or some other distributed ledger technology – to be applied. But it remains unclear whether the value and costs of a distributed ledger technology would be superior to a centralized, or even autonomous systems — with or without the capability for transactional compensation.

And what’s up with all the hype?

Much, if not all, of the hype about blockchain, seems to center around the idea that a distributed ledger system would allow consumers to bypass the utility, minimizing the role of the regulated monopoly to deploying, owning and operating basic infrastructure — the “poles and wires.” But, we depend on so much more from our utilities — even in restructured markets with retail competition, the list includes risk management, planning for resource adequacy, consumer education and engagement, reliability and environmental compliance. I have been, and remain, skeptical that the potential benefits of consumer empowerment and disintermediation outweigh the benefits a having a central entity accountable for the power system.

The truly revolutionary thinking we should be discussing isn’t focused on blockchain itself, but instead on two critical related, bigger-picture questions. First, what should the role of the utility be, and second, how might evolving technologies be applied to grid modernization investments, through a conversation about grid architecture, including the concept of transactive energy.

Despite my belief that the hype is misplaced, I am open to the idea that blockchain might add value to the electricity sector. For those interested in or committed to applying the technology in the power sector, it would be wise to follow advice from Cassie Bowe of the venture capital firm Energy Impact Partners: “Lead with the problem being solved, not the technology.”

Or in the words of Vikram Singh — “The first rule of blockchain is don’t talk about blockchain.”

Please tell Tanuj how and why he gets it wrong via email ([email protected]) or twitter (@tanujdeora) or best of all at the Transactive Energy Systems Conference June 12-14 at the Massachusetts Institute of Technology. SEPA is partnering with the Gridwise Architecture Council and the Pacific Northwest National Lab to bring together experts on grid architecture and transactive energy. You can still submit abstracts.

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