Exploring The Potential Of Blockchain In Energy Sector

How will Blockchain Benefit the Energy Industry?

Blockchain technology has the potential to transform the energy sector. The energy industry has been consistently catalyzed by innovations including rooftop solar, electric vehicles, and smart metering. Now, the Enterprise Ethereum blockchain presents itself as the next emerging technology to spur growth in the energy sector through its smart contracts and systems interoperability. Of the many use cases for blockchain, energy and sustainability are often less recognized. However, the World Economic Forum, Stanford Woods Institute for the Environment, and PwC released a joint report identifying more than 65 existing and emerging blockchain use-cases for the environment. These use cases include new business models for energy markets, real-time data management, and moving carbon credits or renewable energy certificates onto the blockchain.

Distributed ledger technology has the potential to improve efficiencies for utility providers by tracking the chain of custody for grid materials. Beyond provenance tracking, blockchain offers unique solutions for renewable energy distribution.

Legacy energy sectors, such as oil and gas also stand to benefit from the implementation of Enterprise Ethereum solutions. Complex systems with multiple actors have the opportunity to benefit from blockchain technology. For example, petroleum is one of the most traded commodities and requires a network of refiners, tankers, jobbers, governments, and regulatory bodies. The complex network of participants suffers from siloed infrastructures and numerous process inefficiencies. Large scale oil and gas conglomerates are seeking to invest in and implement blockchain technology because of its ability to lower costs and reduce harmful environmental impacts.

Oil and gas companies are particularly concerned about privacy and trade secrets. These private blockchain networks offer data permissioning and selective consortium access to pre-approved parties. Private and consortium blockchains provide an interim solution until public blockchains can implement the necessary privacy features businesses demand.

The main benefits of blockchain in the energy sector are:

  • Reduced costs
  • Environmental sustainability
  • Increased transparency for stakeholders while not compromising privacy

What are the Blockchain Use Cases in Energy?

ConsenSys Solutions works with a range of blockchain products that can be tailored to address various energy or sustainability applications, including the following:

How does blockchain impact wholesale electricity distribution?

Companies looking to implement blockchain technology into wholesale electricity distribution focus on connecting end-users with the grid. Blockchain technologies combined with IoT devices enables consumers to trade and purchase energy directly from the grid rather than from retailers.

Grid+ is a blockchain energy company focusing on wholesale energy distribution. The firm has identified retailers as the driving source of inefficiency in the consumer electricity market. Retailers own very little of the grid infrastructure. Instead, they only manage the kinds of services that blockchain technology can replace, such as  billing and metering usage.

Supplementing retailers with a blockchain-based platform has the potential to reduce consumer bills by around 40%. By connecting users directly to the grid, Ethereum allows users to buy energy from the grid at a cost they desire. The result is a more equitable and stable energy market with lower electricity costs.

How does blockchain impact peer-to-peer energy trading?

While wholesale energy distribution is a primary application for many companies, it’s not the focus of all energy firms. A Blockchain In Energy report by Wood Makenzie shows that 59% of blockchain energy projects are building peer-to-peer energy markets. A peer-to-peer energy market is a shared network of individuals who trade and buy excess energy from other participants. These energy markets benefit the masses because they reduce control from central authorities, such as wholesale entities.

Most firms are using enterprise versions of Ethereum. For example, the Energy Web Foundation utilizes Ethereum, Truffle developer tools, and Gnosis multi-signature wallets to build out their platform. As more and more countries reach energy parity  the cost of renewable energy becomes equal to or lower than traditional retail energy. Individuals who produce their own energy will have the ability to trade it with their neighbors and peers. The Australian-based company, Power Ledger, has connected communities to one another to create “microgrids.” Microgrids are a group of interconnected loads and distributed energy resources. Microgrids currently exist as a layer on top of the national grid; however, theoretically, they can be separate and self-sustaining. Many blockchain energy companies imagine a future with larger and entirely distributed peer-to-peer grids.

How does blockchain impact electricity data management?

Blockchain can provide consumers greater efficiency and control over their energy sources. Additionally, an immutable ledger provides secure and real-time updates of energy usage data. Various types of energy data include market prices, marginal costs, energy law compliance, and fuel prices. In April of 2018, the Chilean National Energy Commission (CNE) announced it had launched a blockchain project  focused on energy. The governmental department will use the Ethereum blockchain to record, store, and track energy data.

Data is often intentionally manipulated or unintentionally misreported and omitted. The financial costs of intentional corruption and accidental clerical errors can be detrimental to businesses and governments. In the spirit of transparency, the CNE will allow the public to access the records of transactions and prices. The transparency of public blockchains further reduces the chances for monetary or data exploitation.

How does blockchain impact commodity trading?

The gas & energy commodity trading industry is another realm of potential disruption through the use of blockchain technology. Companies have invested millions in building proprietary trading platforms tailored to the unique energy trading industry. Significant costs are required to maintain, update, and secure these systems. Commodities trading requires maintaining a massive ledger that records trades and commodity prices at specific moments in time. Applying blockchain technology to commodity trading would be cheaper and more efficient than existing proprietary systems. Immutability, security, and immediacy can all be programmed in the blockchain removing the slow adaptability of large scale proprietary systems.

How does blockchain impact utility providers?

Electric power providers are large and complex firms that generate energy from power plants, solar farms, and various energy sources. Utility providers don’t compete with one another in the same respect to financial services or the banking industry. These firms are more willing to share information and data, which presents a unique opportunity for blockchain’s shared ledger.

Greentech Media, a leading clean energy market analysis firm has identified three ways in which utility providers can benefit from distributed ledger technology. Enterprise Ethereum can process and validate data from many devices at the grid edge before securing the data onto the blockchain. Secondly, energy providers can utilize blockchain to create a system for transactions of data which is critical to distribution. Lastly, distributed ledger technology can be used to develop a system for transacting energy among a diverse set of actors.

How does blockchain impact the oil and gas industry?

The implementation of blockchain technology in oil and gas trading can lower costs associated with the maintenance of various trading systems. Furthermore, blockchain can also reduce costs associated with labor, data management, data visibility, settlement delays, and inter-system communication. BTL Group, an enterprise blockchain company, recently completed a pilot project with ENI, BP, and Wein Energie. The pilot demonstrated that the use of blockchain technology to facilitate and track gas trades reduced overall costs by 30-40%. The company plans to test the platform with other resources besides gas. Instead of building out a system for each commodity, Enterprise Ethereum enables fast integration of new commodities by re-programming the original smart contract.

The oil and gas industry is comprised of thousands of companies. These firms are roughly split into three categories : upstream, midstream, and downstream. The journey of one drop of resource can include hundreds of separate entities, companies, processes, and legal agreements.

How does blockchain impact the upstream oil and gas segment?

Upstream refers to the parts of the industry having to do with resource exploration and extraction. The upstream oil and gas segment is dominated by four key stakeholders: majors, NOCs(national oil companies), independents, and oilfield services. Majors are large, oil and gas companies that manage or own oilfield and well activity. Upstream requires the involvement of dozens of stakeholders, all of whom rely on the data provided by other firms. Blockchain technology optimizes for wide-scale, multi-party data coordination.

How does blockchain impact the midstream oil and gas segment?

Midstream refers to parts of the industry involved with storing and transporting resources once they are extracted. Midstream also includes the management of vast transportation networks and substantial regulation. The midstream oil and gas segment can benefit from disaster mitigation and infrastructure maintenance. The heavy regulation and asset intensity require oil and gas companies to focus on risk mitigation. Consequently, these firms can uniquely benefit from sharing information with others in the industry. Blockchain technology excels at providing multi-stakeholder information sharing, especially for asset tracking.

How does blockchain impact the downstream oil and gas segment?

Downstream refers to companies that refine resources into the multiple final products or sell products to end users (i.e., gas stations). Further, downstream includes the management of dozens of different products. These products are directed towards different customers, have different environmental regulations, and require various methods of transportation. Blockchain-enabled supply chains optimize wide-scale and multi-product coordination. The ability of a blockchain technology platform to record and track supply chains could stop an immense amount of waste.

Moreover, a platform that utilizes smart legal contracts can replace time, energy, and money currently required by all involved energy companies. An immutable ledger can help manage and track data that is necessary for all stages of oil and gas production. This would further save both time and money by ensuring nothing is misplaced or lost.