Demystifying Blockchain, the Elephant in the Room

Vincent Manier, Chief Financial Officer at ENGIE Insight

Last week, I attended the Greentech “Blockchain in Energy Forum 2018” in New York City. Prior to the conference, I considered blockchain to be the ‘elephant in the room,’ a topic finance and energy professionals have been dancing around, or considering to be a far-out finance fantasy versus a tangible business model with near-term opportunities. I was interested to see how this group of utilities, industry experts, start-ups and cleantech enthusiasts would approach this ‘buzz’ topic and start talking about real applications. The forum spent two days diving deep into the promising pilots, challenges, and exciting opportunities of this disruptive technology. I left New York enthusiastic and armed with three main takeaways.

1. Blockchain in energy is nascent but worth investing today to reap the benefits long term.

Like the Internet of the early 90s, blockchain is one of the most exciting and promising technologies of which we probably overestimate the short-term benefits but underestimate the fundamental impacts for the future. In fact, most of the initiatives are at the experimentation level, trying to solve various challenges. Key questions are arising through these early stage pilots, such as:

  • What is the most effective governance model of a blockchain network without a central authority?
  • How will regulators and utilities engage with each other to enable an electricity consumer to also be a producer?
  • How will blockchain business models overcome data security concerns?
  • How will blockchain networks manage interoperability and scalability issues during the implementation process?

These challenges can sound very daunting; however, I believe this innovative model will inevitably accelerate faster than what we are anticipating. The continued development of renewable energy sources and storage capacity, decentralized and disintermediated energy models (like community solar or microgrid experimentation) associated with the digitization of the energy infrastructures (smart metering, IoT devices) will support blockchain-enabled business models in the coming years.

2. The technology is fascinating, but the focus must be on delivering business value.

During the demo of a blockchain use case at Alectra Utilities, Vikram Singh shared his experience engaging with executives around blockchain. He advised them not to mention blockchain at all! This funny reminder reflects the sentiment of most conference presenters: the focus must be on the clients, business value proposition and business model innovations, not the technology itself. As Tony Seba demonstrates in his book “Clean Disruption of Energy & Transportation,” the solar industry has been expanding so rapidly because of business model innovations, like new financing project structuring or solar PPAs. These innovations—married with the technology advancement—enables clear high value to all stakeholders.In her latest GTM Research report, Colleen Metelitsa identified 18 use cases driving blockchain in energy adoption, categorized in four main areas: transactive energy (like peer-to-peer trading), accounting (like asset registry), asset tokenization and cybersecurity. In most cases, Blockchain will streamline processes in these areas, generating immediate operational efficiencies, but also enable multiple stakeholders to trade via new disintermediated models promoting transparency, security, traceability, real-time market participation and value exchanges through tokens. All these business models are promising but will have to demonstrate their intrinsic value in the coming years. Without this value clearly articulated, the blockchain technology itself is irrelevant.

3. The blockchain in energy community is growing and dynamic.

Utilities are generally perceived as a slow-moving industry; however, their early-adopter investments and partnerships into blockchain experiments are proving just the opposite. Oil and gas majors, domestic and international utilities and cleantech investors are supporting blockchain start-ups (like Electron, Omega, LO3 Energy or Leap) or wider-consortium. For example, Jesse Morris enthusiastically described the Energy Web Foundation initiative, where 37 companies actively participate to design an open-source and public energy blockchain platform. To date, 40 blockchain in energy projects have been identified globally with $324 million in investment raised to-date, mainly in transactive energy and under ICO (Initial Coin Offering). I have no doubt that this trend will solidify and accelerate in the coming years.

It may take many years before the full value of blockchain applications comes to fruition for the energy industry, but I expect a strong acceleration of real-world applications to materialize as soon as this year. Now is time to get involved. Moving beyond the hype of bitcoin or ICOs, we must demystify the technology behind cryptocurrencies, removing the “elephant in the room” and accelerating the full potential of these new disruptive business models.

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