As the energy industry transitions to smart grid infrastructure and with the new market norms of decarbonisation, decentralisation, digitalisation and democratisation, blockchain technology has huge potential in advancing the shared infrastructure of the energy industry. In this interview, Paul Ellis, CEO of Electron, a UK startup building blockchain applications for the energy market, shares more on how blockchain technology is driving the energy transition and how its application can be scaled, ahead of him joining us as a speaker at the forthcoming TECHX Asia in Singapore this September.
- Can you share something about yourself with our readers?
I have a background in Investment Banking, specifically in fixed income and derivatives trading and structuring. After 13 years I decided to leave banking to set up a fintech development business which ultimately lead to building an electronic trading platform for the credit derivatives market. After selling that business and a short spell working for another e-trading platform I moved back into technology development using blockchain for the energy market.
- How do you see the energy sector evolving in the next 5-10 years?
The energy industry has been decarbonising for the last decade or so, and at a speed that no-one predicted (and indeed are still failing to predict ).
Many small-scale renewable assets were installed at the distribution level, and behind the meter. These, combined with the explosion of digital connected devices, smart devices and smart grids are creating an increasingly decentralised system; disrupting traditional power flows (and business models). We also see a shift in attitude towards energy: increasing numbers of companies and households are able and want to participate in the new energy market and are demanding their share of its value.
- What’s the potential of blockchain in supporting the energy transition? What problems can it –help to solve?
We see blockchain changing three significant aspects of the energy industry: it changes who can trade, what is traded, and how business is done. Taking these in turn:
Blockchain technology allows all members of a network to transact on an equal footing. Blockchain platforms can replace trust functions that were the traditionally the remit of large, expensive central intermediaries. Without these, a whole host of new players will be able to engage with markets, not least small companies, individuals and even machines (which will encourage the development of the P2P and M2M economies respectively). In energy this could be adopted via ‘community energy’ markets; where local generation is sold to neighbours; there could even be a scenario where electric vehicles engage in this market and buy renewable power at its cheapest and sell back to the network when there is a need for it.
Blockchain is the first native medium for transferring value digitally (without relying on central intermediaries). The nature of the blockchain means that records of ownership, transactions and assurance against double-spending is guaranteed. In energy, this will encourage the trading of data and drive engagement in the market by autonomous agents which will lead to more and deeper liquidity, tighter prices and better outcomes for all particpants.
Our increasingly digitised, AI-enhanced world, feeds off data and yet few mechanisms exist to compensate those generating it. Currently data generators, interacting individuals, IoT devices, smart meters etc. have little visibility or control over how their data is collected and used. In some instances (e.g. on trading platforms) they are even paying for it to be aggregated and sold back to them. Blockchain technology allows for network participants to retain control of their own data. This means that the individuals can choose whether to keep data private, share it, or monetise it.
Lastly, Blockchain creates economic alignment between multiple parties interacting for a shared purpose, and achieves this at the fraction of the cost of the alternatives: complex legal frameworks or separate entities paid to coordinate and provide guarantees. This means that the industry can undertake newer, better models of co-operation. De jure monopolies created to co-ordinate and share industry data are no longer necessary, now market participants can collaboratively maintain and co-operate to offer their own data platforms, thus removing a cost base, processing time, a barrier to innovation and a single point of failure or attack.
- As blockchain technology is at a nascent stage, how can its application be scaled and what are the barriers?
Most the objections usually fall into one the following categories: data privacy, latency, throughput, governance data storage, and energy inefficiency.
Without underestimating the technical challenges involved in technologies such as sharding and proof of stake these limitations are being address (data storage and energy inefficiency in those particular cases). Various alternatives also exist such as state channels that can dramatically boost throughput and secret data / zksnarks that can provide data privacy. I think we are well placed to deal with the technical barriers; but governance, particularly consortium chains transacting with (semi) trusted parties in the energy industry for example, still needs some thinking through.
- What advice do you have for utility companies which are looking to adopt blockchain technology in their systems?
I think firstly recognise that building blockchain platforms inside a single company is like building a railway line with only one station. The whole point is that they enable collaboration so, despite the natural desire to “own” it and create your own USP, recognise that this can only come off a platform that is developed collaboratively and shared. Hence first piece of advice is to seek out collaborations.
Secondly, the utility industry has many different use cases and many different players. Unlike financial services where pretty much everyone needs to engage in sending and receiving money, settling trades and storing securities; in the utility industry platforms can be much more player specific. For example the System Operator is not interested in registering supply points, whilst suppliers, of course, are. So the second piece of advice is don’t jump into some generic blockchain collaboration, instead look for a specific consortium that are looking to operate in areas and geographies that are likely to affect your business directly.
Paul Ellis will be joining us at this year’s TECHX Asia, taking place 6-7 September 2017 in Singapore. As Asia’s leading event on commercial applications of emerging technologies, TECHX will bring together leading minds, entrepreneurs and innovators across the entire spectrum of emerging technologies: IoT, drones, AI, 3D, robotics, data and blockchain.
Find out more and book your tickets here.