Blockchains and Energy: The Startup Space

As blockchains extend beyond financial transactions there has been a strong interest in the energy space- my research specialty, and the focus of my most recent paper on blockchains for securing decentralized energy markets.

Having watched other changes in the energy sector, I see two key drivers for this interest:

  • The introduction of smart meters and associated Green Button Connect directive, giving startups access to plentiful data
  • The introduction of internet-controllable dispatchable loads such as electric vehicles, smart thermostats, and smart photovoltaic inverts, which allow a (limited) degree of remote control of generation and load resources
  • Electricity resources are dispatched and consumed instantaneously, making them closer to financial assets than other storable commodities.
  • Electricity is a commodity traded in large markets, which look sort of like financial markets if you squint hard enough

Of these, the growing adoption of rooftop solar and electric vehicles are probably the most challenging drivers, as they upend conventional utility business models and have created excitement about alternative models for energy markets. Terms like “pro-sumer” (producer-consumer) and “transactive energy” are buzzwords that paved the way for discussions of blockchain-based energy systems.

However, there are also major challenges for adoption of blockchain-based solutions in this space:

  • Energy flows in obeyance to physical constraints. This means that generation must always match demand, you can’t direct power to flow to a specific customer, and transmitting power incurs resistive losses. See Jon Mather’s writeup here.
  • Energy delivery is invisible, and tracked by power meters- which might be hacked, spoofed, or broken. While you can check your doorstep to see if your Amazon package arrived or check your bank account to see if funds were transferred, you can’t directly measure whether a distant generator delivered on their promise.
  • Distribution and transmission relies on privately owned transmission infrastructure, access to which is controlled by utilities or transmission companies.
  • Power is an undifferentiated commodity which needs to be bought continually, instead of incrementally- ultimately, consumers just want to make sure that their lights turn on, not muck about in the details of how energy is supplied.

Despite these challenges, there are a number of power startups that have emerged and which are making progress in the space. The following incomplete list highlights a few projects which I think hold the most promise- what other startups would you add to the list?

Brooklyn Microgrid Project: The best-established American project on blockchain/energy, this project built a platform for renewable energy credit trading for a neighborhood microgrid in Brooklyn. The platform offers users a chance to ‘buy’ renewable solar energy from their neighbors- but without controlling the actual dispatch of energy, this amounts to really just trading in renewable energy credits, and it’s unclear whether users really care or feel benefit. The project was spearheaded by Lawrence Orsini at Lo3 Energy, with blockchain development done by Consensys. However, Consensys has since distanced itself from the project, and future expansion is unclear.

PowerLedger: An Australian startup offering peer-to-peer energy trading, with functions similar to the Brooklyn Microgrid Project but a strong emphasis on also financing community solar projects. With a recently completed initial coin offering that raised $17M AUD and a large venture-backed team, PowerLedger is in a promising position. Their whitepaper demonstrates their proficiency with the financial side of the business, reflecting their team’s expertise in banking. While it outlines a laundry list of devices that might be controllable over their system, it doesn’t fill in the details of how they will interface with other energy retailers, distribution companies, transmission companies, or manage physical network constraints. They’re off to a great start with their initial community-supported solar deployments: I’m curious to see how future expansion will be handled.

Grid Singularity: An Austrian startup that’s garnered VC investment and made a grand debut at the 2017 Event Horizon conference, Grid Singularity has a founding team that’s promising for its mix of expertise in both blockchains and in power systems. The core concept is an energy market that can clear at different scales (transmission, distribution, neighbohood level) by using multiple blockchains with inter-chain transactions triggered by a system similar to polkadot. This recursive, tree-like structure can help avoid scalability issues, but without a clear method of tying this to actual device dispatch and managing network constraints, this may just be blue-sky thinking. It seems likely that the ultimate direction of Grid Singularity will be dictated by the Energy Web Foundation.

The Energy Web Foundation: Founded as a nonprofit partnership between Grid Singularity and the Rocky Mountain Institute, EWF has a start-studded board and deep pockets, with 10 utilities who have ponied up $250k each for membership. Modeled off other consortium projects hubbed out of RMI, the EWF will conduct research into solving its members top blockchain/energy challenges. Initial research priorities include renewable energy credit trading, back-office operations (e.g. billing and reconciliation), and demand response automation.

Grid+: A project being spun out of Consensys, Grid+ plans to create a Retail Electric Provider (REP) in Texas, using in-home energy gateway nodes which purchase power over an Ethereum blockchain. By requiring pre-payments Grid+ hopes to reduce credit risk costs, and by handling all ordering and accounting on smart contracts they hope to reduce back-office costs: in net they forecast a 40% reduction in overhead costs relative to other energy retailers, and hope that their low rates will entice customers to their platform. As this is a private whitelisted blockchain it is unclear why this approach is better than a centralized server, why in-home hardware is required, and whether the development costs for the hardware and software will outweigh the potential savings. The retail energy provider space is also viciously competitive, with thin margins and a commodity product.

Share & Charge: This electric vehicle charging network spun out of Innogy (formerly RWE) highlights some of the challenges of a blockchain-based energy network. Originally conceived as “Blockcharge“, this peer-to-peer charging network secured with blockchains has since rebranded and buried all references to blockchains in favor of a simpler, cleaner message for consumers (get paid for sharing your charging station). Ultimately, customers want electricity, not blockchains- and where blockchains get in the way of delivering value, they won’t be used.

SolarCoin: A cryptocurrency intended to fund RECs but since unbundled to become another proof-of-work cryptocurrency

NRGCoin: Originally an academic research project funded by the EU, this REC system may remain in the lab, or may grow to be more like Powerledger

Utility-specific projects: Many of the major utilities are funding internal investigations (or even external competitions) to source potential blockchain use cases. Much of this is driven out of corporate strategy departments, has not yet been given dedicated budget, and is defensive to get ahead of potential disruptions to utilities’ conventional business models.

Despite this flurry of activity, most of these projects don’t build on the key factors which differentiate blockchains from centralized databases, rely on a permissioned network with access controlled by a central entity, could be accomplished as easily with a centralized database, and don’t address the key challenges I list above which are inherent to the energy space.  As such, these could be characterized as “blockchain for blockchain’s sake.” In conversation, the principals at these projects make that decision consciously: they hope to gain experience and brand identity in the industry to be well-positioned when a killer blockchain application emerges. In the meantime, I’ll be watching their growth.

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