Blockchain technology has the potential to produce new innovations in the energy industry, such as peer-to-peer electricity trading. However, at this stage it is unclear if the technology will be implemented widely enough to disrupt the energy industry. Despite investors backing blockchain tech, the question remains: when will we see scalable, commercial blockchain solutions that can deliver real value in the energy industry?
In the energy sector we are seeing the development of blockchain picking up pace once again, with proof-of-concepts being deployed successfully in sandboxes around the world. Two years ago, there were only a handful of start-ups in the energy business utilising blockchain technology for peer-to-peer electricity trading.
Today, there are more than 100 active companies worldwide. In fact, in the last two years, companies using blockchain have mobilised investment capital of more than $1.5bn, particularly in Europe, Asia, Australia and the US.
So far, the main industries to find applications include energy, mobility and the Internet of Things. Some of the most promising use-cases are initiatives such as creating trustworthy certificates of origin, green mining and renewable project financing. Unfortunately, the success of these use-cases has meant investments have been diverted away from areas of industry that energy desperately needs to develop, such as further research into smart homes, improving energy efficiency and the idea of trading electricity wholesale.
While we are seeing promising advances in blockchain usage, there is still discord between levels of funding and signs of commercial maturity. Most use-cases are struggling to advance from their proof-of-concept stage, to testing in the field outside a sandbox environment. Use-cases around wholesale trading and digitisation of energy data are currently the most commercial, but peer-to-peer use-cases are receiving the most funding and attention in the energy market.
Start-ups, corporations and investors are all facing different scaling challenges when developing their blockchain products. To accelerate development, there is scope for energy companies to actively encourage organisations to consider the commercial potential for blockchain and ask them to invest accordingly. Start-ups also need to be more focused on further technical challenges, like scaling public blockchain, as well as on issues surrounding governance, regulation and the energy market. Investors are less sceptical than they were two years ago, but they still see the midterm commercial scale as being one to two years away. Despite the flurry of activity, most blockchain applications are maturing at a slower pace than investors would like. The hype around blockchain has subsided, so there is now more pressure on start-ups and innovators to demonstrate the value of their project.
While we are seeing promising advances in blockchain usage, there is still discord between levels of funding and signs of commercial maturity
Development and growth
The blockchain space lacks significant industry research or regulation, more of which would help new start-ups to establish market strategies, assess the advantages of their chosen business model and facilitate more accurate forecasts for potential revenue. The Energy Web Foundation (EWF), the largest blockchain non-profit in the energy industry, provides technical support for energy companies looking to integrate blockchain into their business model. The EWF has been attracting affiliates (more than 100 start-ups, incumbents and multi-national players) from all over the globe, establishing a hotbed for cutting-edge business use-cases of blockchain in the energy sector.
In addition, the EU founded the International Association of Trusted Blockchain Applications (INATBA) in April 2019. Open source platforms and international associations like the INATBA could aid the advancement of blockchain and allay investors’ fears.
The EWF chain’s test network, Tobalaba, will update to version two this year and transition from its test phase. The updated EWF web chain is expected to provide a scalable, low-cost, enterprise-grade platform that energy companies and start-ups alike can use to develop decentralised applications for commercial blockchain-based apps.
Blockchain technology is still far from being commercially viable in the energy industry. Although companies are now looking to develop use-cases for blockchain, the applications are yet to reach maturity and produce a significant return on companies’ resources and time. Increased regulation and research will aid new start-ups to develop scalable solutions and build upon the experience of other companies. As it stands, it will be a few years before we see the technology’s real impact on the energy industry.