Blockchain in Energy & Mobility: A report from the scale-up frontlines
Last month, we held our second executive summit on blockchain in New York. Like last year, leading corporate executives gathered to meet some of the most promising innovators in the space. But the state of play has changed radically over the year, and so has the mood. Last November was full of hype, in the middle of the peak ICO wave. 2018 had a crisp “rubber hits the road” flavor. This was echoed in the rich content planned for the day – our focus was on the scale-up challenges that blockchain innovation is facing in energy and mobility, and on the projects that are getting close to commercial viability. If you missed it, here is a review of some of the day’s learnings.
Scaling up blockchain means trading off decentralization – for now
We started the day with an update on the technical scalability of blockchains, given by Catherine Woneis of California-based startup Cryptowerk. According to Catherine, blockchains are by nature not scalable, as the technology was built on the premise of distrust between parties. Each transaction must be processed independently by every node in the network, and every transaction signature must be verified. It requires “consensus” to validate an entry. This is the case for public blockchains like Bitcoin or Ethereum, which can respectively process 7 and 15 transactions per second, far below the needs of the energy sector. Catherine thinks blockchain developers are still facing a “trilemma” of opposing blockchain characteristics:
Each blockchain technology is a trade-off between these three characteristics. For instance, permissioned blockchains are very scalable, but compromise on security and decentralization. There are ways to try to scale up public blockchains, like increasing block size or using fewer nodes, but they also reduce decentralization and/or security. More advanced techniques like sharding could represent a breakthrough but are tricky to implement.
Energy certificates on track to be the first use case to scale up in our space
Throughout the day, as we touched on various use cases and scale-up challenges, it became clear that one use case was leading the pack in terms of progress and scale: certifying the origin of energy products. Using blockchain for certification of origin means less transaction costs and less need for third-party certifiers. It also increases the transparency and security of the exchange systems. We heard of a few such projects:
Xpansiv is a platform enabling markets to differentiate commodities (like crude oil, palm oil, steel or soybeans) based on environmental impacts. Xpansiv’s platform transforms primary production information into Digital Feedstock™, a standardized format that combines data science, cryptography, and distributed-ledger technologies to productize the environmental attributes of commodities. Its first product is certified “responsible” natural gas, produced with minimal fugitive methane emissions, and based on real-time well monitoring data. It has partnered with CBL Markets, a commodities spot exchange, to allow utilities to differentiate and choose the gas they buy on environmental criteria.
Energy Web Foundation’s first live use case is called EW Origin, and also focuses on certificates of origin. Doug Miller of EWF refers to it as a portfolio of toolkits for renewable energy markets that helps market participants better track, trade, and report renewable energy production and consumption. EW Origin is currently being tested and configured for PJM, the US-based power grid operator and wholesale market administrator, for the Generation Attribute Tracking System (GATS) it administers.
SP Group, the Singaporean transmission and distribution utility, has also developed its blockchain-based trading platform for renewable energy certificates (RECs). To build this exchange, SP Group is leveraging some of EWF’s infrastructure and toolkits, which means global REC buyers will be able to purchase Singaporean RECs, opening global markets to local renewable energy producers and increasing the incentives to produce green energy.
Mobility applications are not ready to scale, but will become more valuable as vehicle autonomy grows
A novelty of this year’s event was its partial focus on mobility-related use cases. In the last couple of years, automakers and blockchain companies have been exploring ways to apply distributed ledger technology to the mobility space. This is driven by the increasingly complex data and transactions that vehicles must handle in a connected and autonomous context. The related panel session confirmed some findings of the research we have conducted in the field.
Blockchain technology is a possible enabler of vehicle autonomy. It can handle microtransactions efficiently, execute smart contracts between machines, help autonomous vehicles transact with their environments and become decision agents. However, getting there takes a few steps. Blockchain needs to be able to handle existing transactions (like tolls, parking and EV charging), and autonomous vehicles need to mature to be able to request those transactions.
While current pilots focus on identifying parts provenance and building vehicle ID ledgers, the value of using blockchain in mobility will grow as vehicles become more autonomous, and as usage-based models continue to emerge.
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