(Bloomberg) Bitcoin technology is starting to seep into the electricity business, shaking up the way payments are managed every time a light switch is flipped.
From New York to Vienna, researchers and utilities are adapting the cloud-based ledger system used to track bitcoins as a replacement for slower administrative systems that require constant human input and multiple spreadsheets. Once set up, the database, called blockchain, automatically records individual actions within a system, formats them, and stores the results in a secure online listing available to anyone anywhere with access.
The need for such speed? Utilities are shifting away from a century-old arrangement where they monopolized both supply and distribution. Now, independent wind- and solar-farms are feeding into power grids in short, sometimes unpredictable intervals that require transaction systems to be more nimble and decentralized. Utilities including RWE AG in Germany and Fortum OYJ in Finland are looking to blockchain technologies to do just that.
“There’s a change in the business model on the way, and they’re trying to figure out how to participate in this new world of distributed energy,” said Lawrence Orsini, the founder of New York-based blockchain developer LO3 Energy.
Orsini said his company has been approached by 26 utilities to consult on how they could modify the way they make transactions. In addition to coping with increased volumes of renewable power, utilities want to track the use of new products from rooftop solar panels to electric-car charging.
Blockchain has already secured a beachhead in industries ranging from finance and insurance to car leasing and music streaming. It’s turned into a craze on Wall Street, with firms such as JPMorgan Chase & Co., Barclays Plc and Wells Fargo & Co. researching how to use it for trading. Energy is next on the horizon.
“I see it as complimentary to renewables,” said Michael Liebreich, chairman of Bloomberg New Energy Finance. “The old system of a few big power plants and vertically-integrated utilities didn’t really need blockchain.”
In Germany, RWE has been testing blockchain for electric-vehicle charging and on a platform where consumers can trade green energy independently of utilities.
“Our hypothesis is there will be a machine-to-machine economy in which machines carry out transactions among themselves,” said Carsten Stoecker, who heads blockchain research at RWE’s innovation hub. “Decentralized internet technologies like blockchain will become the transaction layer for this.”
Creating the space where those transactions can occur is bringing together a wide range of workers with expertise in energy, finance and information technology.
“It can be described as the exchange of goods versus money in real time,” said Juliane Schulze, who oversees business development at Vattenfall AB, the Nordic region’s biggest utility. “We have many of these transactions with our customers and internally in our company. Theoretically, these could all be put on a blockchain.”
The Vienna-based startup Grid Singularity is working on a decentralized digital platform allowing people buy and sell energy. It expects to test its blockchain with power plants by year end, said Tobias Federico, its market design leader.
“A parallel market will develop and this energy market based on blockchain will have to establish its credibility slowly,” Federico said. “Then we’ll gradually make a transfer from the old to the new world.”
Some utilities are already preparing blockchain trials. Vattenfall plans to test it on its Powerpeers online platform, a website that lets customers buy and sell electricity without going through the utility, said Claus Wattendrup, general manager of Vattenfall Europe Innovation GmbH.
Fortum is also planning a pilot in the next year that may allow tests in so-called connected homes, where consumers manage appliances through internet connections.
“Blockchain might make it easier to have demand response of small loads, and it would be easier to fit more renewables such as wind and solar to the energy system,” Fortum Chief Technology Officer Heli Antila said.
The technology will need to prove itself in pilot projects within the next two years while its main areas of application will evolve, said Axel von Perfall, senior manager at PricewaterhouseCoopers AG. He expects that electricity consumers will save money from the direct contact with producers while many intermediaries like energy traders and sales companies will we be needed less or not at all.
“Blockchain doesn’t mean the end for utilities, but their role will change,” von Perfall said. “They have the chance to develop and operate the centralized platforms of the energy market of the future.”
LO3 Energy’s Orsini is weighing projects with utilities from Europe, the U.S., Australia and Africa. He sees vast potential.
“Energy is the largest use for blockchain on the planet, larger than financial services by several factors,” Orsini said. “The world runs on energy. It doesn’t run on money.”