BLOCKCHAIN

A POWER AND UTILITIES

PERSPECTIVE

Page 1
 What is blockchain?
CONTENT 1
What does blockchain mean for Power and Utilities?
2
The use cases in the market today
3
The current vendor landscape
4
Appendix
5

Page 2
 WHAT IS

BLOCKCHAIN?

Page 3
 THE BLOCKCHAIN IS A
NETWORK AND A DATABASE TRANSACTIONS ARE STORED IN VIRTUAL BLOCKS,
WHICH ARE CONNECTED TOGETHER IN A CHAIN, CREATING
A COMPLETE HISTORY OF ALL TRANSACTIONS THAT HAVE
EVER OCCURRED WITHIN A PARTICULAR NETWORK

Distributed Smart Time-stamped Consensus Secure and

ledger contract & permanent validation encrypted

Back-end database that Embedding trust rules Time-stamping, Resistance to single Self-execution of
maintains a shared, inside transactions and rights and ownership point of failure of business logic with
distributed ledger interactions proofs censorship self-enforcement

Peer
Trust vs. Smart
to peer Immutable Traceable
no Trust wallet
network

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THE NETWORK BECOMES DISTRIBUTED AND ACTS
LIKE A HIGHLY SECURE “INTRA” OR “INTER” NET

Centralized Decentralized Distributed ledgers

Public blockchains Private blockchains

► Users are anonymous ► Users are not

Distributed ledgers can be public or private ► Each user has a copy anonymous
and vary in their structure and size of the ledger and parti- ► Permission is required
cipates in confirming for users to have a copy
transactions indepen- of the ledge and parti-
dently cipate in confirming
transactions

Page 5
 THE CORE CONSTITUENTS REMAIN
In traditional In blockchain
FAMILIAR BUT THE INSTITUTIONAL Purpose networks networks
ROLE IN TRANSACTION PROCESSING
BECOMES REDUNDANT ► Node or user ► In principle remains the same though
– the trigger IoT likely to increase and diversify
1 Front end of the transaction the number of machine nodes
Traditional Blockchain

1 1 ► Technical ► Through central ► Peer-to-peer

connectivity infrastructure
2 Messaging with the ledger
2 (database)
2

3
► Own and ► Centrally with ► Redundant
Blockchain network
administer cost added as transaction
2 3 Institution
5 4 the transaction to transaction owner
price
Central infrastructure

4 5
► Execution of ► Centrally ► Distributed
agreed actions ► Batch or per (at device)
2 4 5 4 Processing transaction ► Pre -programmed

3
2 ► Auditable ► Central ► Multiparty
2 repository ► Closed (one ► Decentralised
5 Ledger or database trusted party) ► Highest
1 1 encryption

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 AS A CONSEQUENCE BLOCKCHAIN HAS
THE POTENTIAL TO COMPLETELY CHANGE
THE WAY WE THINK ABOUT VALUE, SOCIAL
INSTITUTIONS AND TRUST
For people seeking social change, blockchain has become more than
a technology but rather a strategy to radically redesign the institutions
and services we take for granted

1 1 2 3

Two strangers engage They must implicitly … to which they

Transaction in a transaction trust the central exchange value
intermediary … (transaction fee)
Trust 3 2 Trust endorsed by regulation and privacy
or the state

Economists describe this activity as value destructive

Central intermediary This technology holds huge potential to disrupt any industry, creating
“the middle man”
a world where people get to participate in the value that they create

1 In the blockchain transactions take place in public eliminating the need

for the guarantor of the transaction.

Transaction Intermediaries that provide services validating and proving transactions

including like lawyers, brokers, and bankers might no longer be necessary.
2 2
Needless to say that enforcement and validation of the underlying asset
Trust Trust is not automatically addressed by the blockchain.
Blockchain

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 …but:

Blockchains do not magically make the data in

them accurate or the people entering the data
trustworthy, they merely enable you to audit
whether it has been tampered with.

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WE HAVE OUTLINED SOME OF THE
HURDLES THAT NEED TO BE Can the applications be made that match
ADDRESSED BEFORE BLOCKCHAIN the inherent security of the blockchain
CAN BECOME ESTABLISHED ► Evolving applications remain immature
and untested
Security ► While encryption keeps all details from everyone,
it is probably possible to deduce more information
about operations than parties can today

Public ledgers are already Regulation is written for

“saturated” with new use Scalability Regulation managing incumbent operators
cases dependent on Blockchain – will it hold back the new
exponentially higher volumes architecture?
challenges
► Slow transactions because of the ► A considerable number of aspects
computational “cost” brings the of law will need to be reinterpreted or
scalability concern that blockchain changed through primary legislation
will not be able to meet demand ► GDPR will impact the way data can be
used

Standardi- Business
zation case
With multiple emerging variants What is the use-case that is
investment will inevitably be held powerful enough to overcome
back – the industry needs a winner the legacy hurdle?
► There are a number of technologies ► Challenges of legacy infrastructure
under the banner of blockchain. ► Challenges of technical understanding
Until one pulls ahead, investment
will hold back

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 KEY FEATURES OF

BLOCKCHAIN
AS IT STANDS?

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 AUTHENTICATION THROUGH THE HASH
FUNCTION AND PUBLIC-KEY CRYPTOGRAPHY
– WHY THE DATA IS SECURE

Hash function Cryptography Process

A hash function takes an input Private key
and produces a fixed-length output 1 Authenti-
Public key
► Ensures that if the information
Message
Digital signature
cation
is changed, an entirely different Message Private key

output value is produced The message/transaction is encrypted

Hash with the private key and then hashed,
► Practically impossible to invert
Hash resulting in a digital signature.
101001
Digest
101001
Public-key cryptography
2 Traceability
Cryptography is a way to secure information by
encrypting it into an unreadable format. Only the Message
Transmission
person with access to a secret key can decrypt the or transaction
The signer sends the message/transaction request
text into a readable format.
and the digital signature to the receiver.
Public-key cryptography is a form of cryptography
where there are two keys called a private key
and a public key. 3
101001 Security
Signature verification
Digital
Private key The data encrypted with the private
signature
Private key key can only be decrypted with the
► The private key ► The public key is deri-
is individual ved from the private key Public key corresponding public key:
► It should be kept ► It is broadcast to all ► The receiver also computes another
Hash
secret at all times recipients string using the digital signature
► It is not possible to derive and the signer’s public key
the private key from the ► If this string and the hash match,

public key
0 1
the digital signature is verified

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 SMART CONTRACTS –
WHY DISTRIBUTED TRANSACTIONS The advantage of blockchain-based contracts is that they reduce the amount of human
involvement required to create, execute and enforce a contract, thereby lowering its cost
ARE ENABLED
while raising the assurance of execution and enforcement processes. By automating
a transaction in a fully verifiable framework (the blockchain) the transactions can have
legal validity even at high frequency – a key enabler for network balancing

Traditional contracts Smart contracts

What? How?
1 – 3 Days Minutes

Business Code-based,
Automatic
rules or terms stored in the Manual remittance
of agreement blockchain
remittance
form the Smart Contracts and self-
transaction are bits of executable executed Escrow may not
code that act only if specific Escrow necessary
be necessary
conditions within the
blockchain are met
Fraction of
Expensive
the cost
Advan- Challen-
tages ges
Physical presence Virtual presence
(wet signature) (digital signature)
Guaranteed Scalability in speed
future execution. of execution Interoper- Lawyers may
Verifiable, signed ability with legacy Lawyers necessary
not be necessary
and encrypted systems

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 WHAT DOES

BLOCKCHAIN
MEAN FOR P&U?

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 A DIFFERENT GENERATION MIX AND
TECHNOLOGY WILL HAVE IMPLICATIONS
FOR THE FUTURE OF OUR UTILITIES
Regulatory encouragement
Transition to clean energy
of renewables and
market reform
To be successful the industry will need to resolve some fundamental issues
Complex
transactions
► As the number of participants
increases so does the level
of transaction complexity
► Significant increase in
the transactions volume
Predictability
& Reliability
► Renewables are less
predictable than traditional
grid power sources
► The grid is very sensitive
to even small imbalances
in supply & demand
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Digitalisation
future
Standards and
interoperability
► Seamless interaction between
central and distributed
resources will require open
standards and interoperability
Geographic
Mismatches
► Ideal locations for solar
and wind farms are often
far from key demand centres
► Long distance power transmission
has a high loss rate
Energy usage and demand Changing consumer
of the grid transformation behaviour and expectations
Autonomous response Empowered
to market signals Prosumer
► Real time monitoring of network ► Flexible monitoring and control
performance, and continuous systems to accommodate
assessment of supply and different degrees of customer
demand based on price signals engagement according to
individual preferences
Time
Mismatches Trust/Security
► Balancing the supply mix on a ► Significant increase in the
real time basis is essential to number of new entrants makes
maximise the energy output and security and trust a critical
cost effectiveness of the whole requirement in the system
system
 TO DATE THESE ISSUES HAVE RESOLVED
INTO A SMALL NUMBER OF
(OFTEN INTER-RELATED) USE CASES

Countrywide charging and payments Peer to Peer trading, Market to peer

EV charging optimization away from the meter Facilitate direct consumer trading with the market based
on demand/supply balancing
Hurdles addressed by blockchain
Hurdles addressed by blockchain
► Empowered Prosumer ► Standards and
► Autonomous response interoperability ► Empowered Prosumer ► Trust/Security
► Trust/Security ► Autonomous response

Distribution system mgmt. Peer to market

Establish infrastructure and capabilities to manage meter Facilitate prosumer access to the
points and balance supply/demand market for excess capacity
Hurdles addressed by blockchain Hurdles addressed by blockchain
► Complex transactions ► Time Mismatches ► Empowered Prosumer ► Trust/Security
► Geographic Mismatches ► Autonomous response

Asset and commodity mgmt. Energy optimization (behind the meter)

Establish effective real time asset and commodity Facilitate consumption monitoring, control
management and supply chain tracking and optimization in the home
Hurdles addressed by blockchain Hurdles addressed by blockchain
► Trust/Security ► Geographic Mismatches ► Time Mismatches
► Complex transactions
► Standards and interoperability

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 …WITH THE KEY DETERMINANT
OF SUCCESS CURRENTLY THE
COMPLEXITY OF THE TRANSACTION

Maturity timeline

Low complexity
Wholesale trading

Settlement in wholesale trade

Real

Grid management on base

of wholesale trade data

Local isolated microgrids

Large scale EV mobile charging
and sharing platform

High complexity
Large scale micro grid/smart grid
mgmt./IoT/grid service automation
Hype

Large scale peer2peer

trade/prosumer

2 – 5 years 5 – 10 years >10 years

Complexity of transaction and counterparty arrangements

Page 16
 LESSONS

LEARNED

Page 17
AS P&U MARKET ACTORS SIZE UP THE
BUSINESS CASE FOR BLOCKCHAIN,
THEY MUST ALSO EVALUATE WHICH
EY APPLIES A 5 POINT TEST FOR ASSESSING THE FIT
CURRENT OR FUTURE ENVIRONMENT
BLOCKCHAIN IS BEST SUITED TO, AND
OF BLOCKCHAIN FOR A PARTICULAR PROCESS
THEREFORE MOST LIKELY TO MAKE OR ENVIRONMENT
AN UNRIVALLED IMPACT

TAMPER-PROOF
MULTIPLE ESTABLISHING PERMANENT FINITE IMPROVED
PARTIES TRUST RECORD RESOURCE TRANSPARENCY

Blockchains get more Blockchains improve Blockchains create Core logic in the Blockchains are
secure with more trust between permanent records system is designed transparent by design
parties in the network, participants by having that cannot be edited to prevent double – where ownership or
one participant multiple points of or deleted counting of assets, control of assets is
networks are not verification record ownership public and transparent
especially secure and transfers

Page 18
 A NUMBER OF BLOCKCHAIN
PROOF OF CONCEPTS ARE REACHING
COMPLETION. IDENTIFYING THE MOST THE DECISION OF WHETHER TO SCALE THESE UP IS OFTEN
APPROPRIATE USE CASE(S) TO PILOT DIFFICULT GIVEN THE LIMITED INFORMATION. IF AND WHEN
PRIMARILY MEANS FOCUSING ON PRESENTED WITH THESE OPPORTUNITIES P&U LEADERS
THE TECHNOLOGY, ITS POTENTIAL MUST CONSIDER
AND THE INSIGHTS TO
BE GAINED

BUSINESS
TRANSACTION COUNTERPARTY CREDIBILITY AND SYSTEM REGULATORY
COSTS ASSUMPTIONS ASSESSMENTS INTEGRATION ENGAGEMENT

Depending on the choice
of architecture, a 3rd party
is often relied upon to mine
a transaction, at a cost.
Ensure this is considered
early as most test
environments do not
factor in such cost
Most counterparties will Platforms and technologies
not have a full under- that can act as the
standing of the technology architecture for any use
and may be reluctant to case are fast emerging.
adopt it. Consider this in While few are proven at
your assessment and scale, remember that most
budget for significant will be willing to invest their
support knowledge to secure an
organization’s use-case
The modular nature There is much value to be
of blockchain means gained from working with
that proof of concepts regulators and trying
can be quick to build. something new to the
The development of the benefit of consumers.
user interface is important While understanding can
and accounts for the bulk of be low, bringing regulators
the conventional consumer into discussions on
offering and investment, governance and market
but remains iterative impact is likely to be
rewarded

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 THE USE CASES

IN THE MARKET
TODAY

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 Digital

IOT – SMART DEVICES

Grid

MANAGEMENT USE CASE: Smart devices management

REFERENCE:

IoT IoT & Blockchain Role of Blockchain?

► Blockchain enables master data management collected through IoT

► IoT and Blockchain implementation enables more efficient grid
management and better coordination of multiple smart devices
► Smart devices manage energy usage based on supply and demand

Collaborative
Services

Services
ecosystem
Data

Data
How is Blockchain used?

► Technology converts house hold objects into blockchain nodes

allowing increase of smart devices executing smart contracts
► Energy optimisation of smart devices – facilitating efficient energy
consumption (on/off peak)

Customers/ Suppliers
Prosumers What is the benefit?

► Energy optimisation
► Reducing costs
► Accelerate transactions
► Build trust between parties involved
► Efficient data management and tracking

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 DISTRIBUTION Digital
Grid

MANAGEMENT & USE CASE: Green energy tracking

CHARGING (EVS)
REFERENCE:

Role of Blockchain?

NATIONAL REGIONAL ► Blockchain is used as a support regional energy distribution

and mobile device use
Home Business
► Demand response and mobility
Offshore Energy
wind farms Stations ► Facilitate interaction between supply and demand (on/off peak)

How is Blockchain used?

► Smart-wallets to log users in and charge the vehicle at times that

do not contribute to a major peak, in effect shifting the load and
reducing the cost per unit
Auction ► Ability for users to respond faster to system constraints
at acceptable costs
Distribution
Renewable
energy companies
What is the benefit?

► Improved energy flow

► Energy optimisation
► Security
Electric Wind ► Real-time market response
Vehicle turbines ► Broader customer base affordability

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 Digital
Grid
SMART METER DATA
AND MANAGEMENT USE CASE: Smart meter data management
REFERENCE:

Energy Retailer Energy Market Role of Blockchain?

► Information of supply and demand collected for smart meter

is managed on Blockchain platform
► The flow of electricity recorded through smart meter is automatically
encoded in to the Blockchain

Block- How is Blockchain used?

chain
► Blockchain acts as supporting technology and manages
all data collected through meters
► Facilitate real time consumption monitoring, control and optimization
Smart ► Provides ability for consumers to securely share subsets of data
Meter to the market

What is the benefit?

Home energy network
► Efficient data management
► Real-time supply and demand
► Customer data value enabled
Flow of Energy
Flow of Information

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ASSET MANAGEMENT Digital
Grid

– GREEN ENERGY USE CASE: Green energy tracking

TRACKING
REFERENCE:

Source
Role of Blockchain?

► Facilitates consumer access to the power markets and enables

consumers to track the origin of energy
► Provides the authentication and security to increase the commercial
value of the green energy generate
Distribution
System
How is Blockchain used?

► Blockchain is used to record exact volume of green commodity

or energy used/generated
► This is then matched with the off-take demonstrating
that the system has been forced to use green energy
► This improves the commercial value of green energy tariffs
VALIDATE

VALIDATE What is the benefit?

► Energy origin tracking and validation

► Trust
Solar
Buyer ► Consumer confidence
Wind
Coal

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PEER-TO-PEER ENERGY Digital
Grid

TRADING – PORTFOLIO USE CASE: Peer-to-peer energy trading

RECONCILIATION
REFERENCE:

Role of Blockchain?
Communications
Counterparty 1 Counterparty 2 ► Trading platform uses blockchain to undertake
portfolio reconciliation at end of day
► Blockchains auditable and “trust-less” structure eliminates
need for validation and improves speed of reconciliation

Trade Confirmation
Trade execution Trade execution
How is Blockchain used?

► All transactions logged on distributed ledger shared by all parties

► End of day reconciliation takes place using database with single entity
ETRM Synchronisation errors eliminated through networked database
ETRM ETRM
► Finalised position is logged for regulatory and clearing purposes

What is the benefit?

Mutual Ledger
► Automatic portfolio reconciliation ► Cost reduction
Blockchain
► More controlled regulatory compliance reduces ► Secure by
unknown risks from mismatching trades design
Trade Confirmation Reporting ► Faster exposure of mismatching trades
Trade Execution Auditing

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 AS DISTANT AS THE ‘KILLER’ USE
CASE APPEARS – ENERGY BUSINESSES
STAND TO GAIN FROM UNDERSTANDING
AND EXPLORATION
“We always overestimate the change
that will occur in the next two years
and underestimate the change that
will occur in the next ten. Don’t let
yourself be lulled into inaction.”
Bill Gates

UNDERSTAND EXPLORE EXPERIMENT IMPLEMENT

The concept and What does it mean With the It in your
possibilities for your business technology business

How do these integrate

If blockchain is the How would this
Where does the solution into legacy technology
solution, what is the technology affect the
fit within the value chain? and institutions?
question? value chain?

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 THE CURRENT

VENDOR
LANDSCAPE

Page 27
 WHAT DOES THE BLOCKCHAIN VENDOR
LANDSCAPE LOOK ACROSS THE PLATFORMS
AND APPLICATIONS

Trade Grid management IoT

BTL Group Ltd LO3ENERGY BitFury Group
► Built from the ground up Interbit ► Brooklyn microgrid; ► IoT smart devices
is BTL’s open, multi-blockchain chain Local energy network ► Supply Chain Management
► Portfolio reconciliation ► Device control to balance the grid ► Payments Acceleration
► Peer-to-peer trading platform ► Auditing Assurance & Risk

Adjoint Inc. GridSingularity Filament

► Smart contracts building new messaging ► Decentralised energy transaction ► IoT
and consensus protocol and supply system ► Security, scalability,
► Institutional Grade Security Features to pro- or network stacks
vide high assurance to parties involved

Blockverify Power Ledger Slock.it

► Supply chain tracking and traceability ► P2p trading ► Security and management of IoT devices

► Settlement ► Smart power plug  renting Hardware

► Autonomous intelligent

Tallysticks ELECTRON Ledger

► Invoice software-Automate the purchase ► Master Data Management for smart ► Hardware Oracles – bridging the
order to invoicing to financing to asset- meters – demand side response physical world and the blockchain
backed securitisation to payment ► Trust layer between the layers
workflow

Source: EY analysis, company reports

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 QUESTIONS?

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