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          How will Blockchain disrupt the Energy sector?

          Hailed as the biggest digital innovation since the internet, Blockchain is the virtual infrastructure that is changing the way we work.

          Blockchain will disrupt your industry.

          Energy companies are starting to look at how the technology has the potential to optimise their processes and facilitate energy transactions.

          First the basics: Understand blockchain in 6 minutes by watching our animation

          Skip video to: How Blockchain works > 
          Skip video to: What Blockchain means for business >

          How is Blockchain affecting Energy?

          Blockchain technology has the potential to facilitate data exchange in an increasingly decentralised energy system as well as to accelerate processes. It enables an efficient, transparent and secure exchange of information without the need for intermediaries. This opens up new possibilities for market participants in the energy sector.
           

          Peer-to-Peer (P2P) trading

          With the help of Blockchain, small scale energy generators known as prosumers (producers/consumers) can sell excess generation direct to other consumers by way of micro grids. This is just one of the applications for smart contracts powered by blockchain technology in the energy sector.

          This model gives scope for more consumer choice as they can designate certain criteria for their energy purchase and the smart contract will only complete the transaction when these criteria are met. So the consumer could designate the specific price they would like to pay or the renewable energy source they would like the energy to come from. Smart contracts also decrease transaction costs as manual tasks can be carried out automatically, allowing users to trade energy amongst themselves.


           

          Electricity wholesale transactions

          Currently a wholesale energy transaction requires a range of inter-connected processes to occur. Costly intermediaries such as online exchanges or brokers are used to initiate a trade, index agencies are used to assess pricing, trades are confirmed by automated systems such as EFETnet in Europe or traditional methods such as email and fax – and this is all powered by the energy firm’s own IT systems. This approach is costly, time consuming and vulnerable to human error.

          A blockchain solution here could cut out unnecessary bureaucracy and inefficiency. A shared ledger of information could be created so both parties have transparency and work flow can be accelerated.

          The ability to carry out transactions securely, traceably and without the use of a central authority (with the help of Blockchain technology) could make wholesale energy trade more efficient, secure and cost effective.

          Emerging markets

          When Blockchain is combined with other technologies such as sensors, mobile apps and smart financing - real opportunities can be seen in the developing world where there is limited access to energy. A renewable energy feature such as solar panels could be installed on credit, with excess energy being sold to the local community in quantities via a mobile phone app linked to the blockchain. Once the excess energy has paid off the initial installation costs the owner is left with a self-sustaining energy source for themselves and cost effective energy for their community, something that may not have been possible with traditional infrastructure. Blockchain will also work to cut out the middleman and potential for corruption where customers don’t have a bank account.

          Flexible energy

          One of the best applications of flexible energy is electric vehicle charging. One major hurdle to the wider use of electric cars is the lack of charging points, meaningthey are still not considered ‘the norm’. In this context Blockchain can be used to optimise the communication between charging stations and electric vehicles as well as the handling of charging processes and transactions. By making vehicle charging smarter and more economically viable, Blockchain could accelerate the transition from traditional ‘fuel’ stations.

          Process optimization

          The handling of existing processes can be carried out more efficiently and, in some cases, at lower cost by using Blockchain technology. This option is particularly interesting for energy suppliers. They can, for example, optimize processes in connection with the change of a power supplier or the administration of master data, in a way that is both tamper-proof and traceable.

          The future

          This is just the tip of the iceberg with regards to Blockchain and the energy sector, we have not even begun to discuss the impact of cryptocurrencies and the ‘tokenisation’ of energy finances. Blockchain will no doubt change the way we use and distribute energy, and it has already begun to disrupt the traditional energy market. It makes delivering cleaner, faster energy more accessible and a more realistic alternative to traditional fuel sources.

          Blockchain will also encourage us to manage our energy more smartly, giving consumers more choice. The decentralization of the energy market will strengthen the market role of individual consumers and producers. In turn, large energy suppliers will be forced to reassess their offering, and may tap into the concept of ‘demand response’. More energy companies will be looking at this as Blockchain gains momentum.

           Have you thought about the legal implications of Blockchain?

          Jurisdiction

          • Which legal framework will apply?
          • What forum should be used to resolve disputes?
          • How do you govern entities that exist purely in cyberspace (known as “decentralised anonymous organisations” or “DAOs”)?

          Liability

          • How is ownership/control determined?
          • Where does the liability lie when something goes wrong?
          • How can businesses limit their exposure?

           

          Smart Contracts

          • How do you create a blockchain based contract (a “Smart Contract”)?
          • When will Smart Contracts be enforceable?
          • Can code determine issues of fairness?
          • How should disputes be resolved?
          • How do you govern decisions made by an AI?

           

          Regulation

          • How will regulatory authorities choose to approach blockchain?
          • How will blockchain interact with existing regimes such as those relating to consumers or finance?
          • How will tax laws apply to transactions a blockchain system?

          Terms and Conditions

          • What terms do you need to include to cover the particularities of blockchain such as payments in cryptocurrency?

          Data Protection

          • Who are the controllers and who are the processors?
          • How can privacy be protected on an open system?
          • How can you obtain all the necessary consents?

           


          How we can help 

          DWF’s market leading energy experts have come together to explore how Blockchain is disrupting the industry. We understand this complex technology and its legal ramifications and our energy sector experts are here to guide you through what the changes may mean for your business.

          Click here to view what is happening within our Energy sector >

          Andrew Symms

          • Partner // Head of Energy & Industrials, UK