Whether we like it or not, understanding blockchain for energy applications has become a necessary part of being a market participant or analytical observer of the energy transition. There is simply too much work being undertaken, too many potential use cases, and too much investment (both capital and intellectual) to cast it aside as last year’s fad.
Whether it ultimately comes to market in mature iterations of current blockchain/distributed ledgers like Hyperledger or Ethereum, it will come to market. The features it has brought to light are undeniably critical to enabling the functions and business models of the distributed and decentralized electricity system of tomorrow.
I’ve been trying to understand blockchain in energy for two years now, and it has to rank as one of the more exasperating undertakings in my career. Describing the characteristics of polymer-based waveguides for optical routing of telecommunication services, in retrospect, was easier work than writing an accurate description of how proof-of-work blockchain mining guarantees (or doesn't!) that no ledger entry can be overwritten or any cryptocurrency be double-spent.
Reading isn’t sufficient, so I’ve taken to asking anyone who’s seriously working with blockchain in energy to help me understand. To my delight, there are plenty of people out there getting their digital hands dirty with the technology and building up the collective knowledge around the subject to fight back the competing urges to either hype blockchain as the next techno-utopia (we see how well that’s worked out for social networks) or dismiss it outright.
Luke Scheidler is senior product manager of new business innovation at Itron Idea Labs in Oakland, California, and has been investigating blockchain there. We met up first at GTM’s Energy Storage Summit last December and then continued the conversation by email. Here's what we discussed.
Scott Clavenna: How did you come to blockchain? Did you get pulled by a customer, or is it an internal exploration/frontier tech kind of thing?
Luke Scheidler: It was a combination of factors. We had been aware of blockchain for some time and its limitations. I’ll admit that the hype in 2017/2018 was what prompted us to take a closer look at how the technology was maturing, but it was also good timing with respect to our newest generation of meters, networks and grid edge intelligence. We quickly realized that there were some interesting possibilities when you combine distributed ledgers with distributed grid intelligence.
SC: What are the use cases you're exploring? We are seeing the most interest in things like clean energy/carbon accounting and EV charging.
LS: Funny you should mention it. We are currently working on a demonstration project for electric fleet vehicle charging and the associated carbon credit generation and validation. These are interesting blockchain applications because they include two rapidly growing markets, with lots of actors, that have substantial overlap (carbon markets and transportation electrification). However, what we are learning in this project is foundational to many use cases. We are combining an open ecosystem of endpoint sensing devices with distributed intelligence. This allows us to measure and validate energy flows — supply and demand — at as granular a level as possible. Once you have a validated and immutable data record that supports “what happened, when it happened, and where it happened,” in terms of energy production and consumption, you have a resource that supports many (many, many) use cases.
SC: Any early indications of what's working?
LS: I’ve made the point that the best thing about blockchain is that it has brought a diverse group of stakeholders to the table to talk about the big problems in our industry in new and creative ways. As for real traction, I think bulk wholesale market trades and associated renewable energy credits are starting to use blockchain in some markets. There’s probably more working than it appears, but we are in this place where distributed ledger tech itself is fragmented and maturing. We are back to an all-too-familiar interoperability and business model standoff. That said, there are also some use cases not specific to energy (think IOT device authentication, identity management, and access control) that are making headway. In these cases, using blockchain doesn’t require massive adoption of some all-encompassing, interoperable platform that will change the energy world forever — it is just a useful tool operating behind the scenes.
SC: I have this fear that we're all getting out ahead of the technology, asking it to do too much too soon. How do you feel about basic blockchain maturity, and where would you like to see more development?
LS: I agree. I think a lot of compromises are being made in energy-related blockchain architectures because blockchain still isn’t ready. Maybe it’s too expensive to store the information you want on-chain in Ethereum. Maybe the consensus mechanism doesn’t accommodate both transparent, automated regulatory oversight and proper data protections for personal identity. Ethereum is promising major changes in v1.x and v2.0. Hyperledger currently seems to be better suited to lightweight, edge-based applications, but these things constantly flux. This potential for very lightweight edge clients is where we want to see more progress.
SC: Was there a problem you were trying to fix, and then blockchain came along, or are you looking at the technology and finding out where it can be applicable in the grid?
LS: Itron provides IOT networks and sensors, an array of analytic services, and electricity, water and gas metering. We are smack in the middle of some of the biggest problems faced by today’s utilities and cities, not to mention society at large. Sometimes it feels like you can’t solve one without solving them all. We can’t have this distributed and optimized energy future without a lot of connected, intelligent devices. These devices are owned and operated by lots of different entities and operating in potentially multiple markets. There are a variety of challenges associated with asset registration, cybersecurity, data sharing, privacy and provenance, and data standards and interoperability. Conceptually, blockchain promises to be an effective tool in most of these realms so it was a natural fit when examining some of the existing problems we are trying to solve.
SC: Since you're at Itron, are you thinking of blockchain residing in the meter itself? Part of an IOT implementation? In other words, what blockchain architecture makes sense to Itron?
LS: As I mentioned, we think distributed intelligence embedded at the edge of the grid has a unique role to play, both from a security perspective and from a data authenticity perspective. If you think distributed, behind-the-meter resources are going to be really significant from a grid operations perspective, and if you know anything about current measurement, verification, and settlement practices for things like demand response programs, you know that a better system is needed to make sure the market commitments all these devices are making are really being made — especially if we are talking about single resources participating in multiple markets concurrently.
Our grid edge blockchain architecture embraces this concept and uses local validation algorithms to ensure the commitments registered devices are making check out against the net premise meter reading — the values that the distribution system sees. Many energy analysts will tell you they spend upwards of half of their time cleaning data — we need to be sure that the data are valid and authentic before we put them into an immutable ledger. As for architecture, I mentioned we want to see more progress with very lightweight blockchain edge clients. Our current iteration validates energy flows and then initiates the blockchain transaction directly from the grid edge and then aggregates those transactions at a variety of nodes in a proof-of-authority consensus. As blockchain technology progresses and Itron grid edge technology progresses, they will eventually meet somewhere in the middle. Perhaps one day we will be validating neighborhood-level blockchain shards in a peer-to-peer fashion in the meter… but we’re not there yet.
SC: Are you finding utilities are serious, and where would they put this relative to other frontier tech?
LS: It varies, of course. We are working mostly with U.S. utilities on blockchain and some seem quite serious. However, technology companies and utilities alike largely have their hands tied as to how serious they can get. Regulators aren’t likely to support solutions based on blockchain until they are proven to scale and to deliver the benefits claimed — all while maintaining the reliable and equitable service to the customer. I think once we see real demonstrations of scaled technology on some kind of shadow network, probably at the bulk wholesale level, or in an adjacent market like carbon, regulators and utilities alike will start to have the confidence to implement some of the solutions that are just research projects right now.
SC: Is it true U.S. utilities are the most conservative when it comes to blockchain?
LS: We haven’t had a lot of direct experience with utilities outside of the U.S. on blockchain. We did just join the Energy Web Foundation, which we did in large part to get a better feel for where some of our global partners are active and to work with and learn from them. There is progress being made all over the world, and some regulatory and market conditions are more conducive than others.
SC: I’ve limited questions to the electricity system, but is Itron looking at applications in other areas you’re active, such as water and gas?
LS: We have evaluated several blockchain use cases and a number of startup companies with water and gas applications, some of which are quite compelling. The distributed intelligence blockchain platform we are working on for the EV/carbon project will also have applicability in water and gas. Right now, it’s more important to keep learning and developing as blockchain evolves than to just look for additional problems to solve with the technology.
SC: If we check back in with you later this year, what are the odds you’re still working on blockchain and not on to a machine-learning energy theft detection program, or playing with AI for real-time energy pricing?
LS: Well, we already have advanced energy theft detection algorithms — the ones that utilize peer-to-peer communications are really slick. But whether it’s blockchain and machine-learning or digital twins and augmented reality, Itron is always looking for smarter ways to solve the problems facing our utility and city customers. If nothing else, using new technologies affords us the opportunity to think about solving problems from a new angle. Sometimes you don’t need a new technology, you just need a new perspective.