Five Steps for Successful ‘Blockchain in Energy’ Pilots
Early adopters of blockchain technology in the energy industry are in pilot mode.
They are experimenting with a variety of use cases, including using blockchain technology to optimize their internal processes, reducing transaction costs and enhancing their supply chains. Others are hoping to unlock new growth opportunities by coupling blockchain technology with microgrids. It could enable peer to peer transactions where neighbors transact directly with each other and trade energy generated from their rooftop solar panels and electric vehicles. Also, energy trading platforms, including wholesale electricity trading, is getting a “blockchain lift” hoping to execute and record transactions more efficiently and reliably. In addition, electric vehicle charging, as well as electricity, heat and water billing systems may also benefit from blockchain based smart contracts to authenticate users and manage the billing process.
As energy companies launch various blockchain experiments, here are five steps for success:
- Establish cross-functional and nimble blockchain taskforces
Taskforces are being formed across organizations to investigate blockchain use cases. They include members with a combination of technical skills and business acumen. And core to their success will be the ability to gear up for change management. They identify champions and blockers within their organizations. They coordinate across divisions. They build the business case and garner senior leadership’s support.
GE’s approach to this cross-functional change is a program called FastWorks, which is informed by Lean Startup principles. FastWorks is a mindset that takes the flexible and transparent characteristics of a startup and combines them with a large company’s size and resources. It emphasizes continuous experimentation and provides a way to validate assumptions and ideas.
Mobilizing internal resources to go after a new space such as blockchain will require empowering taskforce members to be nimble and have full authority to operate using a FastWorks entrepreneurial mindset.
- Identify the appropriate blockchain use cases
Technology should not be used for technology’s sake. Energy companies should look beyond the initial hype surrounding blockchain and work to answer fundamental questions. These include asking:
- What problems are energy companies solving for?
- What does the current process to address these problems look like?
- Which use cases could help address these problems?
- What are the functional requirements of these use cases?
- Is Blockchain the right technology to meet these functional requirements?
- What is the Blockchain value proposition in comparison to other technologies?
- How does blockchain integrate with existing technology, processes and systems in use today?
As companies make small bets and launch different blockchain experiments, it is important to clearly define use cases and articulate blockchain’s unique value proposition in comparison to other options.
- Design blockchain experiments, define success, and build the value proposition
Once blockchain use cases are identified the taskforce’s focus should shift to designing pilots.
First, time needs to be spent defining success metrics and managing senior leadership’s expectations. The challenge is to change the internal narrative from pilots delivering financial results and clear ROI to a mindset of experimentation which maximizes learnings. The primary objectives, in these early stages, are to understand the possibilities, limitations, and potential business models that blockchain unlocks. If pilot outcomes include a better understanding of where the blockchain technology excels, and how it enables new efficiencies with customers, then it should be considered a win.
Once use cases are selected, the next steps require selecting appropriate pilot sites and developing feasibility studies which clearly articulate the program’s value proposition and cost-benefit analysis to regulators, utilities, and consumers.
- Focus on blockchain co-creation and partnerships
Blockchain pilots in the energy industry can greatly benefit from cross-industry partnerships. Collaboration across oil and gas companies, utilities, OEMs, and startups could create unique value to these companies and their customers. Each type of organization has unique capabilities, relationships, and vantage points which are worth leveraging to limit risks. Co-creation with various stakeholders, especially customers, will be important to the design and launch of successful blockchain pilots.
Collaboration should not be limited to specific pilot initiatives, but also transcend industries and geographies. Knowledge sharing will be vital to better understand how blockchain technology is evolving and its most appropriate use cases. Industry consortiums can help build an ecosystem of participants, and speed up the establishment of industry standards.
- Regulators will need to enable blockchain experimentation
The energy industry would benefit from regulatory efforts that facilitate experimentation and piloting of blockchain and other innovations. For example, the Office of Gas and Electricity Markets (Ofgem) in the UK, and the Singapore Energy Market Authority (EMA) opened an energy ‘regulatory sandbox’. It is a space in which energy companies trial new innovations without incurring or being subject to all usual regulatory requirements. This allows regulators to assess the impact of new products and services before deciding on the appropriate regulatory treatment.
As ongoing pilots start showing results, there will be more clarity on the functional and technical requirements of blockchain platforms and applications. Regulators’ primary task is to ensure that these platforms are safe and reliable before developing common industry standards.
Looking ahead, all eyes are on the outcomes of blockchain pilots. Designing, planning, and implementing successful experiments will be crucial to help us understand the full potential of blockchain technology in the energy industry.