Blockchain is changing finance forever: It will do the same to flawed energy markets

Jo-Jo Hubbard
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Blockchain can eliminate barriers to innovation (Source: Getty)

An innovation imbalance has developed in the energy sector. Consumers can switch on their boiler with a smartphone, yet switching energy suppliers is a complex three week process. New innovations and interfaces have been layered on top of clunky pre-internet systems that make seemingly simple procedures difficult and slow.

Blockchain, best known as the technology behind bitcoin, has already set the financial services industry alight. The same technology also has the potential to provide the fix that our energy systems need to meet evolving consumer expectations.

It provides a low-cost means of authenticating and recording transactions across a decentralised network, removing the requirement for a central intermediary function, and permitting industry participants to update a shared set of records themselves.

Read more: A consumer's guide to blockchain

A good analogy is a shared spreadsheet in which members of a network are permissioned to edit certain cells within a set of predefined parameters. Members could even add their own formulas, or pieces of code, to automatically execute certain functions. By removing the central intermediary, blockchain has the potential to eliminate both a cost base and a barrier to innovation, delivering more efficient and flexible systems.

The potential of this technology has not escaped the notice of the banks. Financial institutions have invested heavily in blockchain over the last two years, most notably through the 73 member strong consortium R3 CEV. Members of the consortium tout the technology’s ability to streamline transactions processes, reducing costs, processing time and unnecessary interfaces. Finance is a heavily regulated industry in which players compete to deliver a service over a spaghetti junction of legacy shared infrastructure that is unnecessarily expensive to operate.

Read more: How Blockchain technology will change the financial services industry

The same is true in energy. The industry now has the opportunity to increase the efficiency of its own shared infrastructure. Reducing long lead times for switching suppliers has been high on the agenda of consumer rights groups and government committees in recent years. The Competitions and Market Authority recently concluded the most extensive investigation into the energy market since its privatisation, and found that 70 per cent of domestic customers could save over £300 a year by switching suppliers.

The process, however, continues to be complex and slow, typically requiring 17 to 21 days to complete and involving over 20 different message types to switch electricity suppliers alone. Ofgem, the UK energy regulator, has also been vocal about making switching simpler, clearer and fairer. It is seeking to streamline the process by creating a single registration service for all UK gas and electricity meters.

A decentralised solution to this service could dramatically reduce processing time and cost as well as consumer frustration. We have scale tested a blockchain meter registration platform populated with simulated data to represent the UK market: 53m metering points and 60 energy suppliers. Not only has it proved capable of reducing switching time to mere minutes, it is also able to handle 20 times the volume of switches currently occurring.

Read more: Here's how Google's DeepMind is using blockchain-like technology

Perhaps the most compelling argument for a blockchain solution is that it can work alongside existing infrastructure today, and be adapted for future requirements as our power grid evolves. For example, a blockchain registration service for supply-point meters could be extended to include the meters associated with consumer-owned renewable generation or battery storage assets. This information could then form the basis for a P2P electricity trading ecosystem, providing a roadmap for scaling the various micro-grid trading proof of concepts that are currently underway.

Blockchain is a very new technology and there will be significant regulatory, legal and commercial hurdles to adoption. Overcoming these will require collaboration between industry incumbents, who are best placed to catalyse change and gain the most from more efficient systems.

In this respect, energy can learn from the collaborative approach of the financial services industry. Historically, banks have tended to group source solutions to issues as they arise and regulation has followed, whereas the energy industry has been more regulator led. In 2017, energy companies should not be keeping an eye on the blockchain revolution – they should be leading it.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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