Interview – Electrify.Asia on Blockchain Technology and the Energy Industry
Recently, Chain-Finance had the opportunity to talk to Julius Tan, CEO of Electrify.Asia on the crossover of blockchain technology and the energy industry. Electrify is a retail electricity marketplace in Singapore which aims to bring energy contracts onto the blockchain, using smart contacts to execute settlements. On another front, the platform will enable P2P energy trading across a national grid, as opposed to within microgrids, as several other projects are doing. Electrify won the ICOscar award at Blockshow Asia 2017.
C-F: Could you provide an overview of the energy industry in its current state?
JT: There are generally 2 types of energy markets in countries, either regulated or deregulated. Regulated markets are characterised by state-owned utilities, where the government owns and operates the entire market, from power generation to electricity distribution. Deregulated markets typically have many private players, from large power generators to small, independent retailers.
Today, many developed countries have deregulated their power markets to encourage competition and market efficiencies, something sorely lacking in state-owned operations. In a nutshell, deregulated markets comprise privatised generators that generate energy and, retailers who buy power and resell to business and household consumers.
Renewable energy has always been a sexy topic and what is encouraging is, it is actually economically feasible in many countries. Yet, adoption is not as wide as we expect it to be due to existing barriers in trading of excess power generated by smaller energy producers. The existing models exclude smaller producers from participating fairly in the energy trading ecosystem.
C-F: With the technology being used today, what does its future look like?
JT: I think recent innovations around the energy space revolve around several key areas.
i. Increasingly, smart homes and buildings that can optimise energy usage according to power prices and usage patterns are gaining traction in terms of product development and adoption. This will mean cost savings for consumers from reduced usage and more robust demand-side management mechanisms to enhance grid stability.
ii. The development and use of distributed generation and energy storage systems for consumers to become more self-sufficient is also steadily gaining foothold in many geographies. These distributed energy resources have the potential to sustain small microgrid communities, even within city infrastructure.
iii. Numerous projects using blockchain technology to reinvent the energy industry have emerged around many functions within the market. The focus in many of these projects include trading of excess power between owners of distributed energy resources and other consumers. A more decentralised energy generation landscape is a real possibility, with more inclusion in the upstream via a P2P (peer-to-peer) energy trading model.
iv. Electric vehicles (EVs) have developed from their original function, alongside other energy storage systems and can be used to smoothen load on electricity grids, allowing more efficient usage of infrastructure, potentially lowering costs borne by consumers.
C-F: Could you describe the problems facing the energy industry and how these impact on the services being offered?
JT: I think in the time that Martin, my co-founder, and I have been in the industry, we have discovered that a stark lack of transparency and awareness of energy prices in general is a perennial problem, especially in deregulated markets.
Interest in distributed generation sources and P2P contracts has been gaining momentum in developed grids as more people opt to generate power using renewable sources. However, this momentum has not been accompanied by solutions for prosumers (consumers of energy who also are small producers of energy themselves) to trade or monetise any surplus energy they have generated at fair prices. Oftentimes, surplus power can only be sold to the grid operator at a less-than-ideal price, disadvantaging the producer.
Our Marketplace 2.0 builds on our existing product, and brings ease of convenience and choice to consumers. All the energy contracts on our platform will eventually run as smart contracts, which are as transparent as they come. Contract terms are coded and automatically executed when conditions are met, leaving little room for exploitation by bad actors. Our Synergy platform seeks to bring solutions for P2P trading across a national grid, allowing existing producers to extract more value out of their solar panels, or incentivising more households to install solar panels to sell to their neighbours. More importantly, the P2P model ensures that transactions occur at fair prices by eliminating unnecessary mediators, limiting transacting parties to just producer and end-user.
C-F: Why is a blockchain solution suited to the energy industry above other alternatives?
JT: The beauty about trading energy on the blockchain is that all processes can be connected to a smart contract and data can be distributed to all involved parties. This way, not only does the immutability of the blockchain ensure reliability of generation and consumption data, smart contracts facilitate payment transfers from consumers to suppliers.
Smart contracts also allow for automatic execution of any energy contract, from Utility-to-Utility contracts down to the retail level consumer contracts and even P2P contracts. The complexity of these contracts range widely. A simple retailer contract, in plain English, could be: If a consumer consumes X kWh, he/she will be charged $P/kWh and billed D days after the end of each calendar month. Some contracts involve more complexity, such as time-varying energy price or energy prices that are dependent on other external factors such as the price of crude oil and/or foreign exchange rates.
Furthermore, such transactions can be tracked, maintained and served at a much lower transactional and operational cost than on a centralised platform which requires a small army and very expensive enterprise-level systems to track and settle payments.
Smart contracts can be written to include these logic sequences, with connections to external data feeds such as price, volume tiers or weather, allowing energy contracts to be executed automatically. Since contracts are executed by code, rather than by human effort, they have the potential to significantly reduce operational cost and probability of error.
C-F: What aspects of blockchain technology hold the most promise for companies working in the energy industry and how will they be implemented?
JT: Using smart contracts will reduce transaction costs for delivering each energy contract. Commercial and industrial customers are high volume consumers, which leaves a small layer of fat to help electricity retailers defray the cost to serve each contract. Domestic customers, however, consume in much smaller volumes but the cost to serve a domestic contract is the same as a commercial one. Running on a smart contract reduces the amount of human intervention and manual execution. This hopefully leads to better margins for retailers, as transaction costs are reduced.
These benefits are shared across producers and consumers. The reduced transaction costs not only help retailers see better margins but also help consumers realise the full benefits in savings from a deregulated energy market.
C-F: Are there projects being developed to leverage blockchain technology for the energy industry?
JT: Most certainly there are! Some high-profile names include Powerledger, Grid+, Grid Singularity. In fact, Solar Plaza out of Europe has a very comprehensive guide on energy projects using blockchain technology. I think it is imperative that we recognise the energy space is very vast. It is too large for any one project to ‘dominate’ the industry. We feel that every other project is a potential learning and collaboration opportunity. It may not be apparent but the focus of each project is quite nuanced. Above that, the implementation of blockchain-based solutions fixes real problems in the energy space.
C-F: When are we likely to see widespread adoption of blockchain technology in the energy industry?
JT: This is the golden question for every industry where blockchain-based solutions look to be implemented. Adoption has always been a challenge for all industries when undergoing change. With blockchain technology being as new as it is and, the energy industry as resistant to change as ever, it seems like a tall order to have blockchain solutions take the front seat.
On our end, we can carefully craft UX design to convey the benefits of blockchain while keeping the technology and platform accessible to the layman. Ultimately, the benefits are trickled down to the end users.
We expect to see widespread adoption within 3 years in deregulated power markets.
C-F: What are the main barriers to the adoption of blockchain technology in the energy industry?
JT: As with any industry, governmental regulation is a challenge to overcome. This is especially so for power markets, which are typically closely tied to physical infrastructure that is government-owned.
Consumer behaviour, education level and perception of energy consumption differs widely within and across markets, requiring energy companies to localise and understand the consumer before designing a product suited for the market.
This is a time-consuming activity and significantly slows down any endeavour for change.