Perceive, Promote, and Protect

22nd July 2019


Perceive, Promote, and Protect: Three Ways Energy Policymakers can fast track Blockchain Innovation and Implementation

AUTHOR: Piyush Verma, PhD, Energy Market Analyst at the International Energy Research Centre, Ireland

Energy systems are undergoing significant transformational change, driven by the climate change agenda and triggered by the advancement of renewable energy technologies. One of the main challenges of today is the decentralisation of the energy system, which has to happen quickly and reliably, if we want to accomplish our 2030 or 2050 energy aspirations. Decentralisation of energy system requires decentralised technologies and ownership, along with novel paradigms and innovative business models. Due to the inbuilt characteristics of blockchain technology, it has the potential to provide a promising solution for a decentralised energy marketplace when considered with other digital innovations such as Information and Communication Technologies (ICTs) and Internet of Things (IOTs).  At present, somewhere around 200 companies are working on blockchain in the energy space and more than USD 450 million has been invested, now is the time for deeper government intervention with in depth analysis to understand the technology, stimulate focused innovation, and explore issues and barriers to its deployment.

Perceive – Developing an understanding within the government itself

The scale of digital innovations and the pace of digitalisation in the energy sector have been radically increasing recently. Technologies like blockchain have been booming in the energy sector, with the participation of giant multinationals to burgeoning start-ups, with more than 70 different projects in operation, some of which are being scaled quite rapidly.  Policies and regulations have to come into this equation, with now being the critical time for the policymakers and regulators to develop in-house expertise, to gain an understanding of blockchain application opportunities and challenges of the technology. It is of vital importance to understand how the adoption of blockchain technology in different energy sector applications can affect existing market structures and regulations. This knowledge will also assist in prioritising the applications where policymakers want to focus and set blockchain in energy directives and recommendations at the national level.  Blockchain technology also involves an entirely new vocabulary for which internal expertise need to be developed by the policymakers to foster productive discussions among governments, businesses and other stakeholders.  Apart from developing the required knowledge and skills, policymakers also need to cultivate technology awareness policies and technical training through conferences, workshops and dialogues to ensure an adequate pool of relevant expertise are being developed. 

Promote – Stimulating directed innovation to support aspiration

A balance must be struck between the market and the regulations. While innovation is virtuous, a focused innovation is imperative if we want to accomplish our ambitious aspirations. The market is moving rapidly and regulation introduction needs to improve significantly to catch-up.  We need to bridge the considerable gap between technology innovation and regulatory innovation if we want to leverage the full potential of innovative technologies.  It is imperative that regulations do not act as an obstacle to innovation, but rather as a navigation opportunity, directing innovation through priority setting, and duly disclosing flexibilities will help meet our aspirations. In terms of setting those aspirations, we have moved remarkably beyond business as usual, but in terms of execution we are still business as usual. Blockchain may still have some way to go to prove its capabilities to operate in a national market for different applications and there is no way to predict how blockchain will interact with the larger energy systems when there will be several minor players included in the grid. There are costs associated at each step of the process with a need for the government to assess these costs from a deployment verses customers benefit and also from a broader policy perspective.  This will help improve the process and the time in developing relevant policies and guidelines in the near future.

Protect – Having flexible regulations while protecting consumers, prosumers and others

Blockchain has the potential to play a key role in the decentralised energy system, with it being viewed as a key solution rather than a problem, empowering consumers to provide their own energy security and to assist those in their vicinity with their energy needs. The current regulatory business model is focused around regulated utilities, and not the consumers, and therefore, supportive regulation is required to enable decentralisation of the energy market in different countries. Countries like Germany and Spain have already successfully applied some mechanisms to encourage the prosumers uptake in particular. When it comes to blockchain technology, there is another level of regulation that may be needed to ensure that privacy of consumers or prosumers is not breached, given that there may be considerable participation levels in the decentralised energy system. With parallel centralised and decentralised energy operations in the energy market in coming years being predicted and with blockchain being employed by both (whole energy market trading and peer-to-peer energy market trading), the rights of the multiple stakeholders involved needs to be taken into account. Regulators need to provide legal certainty for blockchain in energy applications, addressing technology standardisation and the standardisation of new citizen-centric business models, in addition to defining the roles of different stakeholders as part of new business models will be critical. International harmonisation of blockchain regulations for different applications in the energy sector should be a central focus. Furthermore, from an Internet of Things (IoT) perspective, all the devices and technologies that will produce enormous amounts of data on blockchain based smart contracts, cyber security guidelines and regulations will also have to be considered from the energy sector perspective. While regulations are required to ensure that the market functions effectively and impartially, the market does not need to be subject to unnecessary regulations.

Blockchain is a very practical technology with wide-ranging application opportunities, with the potential to provide a more secure, smart and sustainable decentralised energy market.  The time for the greater involvement of the government is now, with a need to explore how policies and programs need to be altered or be introduced in the near future to leverage the potential of the technology – not only Blockchain, but the integration of other digital innovations, such as ICT and IOT to facilitate a flexible, transparent, and citizen-centric energy market. Next month, on 10th September, I will be speaking in World Energy Congress  in Abu Dhabi and will be discussing some of  Ireland’s initiative in this space and our blockchain work at the World Energy Council. If you are attending, I invite you to join this conversation.

This article is written by Piyush Verma who is a Future Energy Leader at the World Energy Council and has a full time role as Senior Energy Market Analyst at the International Energy Research Centre, Ireland.

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