Blockchain in Energy: Stakeholders, Solutions and the Path to Standardization
The ecosystem of blockchain solutions in the renewable energy industry is rapidly growing. Blockchain has the potential to ease the burden that the introduction of electric vehicles places on the grid, help facilitate an increasingly distributed grid, track renewable energy from generation to its final use, open the door for renewable energy sources and the associated issues with variable output, and handle an enormous amount of transactions quickly, cheaply, and securely. Within this ecosystem, various stakeholders champion different solutions. The variety of stakeholders and solutions creates a possible conundrum for the ultimate integration of the entire blockchain ecosystem in the energy industry.
For the majority of the twentieth century, the power grid in the United States has been predominantly powered by alternating current (AC), but that was not always the case. At the inception of widespread electrical energy use in the United States, direct current (DC) was standard. Thomas Edison developed the first practical lightbulb system, which utilized DC generators. At that time, no practical AC system existed, so Edison’s DC system grew to carry the majority of the load in the United States. Thomas Edison held many DC patents and advocated for its use. With the introduction of a viable AC system, his rivals, Nikola Tesla and George Westinghouse, supported the use of AC because AC allows transformers to easily convert currents into different voltages. Inevitably, a debate, known as the War of the Currents, over which current would become the national standard ensued. Edison launched a campaign to discredit the use of AC by circulating a pamphlet that highlighted the accidental electrocution of several people by AC. Despite Edison’s public relations campaign, AC emerged as the superior technology at the time and led to the modern power grid.
There are parallels between the War of the Currents and how to create a renewable energy ecosystem that allows for blockchain technologies to interact seamlessly. Having this conversation at the infancy of the introduction of blockchain technology in the energy industry could avoid the need for a smear campaign in the vein of Edison’s crusade against AC. Greentech Media reported that there was a total of 122 blockchain startups in the energy industry as of March 2018. Additionally, blockchain startups in this space raised $322 million between Q2 2017 and Q1 2018. Companies only recently began bringing blockchain technology to the energy industry, but the recent growth in funding and startups has demonstrated that there is a fervor for finding new applications in the industry. These companies mostly stack their new products on top of pre-existing distributed ledgers. There exists no standard ledger technology for the industry. A standard ledger for the industry would most easily allow for an entirely scalable energy system to exist where new blockchain applications could seamlessly interact and integrate.
The Energy Web Foundation (EWF), a nonprofit organization co-created by the Rocky Mountain Institute and Grid Singularity, is creating the Energy Web blockchain platform. That platform “serves as a foundational, shared, digital infrastructure for the energy and blockchain community to build and run their solutions.” EWF has grown its global affiliate network to include some of the largest companies in the energy industry and included stakeholders throughout the energy value chain. These affiliates and others will be able to take advantage of EWF’s technology beginning in the summer of 2019, when EWF will launch the EW chain. If adopted as standard in the energy industry, this platform would provide the industry with a much needed standardized ledger system, allowing other players to build novel blockchain solutions on top of the platform.
Unlike the War of the Currents, the choice to adopt EWF’s platform is not one limited by scientific possibilities. No alternative to AC or DC existed, but potentially limitless options for a standardized ledger system in the energy industry do exist. A particular platform may become the de facto standard because its technology is novel and useful and key stakeholders have decided to adopt it. However, the industry’s decision to champion one platform over another does not necessarily entrench that platform as permanently standard. To that end, what mechanisms may lead to one platform becoming standardized across the industry?
One such path to standardization would be achieving scale by navigating the complex web of regulatory regimes in the energy industry. So far, no laws in the United States have specifically addressed blockchain in the energy industry, and the agencies regulating the industry have issued minimal guidance on the matter. A ledger system coming of age as the regulations for the development in the industry are being written could evolve with these regulations in such a manner that it solidifies its role as the industry standard. State public utility commissions, regional transmission organizations, independent operator systems, the U.S. Commodity Futures Trading Commission, the Department of Energy, the Federal Energy Regulatory Commission (FERC), and possibly other entities would each play a role in regulating any blockchain platform that attempted to reach a national scale. If that platform were to reach scalability, it would need to navigate the burdensome process of complying with each of these entities’ regulations as the regulations for the industry were being created.
FERC, among other entities, could prove to be a major impediment to a blockchain platform reaching a national scale. Individual states and regions have different regulatory regimes, but nationally, FERC regulates the transmission and wholesale sales of electricity in interstate commerce. As energy producers and users adopt blockchain technologies to facilitate the wholesale sale of electricity, FERC would likely have oversight. Section 201(b)(1) of the Federal Power Act sates that FERC “shall have jurisdiction over all facilities for such transmission or sale of electric energy” in interstate commerce. FERC has exclusive jurisdiction over the rates, terms and conditions of transmission in interstate commerce by public utilities, but the Federal Power Act limits FERC’s jurisdiction over sales to wholesale sales. Any person or entity using a blockchain platform to facilitate wholesale sales of electricity or transmission of electricity by a public utility would trigger FERC oversight. For a ledger system to become standard in the energy industry, it would have to facilitate interstate transmission and sales of electricity. As end users and entities try to connect to the system, they would trigger FERC statutorily mandated oversight. To achieve scale, the ledger system would need to allow these entities to achieve interconnection and the interconnections would be subject to FERC’s regulations. Increasing the difficulty simultaneously, the platform would need to meet the regulatory requirements of a litany of other state and federal agencies.
As there has not yet been guidance issued by these myriad agencies, it is not entirely clear exactly what regulatory burdens a potential standard blockchain platform would face. The regulatory landscape would likely evolve with the introduction of a de facto standard ledger technology. As the two interact, regulatory oversight could act as a mechanism to make one ledger technology the legal standard in the industry. The key to success is going to be properly complying with these regulations as they are built on top of a century-old legal framework in the energy industry. Mintz’s experience at the junction of energy regulation, renewable energy, blockchain and startups allows us to help you navigate your business through the various regulatory regimes that will inevitably interact with the growing blockchain platforms.
