Blockchain: revolutionizing the energy mix

NARRATOR Welcome to the DNV Talks Energy podcast series. Electrification, rise of renewables and new technologies supported by more data and IT systems are transforming the power system. Join us each week as we discuss these changes with guests from around the industry.

MATHIAS STECK Welcome to a new episode of DNV Talks Energy. Our guest today is Brianna Welsh, Vice President and Head of Asia, Sindicatum Blockchain Technologies. Welcome, Brianna.

BRIANNA WELSH Thank you, Mathias.

MATHIAS STECK Brianna, we want to talk about the impact of new technologies in the renewable energy sector today. But before we do this, it would be great if you could introduce Sindicatum Blockchain Technologies and yourself a little bit.

BRIANNA WELSH My name is Brianna. I’m originally from Canada. I have lived in Singapore now for two years, working for Sindicatum Sustainable Resources, which is a renewable energy investor and developer. We have assets across Asia, mostly in developing markets. But I was actually hired to start a company called Sindicatum Blockchain Technologies, which owns the Reneum Institute, which is a non-profit subsidiary focused on using blockchain as a certification and trading platform for renewable energy certificates.

MATHIAS STECK And Brianna, Sindicatum Blockchain Technology uses the term using tech for good. What do you mean about that?

BRIANNA WELSH That’s actually a personal term that I use regularly. I believe in the power of innovation and technology to democratize, decentralize, and enable access to a good cohort of the world that is not already taking advantage or capitalizing on the rush to renewable energy. So, that’s a personal mission.

In terms of Reneum’s mission or Sindicatum Blockchain Technologies’, we are trying to enable buyers to use their buying power — and by buyers, I mean multinational corporations who consume energy — to drive investment into renewables and to encourage sustainable practices.

We do that by offering renewable energy power developers an additional revenue stream that then encourages new developers to come into the market and enables the buyers to facilitate capital flows.

MATHIAS STECK Looking at distributed ledger technology, blockchain, as a technology as a whole, how will this impact the energy sector and it’s empowering consumers and incumbent organizations?

BRIANNA WELSH I think the best approach for blockchain, or the best use of blockchain, is to enable new business models in the renewables and climate space. So, incumbents and traditional business processes in energy and power has been traditionally run by monopolistic organizations, usually centralized and bureaucratic in a unilateral flow of consumption, which basically means that one or two big businesses control the entire industry.

Typically, this is consistent across all countries, and consumers have no real influence or control over how they consume at what price, at what time. And I think blockchain enables, through its decentralized features, a whole new consideration of this paradigm, I think, of the energy of sector. So, we’re considering now for the first time ever in the last maybe two years how we can re-envision what the power sector should really look like and rebuild it from the bottom up, not just from the top down.

An example of that would be… I think we’re seeing a lot in the peer-to-peer microgrid space. There’s quite a few companies out there that are operating successful pilots. Power Ledger based out of Australia. LO3 Energy based out of Brooklyn. They are doing a lot of interesting work by creating what’s called a microgrid, which enables the concept of a prosumer. A prosumer is a producer and a consumer at the same time, and so it enables individuals to empower their own consumption and to profit off of using solar power on their rooftop.

For example, selling that power, if they have an excess power, selling that back to either the grid or to a neighbour and profiting off of it themselves. Additionally, it allows for a more stable grid because in the event that there is a rush in demand or there is a power outage or there is instability in the grid, that little tiny community that’s powered together by these individual prosumers can actually disconnect itself from the grid. So, it’s an autonomously functioning feature that is entirely done automatically through a blockchain program or a smart contract.

MATHIAS STECK Brianna, expanding on this, I’d like to talk a bit about the scalability of these solutions. If we talk about Power Ledger and LO3 Energy, which are really good solutions, they are limited in scale on the location. If we look into the future of the energy industry, you think that blockchain will be able to help us optimize really the system on a bigger level like on a country level, for example?

BRIANNA WELSH I think there’s various different applications for the blockchain technology, and I don’t necessarily think it is a one-size-fits-all approach.Nor is it going to be a solution for every problem. So, where we see well-functioning, highly advanced societies operating grids currently, I don’t necessarily think it will be as impactful as it will be in some more developing regions or island nations or regions that are not currently connected whatsoever. I think that’s where we’re going to see the real scalability benefits.

There’s quite a few companies, including Impact PPA, in India and in the Philippines that are using distributed technologies, which basically means you don’t have to lay traditional transmission lines. You don’t have to get significant infrastructure capital investment like you would have had to in the traditional power development system. And that’s where I see the scalability potential. I don’t really think that it has as much applicability in let’s call it the United States, for example, for well-functioning grids.

The only area I see it being really valuable there would be the integration of renewable energy. So, the integration of intermittent sources like solar and wind because it actually enables a more automated approach to connecting in the event that a solar or wind power is not… It’s not sunny, or it’s not windy. Then it can trigger an automatic signal to a traditional grid system, so using fossil fuel sources to kick in when they are down.

So, that’s where I see it being really valuable, in a more developed economy. But certainly, I think long term we’re going to see a lot more disruption or innovation in the regions that are just coming on to renewables or just getting electrified now.

MATHIAS STECK Other areas where blockchain is useful is, for example, the trading of renewable energy certificates or carbon certificates. But there’s also good opportunity obviously, and I think you mentioned it briefly, about helping financing renewable energy projects. Going forward, we see energy transition will require large investments, so how do you foresee what role can blockchain play there? Maybe also get other types of investors into the mix?

BRIANNA WELSH Where I see the blockchain being most valuable here is incentivizing new investment and enabling smaller investors to participate in raising capital. So, traditionally, renewables or even traditional fossil fuel investment has been the exclusive domain of institutional investors, big development banks and lenders and so forth. We haven’t really seen a lot of accredited investors, family offices, smaller funds getting involved because the ticket size is just too large for them and the risk profile is not in their appetite.

So, what we’re seeing with blockchain is the ability to use cryptocurrencies to tokenize investment at a smaller scale. Instead of $50 million or $20 million, we’re looking 500 or a hundred thousand, which obviously opens up the floor to a lot of new players. I’m quite interested in seeing that continue and observing how we can use the crypto-economics to incentivize new players.

It also enables liquidity in that market. Because when you have a smaller market of investors that are accredited by that platform — there’s a company in Hong Kong called Allinfra that’s doing this quite effectively right now — you actually create a micro-market. So, the investors themselves can attain liquidity much faster, maybe five or ten years instead of 20-year time horizons. And this obviously is more attractive again for smaller players because their funds require more immediate returns. So, that’s one really interesting way.

I think the other thing that I’m quite interested in seeing is where maybe they don’t have the KYC or the risk profile that larger investors are typically attracted to. Let’s say the off-taker of power is not an accredited buyer or their credit risk is quite low. There’s ways to use blockchain to actually store all of the transaction data just to create credit history and to keep that public so that investors on a global scale can feel very confident that their off-takers are stable and liquid and that they will continue to pay their debts as long as they’re due.

MATHIAS STECK We have quite a few applications out there already, which are successful, and you’re certainly connected to quite a few of those. Could you give us a few successful case studies, just examples, and to understand better how that really works?

BRIANNA WELSH I mentioned Allinfra in Hong Kong, which is using security tokens to democratize investment into renewable development pre-construction. WePower, based, I believe, in either Estonia or Lithuania, is doing something quite similar.

And actually the token that they are selling pre-construction goes towards either ownership of that asset — long term, that can be sold as a traditional asset sale — or it goes towards a discounted rate on electricity prices if a consumer wishes to purchase. And this technology actually opens the floor to investment in a much smaller scale on a consumer basis, so we’re talking a few thousand dollars, not hundreds of thousands. So, now we’re including small-scale consumers, which have never been available or has never been able for investment.

MATHIAS STECK If we talk about blockchain, there’s great hopes, and you have given us some great examples already. Some people say it may become a general-purpose technology, something like electricity or the Internet. But at the same time, we also hear some criticism that blockchain is overhyped. What would be your take on this, and why is that?

BRIANNA WELSH With respect to the power sector, I think the problem that we’re going to see and that we are currently experiencing with integrating blockchain is that as I alluded earlier, the power sector was never designed with decentralization at its core. So, when you’re integrating a decentralized technology, it requires a fundamental thinking of the flows of energy, of the management of systems, of management data, of security of data and privacy.

You start to consider all of these elements that are just taken for granted in the current system. So, I think that’s one area where power is going to struggle at least with respect to incumbent organizations like utilities and big power developers.

With respect to the actual technology and where it’s overhyped, the big problems we’re seeing is that blockchain is an application. It is not a business, so it needs to be applied to a business that has successful outputs or successful long-term strategy.

And I think the rush to cryptocurrency in 2017/early 2018 put a sour taste in a lot of people’s mouth with respect to blockchain, although fundamentally they’re different businesses. While crypto uses blockchain as a platform, blockchain is a separate application altogether, and I think we have to consider what does it mean to become a blockchain company. And so when you’re integrating blockchain, you have to be very sure that the data that you’re using, the data you’re storing, is good data. It is quality, and it’s accurate.

Because ultimately when you’re taking any information from a physical hardware device or a paper market and putting that into a digital format that’s being secured, that’s permanent. And so if the data is incorrect, then it’s permanently incorrect. And that’s a problem that in the blockchain industry, we’re calling garbage in, garbage out, which something that I think a lot of businesses have actually overlooked already.

So, that’s one area where I think we have to be very clear about how we use it and very cognizant of its core features and its deficiencies as well. I think separately it’s not a stand-alone solution. It needs to be integrated with other technologies. I think IoT devices are going to increase as a result of blockchain. They really help with the physical assets being transferred on to blockchain, which we call off-chain to on-chain. I think using sensors, so monitoring the stability of the grid using sensors, monitoring power plants themselves, will continue to advance the blockchain success.

And then lastly, I think how we analyse big data and our storage capacity in the cloud, these are all going to be offshoots of blockchain success but also deeply integrated in the business. And that’s where I think we have to be very conscious of how we’re applying blockchain.

MATHIAS STECK Brianna, another area of sometimes criticism is that creating the blocks, the mining of the blocks, consumes quite a lot of energy, so you may have a comment on that. And secondly, could you give us examples how blockchain could help actually to reduce CO2 emissions?

BRIANNA WELSH To the point on the energy consumption of bitcoin, I’m sure many of you have seen the numerous headlines out in the media. Bitcoin uses X percentage of energy more than insert country name here, and that is definitely true. I believe, when bitcoin first came out, it was using 57-terawatt hours of energy, which is actually more than, I believe, the country of Thailand.

So, it is quite an extensive consumer of energy. But the way that bitcoin consumes energy is through the process of mining, which is a proof-of-work consensus algorithm that incentivizes multiple players to participate in the validation of data. And this is great for a currency that needs to be totally decentralized, where there is no manager of that data.

With respect to a corporate company’s application, it’s not quite as necessary. So, the energy sector, where data is already owned usually by a company as opposed to consumers or individuals, a more appropriate consensus mechanism called the proof of authority is being employed now.

So, the Energy Web Foundation, which is one of the pioneers of this technology, has built their own proprietary blockchain as a competitor of Ethereum to use this algorithm and this mechanism to validate data, using a couple of key authorities.

I believe they use about 20 different individual companies who are responsible for validating the data, and their reputation is at stake. So, if they were to manipulate any information or fraudulently claim a factual transaction, they would be called out in the public sphere and their reputation would be at risk. And so there’s a very high incentive to actually be acting in good faith here.

So, with respect to that, that process is quite energy un-intensive, and therefore it’s somewhat immaterial in terms of its use of energy. I think separately I don’t see any reason why bitcoin miners or Ethereum miners cannot use renewable energy–powered energy to mine. So, if they were to consume only electricity that came from solar and wind, then there’s really no problem with it being energy intensive.

I know of a company called Soluna — I think it’s based out of Morocco — that has built their own data mining centre for bitcoin specifically that has a wind farm attached to it that powers all of their mining. I think that’s a really good example of how we can integrate renewables with bitcoin and various other cryptocurrencies going forward.

To your second point, how blockchain can be employed on a commercial level to reduce CO2 emissions, we’re seeing quite a few different examples here outside of renewable energy space, specifically. One of them would be in the carbon tracking and nationally determined contributions monitoring and accountability, which are goals and targets set by countries for the Paris accord.

And this enables transparency and full accountability for any reduction in CO2 emissions, transition to renewable energy, reforestation projects — whatever it is that they’re investing in for their reduction or their transfer of CO2. And this way, it makes this data totally public so that they are completely accountable. So, that’s a really easy way to use blockchain, I think, to incentivize carbon or CO2 emissions reduction.

Secondly, there’s a company based here in Singapore called the Global Mangrove Trust which is using the blockchain technology to incentivize investment into reforestation of mangroves. Mangroves are very vulnerable little plants that line coastlines and protect against things like typhoons and monsoons and particularly grow in tropical areas that are most at risk to climate change. So, this is very important to be investing in, and the blockchain enables tracking and incentivization for either consumers or corporate companies to participate.

MATHIAS STECK Thank you very much. Those were very interesting examples. I have one final question for you, Brianna. What is Sindicatum Blockchain Technology doing to harness the new collective focus on climate emergency to progress the energy transition?

BRIANNA WELSH According to the IPCC, we have just over a decade to cull our addiction to fossil fuels and to completely transition into a renewable-powered economy. So, my personal view would be that we need to find a way to incentivize new investment and to reduce the barriers to climate finance.

So, Reneum/Sindicatum Blockchain Technologies is helping to drive additional investment into the renewable space, using its blockchain platform, by enabling power developers and renewable providers to capitalize on what they call the monetization of environmental attributes. It's a lot of jargon, I know, but it basically just means that they are profiting off of the greenness of their energy.

And we’re opening up a market for voluntary consumers and buyers, so big companies who are looking to focus on sustainability and to drive their renewable energy consumption and trying to create a global and liquid market for the first time. So, by offering additional revenue stream to renewable providers, increasing the appetite to even develop, and by helping buyers and easing the pain associated with buying these credits or these certificates, we are helping to drive new investments and climate finance into the space.

MATHIAS STECK Thank you very much for these interesting insights, Brianna, and thank you very much for listening. That was Brianna Welsh, Vice President and Head of Asia, Sindicatum Blockchain Technologies.

BRIANNA WELSH Great. Thank you, Mathias. It was nice speak with you.

NARRATOR Thank you for listening to this DNV Talks Energy podcast. To hear more podcasts in the series, please visit dnv.com/talksenergy.