Ofgem launched their Innovation Link last week with a panel discussion featuring Molly Webb of Energy Unlocked, Paul Ellis of Electron, Charlie Quigley of Youtility and Martin Crouch of Ofgem.
The Innovation Link is a bold venture, providing not just support to innovative ideas, but recognising that today’s regulatory framework may not be suitable for the future industry structure, it will provide a regulatory sandbox within which new products and services can be trialed without all of the normal regulation.
While there was limited time for questions at the launch event, I was fortunate to be able to ask the panel’s thoughts on what the Capacity Market and other charges incentivising innovation behind the meter would mean for regulation, and what the relative prospects for public or private blockchains are in the energy industry.
Public or private blockchain
Perhaps unsurprisingly, Paul’s view was that a private blockchain based on a consortium of big, medium and small energy companies was the most likely application.
Molly countered that the small companies where most of the innovation is happening are not ready for collaboration. Peer to peer matching of distributed generation, storage and consumers would be facilitated by a blockchain, but would require a supply license.
To deploy a private blockchain solely for a company’s own customers would not, according to Paul, access the benefits of increasing transparency and eliminating the need for a central intermediary.
However, the R3 consortium set up to apply distributed ledgers to the financial industry, recently missed its funding target as Goldman Sachs, Santander and Morgan Stanley pulled out of the group.
Everyone wants to be the platform
Therein lies one of the contradictions affecting deployment of blockchain in the current established market structure. Monopolies, as Molly pointed out, aren’t necessary with a distributed ledger shared by all participants. But if the most likely application is a private blockchain owned by a dominant consortium, their objective is to be the platform on which all service providers deliver services to their customers.
For this to be achieved in a market as fragmented as the UK energy industry, it would require not just incumbent suppliers, but new entrants, independent generators, brokers, distribution networks, the transmission system operator, Elexon and Ofgem among others, to agree to replace the existing infrastructure.
The challenge of change
A number of suppliers have experienced significant difficulties simply from replacing their own billing systems within a known, familiar industry structure. While some are investigating applications for blockchain, others are developing platforms to provide the same services using more traditional technology. For all its evident promise, many in the industry are yet to be convinced that blockchain is more than a solution in search of a problem.
Those with a dominant position or monopoly have the most to lose, and least to gain, from the scale of disruption resulting from a fundamental transformation of the infrastructure that underpins the energy markets. With common infrastructure already in place, it may well require the regulator to remove obstacles to a better solution, especially when the benefits do not accrue to the incumbents.
With the Innovation Link, at least Ofgem is seeking to engage with and understand the innovations that may transform the industry, and address the challenges identified in the call for evidence on A Smart Flexible Energy System.