Blockchain’s threats and promises to African energy

African energy utilities and regulators are largely silent and actionless on the growing conversation around blockchain’s potential impacts within the energy sector. Elsewhere in the world, coalitions are being formed to understand and leverage the futuristic benefits of blockchain in energy. One such effort is the Energy Web Foundation (EWF).

In spite of the indifference, blockchain is a technology that could dramatically and exponentially accelerate energy access in the world’s darkest continent. Its disruption potential already threatens several foundational business models in the energy sector.

Blockchain’s use cases within the energy sector is largely theoretical at this point, but if it fulfills our futuristic expectations – to which millions of dollars for research have been committed – it will deliver an enormous regulatory shake up within the energy space that could prove catastrophic for an unprepared energy sector in Africa. Africa’s energy markets are already in a state of flux, introduced by a spate of fairly recent privatization campaigns and the ongoing modernization from fossil to clean energy source in many markets.   

Blockchain and its energy use cases

With Blockchain, transactional dominance within the energy sector would be transferred from utilities and regulators to small producers, consumers and prosumers.  Blockchain technology seems a bit complex, however a definitional attempt to simplify it will be “a distributed ledger technology that decentralizes transaction data by easily and securely creating tamper prove copies for all network participant”. Moving away from the core technology to the use scenarios; you may view blockchain as a kind of internet.

While internet has email, ecommerce, online news, as embedded features; blockchain has bitcoin and several other emerging use cases as its embedded features. It started predominantly as a tool for more secure, easier, cheaper and faster financial transactions. However blockchain experts now realize that it has the potential to disrupt the energy sector too, bringing with it, all the benefits it delivers to fintech – especially transaction efficiency. If blockchain use in energy successfully advances beyond the present – largely theoretical phase – it will then have the capacity to revolutionize how we produce, sell and use energy

The promise for African energy utilities

There are several evolving use cases for blockchain in energy; however one of the most impactful will be its ability to enable peer-to-peer energy trading. Other use cases are its capacity to digitally tag renewable energy sourced power (renewable certificates) as well as improve carbon emission accounting and power supply metering.

Most utilities in Africa have failed to deliver reliable, affordable and sustainable power and the movement towards cleaner, decentralized power transactions has begun in earnest. However, decentralized power supply is still hampered by opaque, nascent and complex regulatory systems that are still skewed to favor large, centralized, monopolistic utilities. However one of the core capabilities of blockchain is the ability to remove transaction intermediaries and permit direct transaction between – for example a small energy producer and a consumer in a remote location. It eliminates intermediaries by introducing a decentralized and secure record of all transactions and by using smart contracts to enforce private transaction rules (such as volume and price of electricity delivered). This will be a game changer by introducing a new kind of competition.

In New York, April 2016, blockchain was successfully used to trade energy directly between two neighbors.  Thus, in a fully developed scenario, power purchase transactions will no longer need intermediaries such as banks and energy companies. Also by governing transactions based on peer defined rules, the wider regulatory framework governing power sales becomes less important.  Imperatively regulators have to find a new way to maintain oversight in such a largely decentralized system.

In practical terms, millions of small and medium power producers as well as devices, can securely and quickly buy and sell power on blockchain-supported platforms, without entering into direct contract with the utility (that may or may not be involved in the delivery)

The potential power-demand-supply freedom that blochchain promises will call for a total reinvention of the business model of energy companies especially distribution companies. It will challenge the current regulatory framework in new ways.

While both the benefits and challenges will be global, the critical state of energy access in Africa means that energy stakeholders cannot afford to wait for the technology to pass maturity stage before keying in. 

CHIJIOKE MAMA 

Chijioke Mama is an Energy Research Analyst, and the Founder of EnergyDatar | [email protected]