Has blockchain matured beyond the hype?

Has the initial hype around the use of blockchain in the energy sector cooled off, with commercial applications coming to the fore? 

We speak to energy experts to discuss progress so far and the likely developments in the coming years. 

Host:

• Richard Sverrisson, Editor-in-Chief Europe, Montel. 

Guests:

• Christoph Burger, senior lecturer, ESMT. 
• Tobias Federico, CEO of Energy Brainpool. 

Transcript

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:04

Hello listeners and welcome to the Monte Weekly podcast, bring Energy Matters in an informal setting. Today I am in Berlin at the Event to Horizon conference, which is focusing on the uses of blockchain in the energy sector. I. Joining me today is Christophe Berger, senior lecturer at ESMT, Berlin based School of Business. Welcome to you, Christoph, and it's a great pleasure and honor to have you here. I first met you two years ago, over two years ago in Vienna nearly three years ago. Yes. The first event, horizon conference. What do you see as the big developments in blockchain since then, what's happened? Or what's not happened?

Christoph Burger, senior lecturer, ESMT: 0:41

Yeah, I think if we look backwards, we are getting grown up. Three years ago there was a lot of enthusiasm. Blockchain was the new thing around the block. Then we had the boom and bust cycle in 2018. And now many players fall out of the markets. And the serious players remain. And we see a lot of progress on the technological side. So on scalability issues partly solved with private blockchains. And we see now getting more to the realization phase, you might say it's a little bit delayed because everybody was thinking that three years ago and now finally we are getting to that space. So we are getting more educated. We have regulators that try to understand the technology more, and it's also surprising that after the boom and bust cycle, some people thought that blockchain is now out of scope. But that's not the case at all, right? All the countries are still looking at blockchain technology. The big companies are now embracing that technology, so I think that's good, but it will be now more step by step.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:38

You mentioned companies and also countries have really embraced blockchain. I'm thinking specifically the financial sector. Yes. Why is the energy sector, why is it been so slow at at putting blockchain into practice?

Christoph Burger, senior lecturer, ESMT: 1:51

It's a very relevant and good question, and I think there are two. Leave us to that one. One is that the whole energy market is undergoing a transition and there are not so many countries where renewables play such a significant role. That flexibility becomes a key issue. And that is one topic within the energy transition, which doesn't have anything to do with blockchain. So how do you balance local markets? How do you set up coexistence of systems where you have grid based and off-grid solutions and allow for those mixtures? And beyond that now is the topic of blockchain who might be actually an enabler of such a decentralization and local marketplaces. So what we are lacking in the energy market is now the regulatory framework for allowing those local markets. That's one part. And then also. It's lacking digitalization regulation beyond blockchain. It doesn't have to be blockchain it's just open digital usage of new technologies for the whole contracting, for the delivery, for creating local markets and so on.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:52

Initially when there was a lot of talk of blockchain, it was, it will replace the energy exchanges. Or fundamentally, revolutionize energy trading and into sort peer to peer, decentralized nitty gritty stuff. But that hasn't really happened yet. Why not?

Christoph Burger, senior lecturer, ESMT: 3:09

Why not? Because I think that if you look at the marketplace, what we see right now, basically there are two solutions or two platform models developing. One is blockchain as a service. And this is driven by the big IT providers. And there you have platforms that are permissioned. So then you, so like IBM for example, I-B-M-S-A-P and so on. Yeah. So basically these players provide their platform solutions and that's permission. So you don't have any regulatory issues whatsoever. But you miss, of course the whole tokenization issue. Yeah. They claim that basically within that platform that's linked to your ERP system, so there's no problem whatsoever. Secondly, we are seeing, like here with Energy Web Foundation platforms who try to combine those elements. The platform with the tokenization. And I think in the future you will see different ways of those platforms. And right now I would argue that you see a race for the platforms from different parties from. Big utilities from IT companies, from functional companies who try to become a dominant player in these industry platform that's not only relevant for energy, is also relevant for shipping, for insurance and so on.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:10

But we haven't seen the sort of disappearance of these intermediaries though, in the marketplace so far.

Christoph Burger, senior lecturer, ESMT: 4:16

No, not so far. But I think you a little bit more patience. Where I would not say we don't want them to disappear. Yeah. Made a better succeed. But that is a little bit linked to the. Slow change in the energy sector where you still have your assets and then moving step by step. But I would assume that this will take place. And the blockchain technology, or let's say these platform models, provide a basis for utilities also to reach a smaller customer segments for DSO to get this local balancing market. Besides that, there is still the question, there's a lot of hype in the peer to peer, and I doubt a little bit about that because the question is how much do I earn? So there needs to be some business models developed.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:56

If you're gonna building a whole huge model around the fact that maybe household could make 10 euros extra month, that's not really gonna fly, is it? Or,

Christoph Burger, senior lecturer, ESMT: 5:05

We will see, right? Whether this will fly or not, I dunno. Some households might say, this is fine. This is the pocket money for my children. Exactly. And some others say, I don't care. The question is, do they really want to be involved with the tokenization or do they just look for a supplier who makes it cheaper? For me,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:18

that's the fundamental thing. And then, and energy consumers have been very slow to switch suppliers. Yes. And it's a big issue here also, I think is an issue, is that. We've seen at this conference and elsewhere. I hear, people putting solar panels on their roofs, battery storage, driving electric cars, but there's only a certain percentage of the population that can afford this. Yes. These are not cheap things, so I think that may be, may hold it back as well. That's

Christoph Burger, senior lecturer, ESMT: 5:42

true. That's a social question, basically, how to allow for that. On the other hand, if you look at all these decentralized solutions, you would argue that. If a region adopts that approach, there is more local value creation. Yeah. Because you have your PV module on the roof, or you have an artisan doing that, you need to operational maintenance and then you have local, more local value creation. And you might also argue that in the midterm you see a race to the top of communities who are able to attract then more inhabitants because this is the value creation. We have a nice, system in place and a new way of living. The big question is, like you said, that others are not left behind.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:23

Yeah, absolutely. We've seen the systems are in place, the software, even probably the hardware for these peer-to-peer platforms, but they haven't taken off. Is it, is there a governance issue?

Christoph Burger, senior lecturer, ESMT: 6:34

I would question that.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:35

We

Christoph Burger, senior lecturer, ESMT: 6:35

had several interviews with aggregators. So demand response. And they said basically there's so much potential with industry. Okay. So that I start, of course, with the biggest potential. And this a little bit like smart home. We had this discussion, who wants to have the smart home? The industry wants to have the smart home to sell more intelligent appliances. You would argue this is really nitty gritty stuff. So if we look at the demand response, the industrial side are much more interesting. I would still argue that the peak benefit. Of blockchain or any other technology digitalization might be that you create those local markets. So the DSO so far had to do the balancing via some Excel sheets and and basically there was nothing to balance. Now there's increasing complexity and the question, who is helping me to solve that balancing issue? And that might be any other digital platform, but there might be also a blockchain platform, which. It helps me to solve that complexity.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:29

Yeah. And there are already platforms out there doing Yeah. Just that and then solving congestion issues. Exactly. On the DSO level, but also on the T SSO scale. Yes. And I think that's the role of the aggregators here is potentially quite important as well. At this conference here, we've heard a lot, a lot being said about regulation, about the governments, about the data issues, data protection issues are regulators in a way holding back. Progress, would you say, or,

Christoph Burger, senior lecturer, ESMT: 7:57

I think there's a twofold approach. At a certain extent, data protection is a viable benefit to society. So you would argue that whatever new technology comes up should enable us to have our data protection and our privacy and any new technology should comply with that idea. On the other hand, the question is from, and I would argue, especially in Germany, to allow new technologies, new innovations. To be tested. And there I would take the sandbox approach of UK as a leading edge idea.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:27

When you say sandbox, what do you mean by that? Maybe not all of our listeners are aware of this. It's, since kindergarten, they may not have. Yeah. Yeah.

Christoph Burger, senior lecturer, ESMT: 8:33

So in UK there's a sandbox program basically where you can hand in you ideas for new technologies and how they work. And then a regulator is giving you the right basically to test that idea. Okay. Yeah. And that's a marketplace. So you hand all in the projects and the best projects then are allowed to be tested. And I think that's a very viable approach to do that. And that is going actually then beyond the technologies. You might be simply for the benefit of the better to, but that's a very

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:59

proactive regulatory approach. Exactly. Maybe not, it's not the same in maybe. Yes. All 28 markets of the Exactly, yeah. So there are some lagging behind. Yeah. Yeah. Because there's an issue of losing control when technology moves so fast and has the potential to disrupt so quickly. Yes. Then maybe, some people want to have that kind of element of control. Yes. But also raises another question maybe Christophe, that is the market, as it stands today, is it ready for such a huge disruption and are there, there's a lot of vested interest, there's a lot of elements at play here that could be holding back the. Technological progress. I

Christoph Burger, senior lecturer, ESMT: 9:32

think we just had our academic panel discussion. And then the question was, what is the demand for P to P trading in the uk? And the biggest hurdle was if you mention blockchain technology or Bitcoin because then people get hesitant or this is this kind of groovy thing we don't know about. Or bit dodgy as well. Bit dodgy as well. So I think it might be much better if blockchain technology is a technology in the background. And to simply focus on the customer benefits. I think that would help the whole debate. On the other hand, of course, I think more and more people get educated that blockchain is not the bad technology, but it's simply a new technology, a distributed ledger technology that allows to reduce the cost of trust and therefore that is an enabler to reduce costs or to enable platforms where we trust each other. And that's a good

Richard Sverrisson, Editor-in-Chief Europe, Montel: 10:15

thing.'cause then in a sense, it makes you think, we've had, we've been using the internet for many years, but there are not many internet conferences. I just wonder whether maybe in 10 years time, instead of talking about blockchain, we'll talk about the actual apps that are used on the blockchain. No,

Christoph Burger, senior lecturer, ESMT: 10:29

I completely agree. If you look at the internet type, the boom and bust cycle at the beginning of the two thousands, we have the same thing here right now. Yeah. Yeah. We are now through the dip. So now the more serious people progress step by step and in the internet to talk. Six to 10 years. So we have here also six to 10 years. And then I'm sure we will see some completely different applications

Richard Sverrisson, Editor-in-Chief Europe, Montel: 10:50

when it becomes a little bit more mature. Yes. Potentially. And when some of the hype has really subsided. Yes. Yeah. Thank you very much for finding the time to speak to us today. My great pleasure. Thank you. Thank you. We didn't find him in the beer gun, but we had to find him, had to come to his office for the next part of the pot. It's a great pleasure to have you here. Tobias Federico of Energy Brain Pool, CEO or CO and owner. Yes. And founder even. Yes. Yes. We were talking earlier about blockchain on this pod, and I'd like to ask you, I know you've been a, you were an early mover, or you did a lot of work in blockchain many years ago. You were one of the first people who could see the potential for the energy market here, weren't you? Yes.

Tobias Federico, CEO of Energy Brainpool: 11:31

Yes. I think it's almost five years ago when I was, thinking about blockchain, it took me a year to understand the blockchain and what are the necessary needs for the market. Yeah. So I think it's five years now. Absolutely.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:46

What, five years? Wow. How do you see the development for blockchain within the energy sector at the moment? There was a lot of hype, a lot of noise, especially three years ago. And it seems to have calmed down a bit now. Why do you think that is?

Tobias Federico, CEO of Energy Brainpool: 11:59

I think we have passed the classical hype cycle, so there were expectations into the blockchain. And for my personal opinion, I. Still believe it today that the blockchain or a blockchain type technology, a distributed ledger, has potential in the future energy market, especially in the electricity market when it comes to distributed generation and small scale transactions. But I think the expectations into the blockchain have been much higher than the technology can really solve today because the technology has been designed for different purposes. And huge amount of transactions is really difficult to scale up within the blockchain. It's quite slow, isn't

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:42

it though, compared to sort of other technologies out there or,

Tobias Federico, CEO of Energy Brainpool: 12:45

yeah, it is slow, but I think one other problem is that when you start to shift around the blockchain to do things off chain that is really the question of why do you really need the blockchain kind of solve of different technologies, which is out there already in the market. So the real benefit of the blockchain is for my personal opinion, is distributed ledger with high transactions and also the possibility to pay in cryptocurrencies.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:15

Okay.

Tobias Federico, CEO of Energy Brainpool: 13:16

Yeah,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:16

and

Tobias Federico, CEO of Energy Brainpool: 13:16

especially the last

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:17

part.

Tobias Federico, CEO of Energy Brainpool: 13:18

Has not really evolved.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:20

No. It's involved in the cryptocurrency sector, but maybe not in the energy world itself. But do you think the, the elements of the current energy market as it stands, make it very difficult for new technologies like blockchain to enter into it? It's a very, it's still quite centralized. There's a lot of interest groups who, you know, who have still quite powerful and maybe not ready for this great disruption.

Tobias Federico, CEO of Energy Brainpool: 13:43

The thing is, I think the biggest problem, is the regulatory approach. Okay? So once it comes to the electricity delivery, it's highly regulated, not only in Germany, most of the European countries. So if you will, would like to adapt a new technology into a highly regulated system. It becomes complicated, especially when we look into the security of supply. I think the biggest fear is that the serial security of supply is not really guaranteed with new technology. But when it comes a bit outside of the commodity, it might become interesting. So outside of the classical electricity supply chain to the end customer when it comes to payment of e mobility, for example. Okay. So this is a bit outside of the regulatory framework. Yeah. This could been an

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:30

interesting area, but, and there's lots of models, there's lots of business models already working on that, aren't they? And they e charging or charging of electric cars, the network, et cetera.

Tobias Federico, CEO of Energy Brainpool: 14:38

The approach is there, so I think we have a lot of use cases. Especially in that field, E charge, for example. But the problem is scaling it up within the today's blockchain technology. Here, I come back to my first problem. Yeah. Yeah. Is a bit difficult because the given technologies that, the given approaches we have up to now, while the the Energy Web Foundation is really thinking about a new technology, this might become interesting. But up today, what we have right now, it becomes a bit self cannibalizing. Yeah. Okay. Because once you have more interest into this blockchain and into the token of the blockchain, the token becomes more expensive. The more expensive the token becomes, the higher transaction costs are. Yeah. Okay. So and then it cannibalize itself. So the success of the blockchain is then the big disadvantage of the transaction costs.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:31

And then you're also into another area of regulation, of course, which is more financial. Yeah. And once you get the financial regulators involved, then it, that also could slow down the development in some senses.'cause every box has to be ticked. Every I has to be dotted and t

Tobias Federico, CEO of Energy Brainpool: 15:44

crossed. Especially when it comes to a token which might not have this high price volatility. Once you connect a token with a real currency like a Euro US dollar. But this is a different regulatory framework, especially from the financial regulation. So you have to have a bank license to be an currency exchanger because you exchange a cryptocurrency against the real one. And then it becomes complicated and costly and of course, costly. Costly,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:09

yeah. The technology is there is moving forward, but the regulatory framework 'cause remains bit so static.

Tobias Federico, CEO of Energy Brainpool: 16:17

The regulatory framework is made to ensure the security of supply. And of course under this approach, it's not really made for new technologies. So once again, we are outside the electricity supply. Then it becomes interesting working with new technologies. But again, the technology is not really highly developed. And the problem is also that I personally feel that there's a perfect match between a blockchain type approach and the electricity market. But not yet. Maybe in five to 10 years.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:46

I think for me, for the blockchain, two very clear use cases. Saying use not business models, but is the guarantees of origin. Yes. Tracking guarantees of origin and the other is peer to peer trading. Have they really moved on? Has it really, I mean it's got potential, massive potential there, but it seems to just

Tobias Federico, CEO of Energy Brainpool: 17:02

stayed still a bit. I think especially peer to peer trading becomes a problem when it comes to the regulatory framework. If speaking about peer-to-peer trading, you do have different approaches. Either it's I call it the marketing peer-to-peer trading. So you do it via a electricity supplier with a supply license. And you just swap between a left and right side within the regulatory framework of a supplier. So you still have a middleman. The classical peer to peer approach is that you get rid of the middleman and me as a gross human, in this case I am, will be able to sell electricity to a consumer directly. At least in Germany, it's a problem that I am under the regulatory framework to be a single user. Yeah. And the single user is only allowed to have one supplier. Okay. Yeah. Yeah. And in the peer-to-peer trading, from the presume side, from the generation side, which is mostly PV panels, they're not able to make the full supply to me. Also, during night, you're not allowed to have several suppliers. So yeah that's one of the biggest problems in Germany. In fact, when you're an industrial consumer and you have the continuous, measuring, then you're allowed to have different suppliers. In this case it would work, but not me as a household. Okay

Richard Sverrisson, Editor-in-Chief Europe, Montel: 18:12

so Hash Schmidt could do it, but not Hashid and Ha. Brown and Fline. You mul or something? Yeah. So

Tobias Federico, CEO of Energy Brainpool: 18:17

Hash Schmidt could be deliver, it could be the only deliverer to Ms. Mulah. But the problem is then he has not the generation capacities to do yeah. Coming to the certificates in general. So geos is one certificate type. We could do re regional generation, we could do also CO2 certificates, for example. That's great because the certificate is outside of the electricity supply chain. It's a digital asset, just a number, and you transfer the ownership. Of the certificate until it's going to be consumed, meaning canceled, so that is great. The problem is that a new technology with the setting up costs and the transaction costs has to compete with the current technology, which already has been set up. So the investment costs in setting up is some costs, and it's, we only have the continuous cost of running the system, which already runs and works. It must be really competitive to beat that and must have huge benefits. For example, the payment of the

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:18

cryptocurrencies. Yeah. Yeah. But then again, like you say, we're still a way off that. So the business models here seem to be lacking. If you were a betting man, and I know you're not where would you put your money in or where would you, where do you see the potential in the years to come? I. Will once these technologies start to mature, maybe three to five years, they could have more of an impact, do you think?

Tobias Federico, CEO of Energy Brainpool: 19:38

Yes, definitely. I'm still a strong believer in a distributed ledger in a distributed de fossilized electricity market with small scale generation. So I believe into that. The thing is the technology must. Change radically. So even the approach from the Energy Web Foundation, which is mostly connected to the old Ethereum blockchain type of approach. So we do have a continuous chain. The question is really necessary to have all the transactions of the past of electricity supply, for example. You speak about cryptocurrencies, then it's really necessary to book your account. But the blockchain should have the right to forget things or to decrease the information, to condense the information. Then it becomes shorter. The tangle approach is also from IOTA is an interesting approach. Okay. Which thinks the technology in a different way, but even IOTA is not the final answer of a distributed ledger technology. So I don't know it yet. I think if I would bet money onto, I would like to develop a distributed ledger technology blockchain type, but not with a continuous chain of blocks. Yeah. Okay. But I don't know what the approach could be.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 20:47

It could be around the corner maybe. Yeah. I'm afraid we have to wrap it up there. We could talk for hours on this, I think. Yes. So thank you very much for joining the Monte with DuPont. It is a pleasure. Always thank you to this week's guests, Christophe Berger and Tobias Federico. Next week we'll have a video recording of the pod from an old power plant in Berlin, KWE Berlin. Joining me, Richard Ferrison will be Anna Revi, jojo Hubbard, and Maria Carvana, all leading energy experts in the blockchain sector. You can also find the pod on normal platforms and as well as on YouTube. Thank you and goodbye from Berlin of.