Low carbon electricity generation is a key priority for economies around the world to meet climate goals and promote sustainability in the energy sector, currently the largest contributor to global emissions. Digitalization of the sector is forecasted to be the solution for Southeast Asia’s legacy energy systems to meet these decarbonization goals while balancing energy security and costs. Blockchain is one such digital technology that has quickly gained the attention of utilities for this purpose, to accelerate the integration of renewables by changing the way energy is produced and consumed. Several pilot projects were launched across the region last year, and 2019 will be an important year to test the viability of the technology in being the much needed transformation energy systems need.
Often termed the next generation of the Internet, blockchain has made headlines for its ability to eliminate the middleman, resulting in lower overhead costs, increased transaction speeds, and improved transparency across systems owned and operated by different entities. In Southeast Asia, three major use cases are emerging to advance transparency and decentralization in energy sectors:
Wholesale & retail energy trading
Smart contracts can automate grid settlements and wholesale electricity transactions to decrease credit risk as well as operational cost per trade by minimizing human intervention required in the process. The interoperability of various wholesale energy trading platforms also eliminates the need of brokers and allows consumers to take better advantage of distributed energy resources in different energy markets.
The decentralization of several energy markets across Southeast Asia is positioning blockchain as a key technology for transparency in retail sectors. Electrify.Asia, for example, is a Singapore-based startup building a retail electricity marketplace for Southeast that produces retail contracts between suppliers and consumers on the blockchain. Following the launch of the Open Marketplace in Singapore in November 2018, the company has launched a blockchain-based marketplace for residential households to make informed choices about their energy suppliers and has also implemented projects in Japan.
We spoke to Electrify CEO Julius Tan about his entrepreneurial journey
Peer-to-peer (P2P) energy trading
Peer-to-peer energy trading, which involves the sale of excess solar energy between neighbouring buildings or within a microgrid, is the most common use of blockchain trials in Southeast Asia. Benefits of the solution include an economic incentive for ‘prosumers’ by selling electricity to consumers nearby, greater transparency in energy sources, and placing production closer to consumption.
Most notably, Australian startup Power Ledger has partnered with Thailand’s state utility BCPG to test peer-to-peer energy trading at Bangkok’s T77 precinct, which includes a shopping centre, an international school, apartments, and a hospital. Over 635kW of solar energy will be traded in the neighbourhood, and the different load profiles of the participating buildings promise to indicate blockchain’s ability to maximize solar energy consumption with “across the meter” energy transactions. The project is also being conducted in partnership with Bangkok’s grid operator Metropolitan Electricity Authority (MEA) and demonstrates how industry incumbents, such as the Electricity Generating Authority of Thailand (EGAT) in this case, can test new business models in an ever-evolving market.
However, limited information is currently available on the financial benefits of P2P energy trading for end consumers and the scalability of the solution in different markets.
Renewable energy certificate (REC) & carbon credits market
Blockchain and smart contracts can be used to streamline and automate the process of issuing, tracking, and trading environmental attributes such as renewable energy certificates (RECs) and carbon credits. RECs have become a key strategy for corporations in Southeast Asia to meet their emission offset and renewable energy goals. Singapore’s grid operator SP Group has launched Asia’s first blockchain-based REC marketplace, which allows smaller producers of solar energy to trade RECs. The marketplace will involve energy producers and consumers from energy markets across Asia and is also being trialled by Singapore-based real estate company City Developments Limited and DBS Bank.
Sustainability financing services provider South Pole Group has also partnered with ixo Foundation and Gold Standard for a blockchain-based application that issues carbon credits, with the first trial set to involve a solar PV project in Thailand.
Blockchain energy startup Energo Labs is trying to bring clean energy to the region
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At its core, blockchain in the energy sector aims to put data at the forefront of energy-related decisions and promote distributed energy generation through the rise of ‘prosumers.’ Most applications, however, are still in infancy with limited quantitative data available on project outcomes and the added value of blockchain relative to other technologies, providing insights on factors that will determine the commercialization of these projects including regulations, business models, and the cost of required infrastructure.
Regulation on the sale of electricity and incentives for ‘prosumers’ are set to be the biggest barrier for industry-wide adoption, as grid operators in Southeast Asia remain conservative. The viability and eventual commercialization potential of pilot projects will be determined by several factors including regulatory reform, infrastructure limitations in a region, and the acceptance of grid operators to pilot new technologies. There is also a need for new business models for a decentralized sector, that compensates a larger number of players than the status quo and focuses on the evolving role of utilities to prioritize equipment maintenance and management than generation.
However, the large amounts of funding from venture capitalists, utilities, and multilateral organizations into R&D and pilot project indicates interest in the technology’s potential to democratize energy in Southeast Asia. Asia Pacific received over 34% of overall investment in energy-related blockchain projects between 2017 and 2018, and over 30% of this funding was directed towards applications in Southeast Asian markets.
It is projected that blockchain applications will emerge into mainstream adoption by 2030. Success for the technology in the energy sector, therefore, will develop in phases depending on technology maturity and speed of regulatory reform in different markets.
Beyond the hype of cryptocurrencies, blockchain is expected to advance decentralization and digitalization of Southeast Asia’s energy markets. There is a new urgency for prosumer-centric regulatory reform in the region to meet climate and carbon reduction goals and drive large-scale solution adoption. 2019 will be a crucial year for energy blockchain as several markets, including Singapore, Malaysia, and Thailand, further reform policies for liberalization and projects transition into commercial stages.
Contributed by Vertech Capital
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