Investments in energy blockchain startups are soaring, totaling $300 million since the third quarter of 2017, half of which came in January 2018 alone, according to a new report from Wood Mackenzie's GTM Research unit. Most of that surge is thanks to a fresh but controversial form of crowdfunding known as initial coin offerings.
Much of the excitement, and early adoption, around the distributed ledger technology known as blockchain centers on its use in financial services. But a burgeoning cohort of developers and advocates are pushing blockchain technology into the power and utilities sector. Despite its "great potential" in peer-to-peer energy exchanges, electric vehicle charging, renewable energy credit trading and other energy industry applications, however, blockchain today remains an immature, largely precommercial technology with "unproven benefits" for the energy industry, the report, released March 5, found.
While 122 organizations worldwide are working on ways to build blockchain and its related uses into energy industry transactions and operations, "it has yet to be proven that blockchain can increase efficiency or add value to key utility platform solutions," GTM Research analyst Colleen Metelitsa said in a press release.
"Blockchain is a nascent technology with major commercial deployment still several years away due to technical and regulatory barriers," the report cautioned. Among the technical barriers highlighted in the report are transaction speed and compatibility with utilities' legacy hardware and software systems. "Both are being addressed by the blockchain development community and will likely improve drastically over the next couple of years," GTM Research predicted, citing numerous pilot projects underway to address such shortcomings.
Yet, given utilities' long sales cycles, "it will be three to five years from a successful pilot before we see a true commercial deployment in the utility sector," the research firm added. A few commercial projects, nevertheless, will mark their first full year in operation in 2018, according to the report, providing "initial insights into the technology's performance and potential."
There are also major hurdles on the regulatory front. The U.S. Securities and Exchange Commission, for instance, appears poised to crack down on initial coin offerings as part of a greater push to regulate cryptocurrencies. Initial coin offerings are crowdfunded investments to develop blockchain-based applications, with funds raised on a blockchain. Such investments, which involve the purchase of "tokens" that can be digital money or assets like electricity, account for 75% of the funding identified in the report. Through January 2018, blockchain companies had completed 21 sales of tokens and are on pace to complete another 25 token sales by June 2018, GTM Research said.
Ultimately, the energy sector, with its move toward more decentralized assets and market participants, "is one of the sectors most likely to be disrupted by blockchain," the report concluded. "The energy industry is still searching for the top use cases for blockchain," but new use cases and new pilots are sure to keep appearing in 2018.
