12 Feb Blockchain for Retail Energy
By Dan Collins
The next Energy Marketing Conference on April 2nd 2019 in Houston Texas will feature a panel entitled “Blockchain and Other Emerging Technologies in Retail Energy”. It is stacked with professionals who believe (or don’t) that blockchain will make a difference in retail energy. As a prelude to that panel, in this article I will explore what a blockchain-based energy broker commission system might look like in retail energy. The best Energy Brokers earn commissions by bringing clarity to commercial customers and facilitating choice in deregulated energy markets. Their commissions are a fascinating candidate for a blockchain implementation.
Why does blockchain make sense?
A proposed solution should fit the problem. What is it about blockchain that makes it a good fit for broker commissions?
- Point-to-Point transaction: when an energy broker matches a customer to a retail energy provider the payment of the commission need only involve the payer and payee. Fewer intermediate systems means fewer interfaces between systems and less of a chance for confusion to inject into the process.
- Immutable transaction: a fundamental strength of blockchains is the fact that the blockchain ledger is immutable. Once a payment is made the transaction cannot be altered. Amounts, timestamps, counterparties and clawback provisions cannot be undone or changed in any way.
- Realtime payment remittance: once an agreement is made the payment can materialize at the rate the blockchain mints new blocks. Depending on the kind of blockchain involved, this can be almost immediate.
- Low transaction fees: typically, any transaction fees on blockchains are low.
So what would it look like if all broker commissions were transacted on blockchain? Besides the benefits listed above there are a number of intriguing possibilities.
- Ensuring the stability of the broker model: if there is a persistent criticism of the broker model it is that some feel the customer lacks clarity in knowing how much of their bill results from broker activity. This solution provides a way to at least begin to remove that opacity.
- Micro-payments: the low transaction fees and potential immediacy of the exchange of value on a blockchain would enable a “micro-payment’ engagement model. Currently we have two main models, up-front payments (paid at the time the deal is confirmed) and residual payments (which trickle in on a monthly basis). Both models add complexity to what should be a simpler process and result in financial risk and credit concerns. In a micro-payment model the payments can manifest on a smaller periodicity (15 minute “smart meter” telemetry data for instance). The customer consumes – the commission pays out 15 minutes later, not 45 days.
- Market Dynamism and Consumer Benefit: depending on what data is made available on the blockchain we can imagine a number of ways any given retailer could mine that data. The result would be a more competitive market that would be more likely to be catered to the customer’s needs. Retailers would see how and why they lost a given deal and would bring a better offer the next time around.
- Data Democratization and Monetization: data on a blockchain is keyed with the counterparties’ personal encryption keys. Therefore the agreement participants have control over what is shared and what is not shared. Imagine a world in which retailers interested in mining a commission blockchain must pay the customer and/or the broker for their data.
Inserting a blockchain implementation into any business domain would have potentially far-reaching impact. The energy broker, acting as the primary interface to the customer community, would be in a unique position to propose and guide the innovation on the grid edge and take advantage of the new opportunities. The customer would benefit from competition and the retailer would have an opportunity to reinvest funds that were previously tied-up in commission escrow and credit concerns.
The future is complex…
The future is decentralized…
The future is distributed…
…and enabled by innovation.
See you at the Energy Marketing Conference in April!
Dan Collins is the CTO of the Current Analytics Corporation