Navigant Research Blog

Where Are All the Meter Manufacturers in Transactive Energy Projects?

— December 7, 2017

That’s a question I’ve been asking myself recently. The answer seems to be “nowhere.” In the 110 or so trials of utility industry-related blockchain and transactive energy (TE) Navigant Research has identified, meter vendors are at best the silent, invisible partners of other companies. When asking leading blockchain and TE startups about the meter hardware in their trials, the stock response has been “nothing is available that supports our requirements, so we built our own.” So, why aren’t meter vendors making more noise about a potentially significant growth opportunity?

Blockchain is the hottest, most hyped technology in the energy industry, and TE is its hottest use case. If current TE trials prove successful, I expect rapid adoption, particularly in countries with high penetration of solar, supported by ratepayer-funded incentive mechanisms. TE’s market-based incentives could replace subsidies. Large-scale, fully automated TE platforms have a number of requirements, as discussed in Navigant Research’s Blockchain for Transactive Energy Platforms report:

  • TE pricing requires visibility into local network conditions, including network assets and distributed energy resources.
  • Smart contracts—which determine when transactions are opened and closed—must be hosted locally and fed with market data.
  • Meters measure and record all TE power supplied and consumed.
  • Communication networks will transport data to interested parties.
  • Transactions must be recorded to the blockchain.
  • Significant distributed compute power will support automation of the TE platform.

Meter Vendors Can Support Many TE Functional Requirements

TE markets will have to be settled in much the same way as wholesale power markets are today, in accordance with strict market regulations and technology standards. This is a complex system, where a lot of trust will be placed on the technology platform. Meter vendors have many capabilities that could put them in a commanding position to lead the TE space:

  • Smart meters already provide visibility at the point of consumption.
  • Advanced metering infrastructure communications could provide the data networks on which TE runs.
  • Smart meter data concentrators could be used as nodes for the blockchain, store smart contracts, provide compute power for localized pricing calculations, and so on.

There is another feature that meter vendors have so far overlooked: it is difficult to amend records already committed to the blockchain. Consequently, it is vital to ensure that transaction data is correct before it is recorded. This will be a difficult task in a largely automated TE platform. While smart meter accuracy is generally high—between 99.5% and 99.9%—a validation algorithm is run regularly to estimate missing or erroneous meter readings. In TE, a similar algorithm must run on transaction data. However, it is likely that validation will be distributed alongside the ledger, rather than a centralized batch process. Most meter vendors also offer a meter data management system with an associated validation algorithm.

Despite meter vendors’ requisite hardware and software, they are nowhere to be seen in the TE world. There are many reasons: ongoing major smart meter rollouts command a lot of attention, and there is little money to be made in TE right now. However, I would have expected at least one vendor to have taken the leap into the world of TE. The biggest risk is that meter vendors are trapped in the old utility world, where metering innovation was driven by utilities—with whom meter vendors have decades-old relationships—and adoption of new metering technologies was slow and incremental.

TE adoption will be different. It is driven by startups that have no previous relationship with meter vendors. These startups could develop their own validation algorithms; they could choose to use public 5G networks for data communications; or they may decide to deploy their own distributed compute. If this happens, meter vendors will miss out on potentially billions of dollars of value created by TE. Meter vendors must wake up to the reality of TE and the opportunities and threats the market presents.

 

High Stakes Blockchain Applications Are a New Frontier for Cybersecurity

— November 30, 2017

Blockchain-Based Systems Are Only as Strong as Their Weakest Link

On November 16, the US Patent and Trademark Office released a patent filed by Nasdaq that describes a blockchain-based architecture that could be used to track the ownership and transaction of stock market assets.

Nasdaq is part of a wave of big name organizations globally—including banks, utilities, and the Pentagon—that have announced plans to experiment with blockchain to determine whether it can help their organizations run more smoothly, efficiently, and securely.

As the hype train charges onward and expectations skyrocket, there is a real risk that in the rush to generate solutions to increasingly complex high stakes problems, adopters will forget that simply adding blockchain doesn’t make a system bulletproof. Before integrating blockchain into keystone systems like stock exchanges or electricity grid operations, it’s important to understand where blockchain brings security to a system, where it doesn’t, and how it interacts with other pieces of the puzzle.

Blockchains Are Built on Security and Cryptography Principles

Blockchain architectures are considered a robust and highly secure means of storing information for several reasons:

  • The blockchain is stored across a decentralized and distributed network of many computers, creating a redundant record with no single point of failure.
  • Network nodes use a resource-intensive cryptographic process to reach majority consensus on the chronology and validity of transactions between nodes.
  • The full record of information stored on the blockchain is auditable by any node in the network.

In combination, these properties make the blockchain ledger itself resilient to attacks. Indeed, despite soaring valuation that provides a $140 billion incentive for hackers, the underlying architecture of Bitcoin has never been broken.

Determined Hackers Will Work Around Unbreakable Cryptography

Rather than attacking the blockchain itself, hackers have repeatedly exploited weakness in the hardware and software components of the system—the personal computers and devices that make up the nodes of the network and the software applications that enable autonomous transfers and digital contracts. It’s the cryptographic analog of identity theft: a thief doesn’t need to smash their way into a bank vault if they can clone your credit card.

White hat hackers used exactly this principle to gain irreversible control of users’ Bitcoin wallets by exploiting a hole in cellular text messaging protocols. A hacker famously exploited errors in an Ethereum smart contract to steal $31 million  from early backers of a startup. The blockchain preserves an immutable open record of the thefts for all to see, but it also makes them irreversible.

Planning Ahead

The electricity system is a frequent target of cyber attacks backed by powerful antagonists. To date, no blockchain architecture has yet been subjected to a stress test of the magnitude we might expect if it were supporting, say, the automated demand response capabilities of a microgrid in an urban financial district. Potential applications in these systems are among the most transformative opportunities for blockchain, but will also be among the most prone to cyber attack and the hardest to field test at scale.

Until a set of comprehensive security standards for blockchain-based systems is developed, Nasdaq and any organizations seeking to adopt blockchain-based solutions must recognize that blockchain does not inherently provide end-to-end security. For blockchain to be part of the solution requires thoughtful implementation and proactive design that maximizes security at the ends of the chain. Every link of the system must be evaluated for security and potential vulnerabilities, and adopters should be especially cautious about entrusting critical systems to the technology.

 

Putting Blockchain in Its Proper Context

— November 10, 2017

Coauthored by Stuart Ravens

If blockchain evangelists are to be believed, it is going to be big. The so-called Internet of Value will disrupt and decentralize our financial system, healthcare, and electric grids. The massive, centralized powers-that-be will not make it out of this transformation intact.

The truth? There is something out there with significant potential to decentralize much, but not all, of our societal infrastructure. Is blockchain the magic ingredient used in decentralization? No, not really. As Bitcoin expert Andreas Antonopoulos notes, claiming that blockchain is the factor that creates decentralization is like claiming that wings alone are responsible for aviation … but put wings on a building and it still won’t fly.

What Guarantees Trustless, Immutable Decentralization?

Released in 2009, the Bitcoin platform revolutionized decentralization by making every transaction 100% verifiable by every participant without having to rely on anything beyond the software it runs on. It also prevents anyone from meaningfully gaming the system. Andreas Antonopoulos spells out four key pieces of Bitcoin that—only in combination—lead to a fully decentralized and immutable application:

  1. A blockchain ledger that is distributed throughout the system and can be validated by any participant.
  2. A consensus algorithm that is open and subject to precise and consistent rules.
  3. A reward of real value for properly validating the next block, (importantly) paid in bitcoin.
  4. A competition that determines who gets to validate the next block and receive the reward. Critically, each competitor must pay a significant cost in computing energy as an entry fee.

Similar levels of decentralization are critical to proving asset, identity, or land ownership. However, there are many instances when decentralization or immutability need not be so strict, including when:

  • Only partial decentralization is needed.
  • Specific actors can be trusted.
  • Access to the ledger should be closed.
  • The ledger may require (limited) editing.
  • There are no rewards for validation.

Given individual application requirements and significant practical issues with implementing Bitcoin (e.g., mining costs, limited transaction throughput, and validation latency), blockchain solutions have been developed that rely on different structures and consensus mechanisms. Their properties fall within a wide range of decentralization and immutability.

Blockchain Does Not Guarantee Bitcoin Superpowers

Although blockchain is an underlying technology of Bitcoin, it is wrong to equate all blockchain-based solutions with Bitcoin—yet, this happens frequently. There is a risk that such misinterpretation will confuse and disappoint potential customers, and wasted resources will lead to negative press.

Utilities keen to investigate blockchain must ensure they get the right qualities, and enough of these qualities, to satisfy their requirements. They must also understand that each custom combination of consensus, trust, risk, and reward remains unproven until it has been tested at scale.

As the common component of many distributed data and/or asset systems, blockchain is becoming the de facto term for trustless, immutable decentralization. However, this is often not the case. Unfortunately, there is presently no competing term that covers the range of features and characteristics of products that include blockchain.

Navigant Research believes the industry must be more circumspect about blockchain. While there are some attractive use cases for the technology within the utility industry, there are many issues that must be resolved. Potential users should add a caveat emptor to their optimism. Navigant Research will publish a series of blockchain reports in the near future that will investigate the consequences of these issues in greater detail.

 

The Peer-to-Peer Future of EV Charging

— November 1, 2017

In cities where EV drivers believe they have limited access to publicly available charging infrastructure, the resulting range anxiety hinders plug-in EV (PEV) adoption rates. VW’s subsidiary, Electrify America, required investment in infrastructure because of the dieselgate settlement, which should help reduce range anxiety in many areas. A variety of new technologies are bringing new value to the existing EV charging infrastructure, a trend that could also help ease range anxiety and grow the EV market.

Communication Standards

Many standards from organizations such as the Society of Automotive Engineers have been established for communications between EVs and EV supply equipment (EVSE). Of note is International Standards Organization (ISO) 15118, which specifies a common understanding of all processes between an EV and EVSE. Specifically, ISO 15118 standardizes the communications between the EV communication controller and the supply equipment communication controller. The communication standards enable everything from bidirectional charging to transaction services. Vehicles that comply with ISO 15118 will allow for automatic owner account authentication at charging points that both prevents data manipulation and initiates seamless smart charging of EVs. The establishment of this standard enables bidirectional charging, which can provide utilities with grid services and creates the groundwork for the buying and selling of electricity between the grid, EVSE, and EVs.

RFID Technology

South Korea has been aggressively trying to support and expand its EV fleet. In 2015, the City of Seoul partnered with company Power Cube to give out special electric charger cables to enable drivers to recharge their vehicles at 100,000 locations with standard outlets. These cables are equipped with RFID readers that scan an RFID tag attached to the power outlet to be used. Power Cube then processes the transaction by transmitting the driver’s identity, time, place, and electricity purchased via a 3G wireless module included in the charging cable to Power Cube. Power Cube bills the user later, and then pays the electricity provider.

Seoul hoped that the giveaway would incentivize more private EV ownership; as of the program launch, the majority of EVs in Seoul were owned by public sector entities. It intended to give out all 100,000 cables by 2018. Each cable costs 1 million won (about $917) and has a charge capacity at 3.3 kW. While there has been no coverage of the program since its inception, there continues to be a market opportunity for transaction authentication in the EV charging space, with the City of Busan’s launch of a similar program in 2016.

Blockchain Technology

Blockchain could offer a low cost and reliable way for transactions to be recorded and validated across a distributed network with no central point of authority. It also removes some of the technological barriers associated with dynamic and wireless charging; these services can use blockchain technology to record and validate the purchase of electricity from these chargers automatically, without driver intervention.

In Germany, blockchain technology can be used to authenticate and manage the billing process for EV charging stations. For example, Car eWallet will enable a driver’s car to pay for charging, with no need for pulling out a credit card.

Share&Charge, another e-mobility service, has completed its pilot in Germany and is partnering with eMotorWerks to bring its services to California. Participation in the pilot will be based on a first come, first serve basis. Share&Charge uses the Ethereum blockchain because of its support for smart contracts. It creates a token on this chain and users provide/receive payment in these tokens that then can be redeemed for traditional currencies.

Although the use of these services for widespread dynamic charging services is still a ways down the road, these EV-focused transactional services could expand publicly available charging infrastructure by enabling point-to-point sharing of private EV charging stations. They could also enable future applications such as toll payments and carsharing services.

Navigant Research’s upcoming report, Wireless EV Charging, focuses on how wireless charging technology has become increasingly more efficient over the past couple years. A growing number of pilot programs and applications are popping up around the world. As these actors move forward with expanding charging infrastructure, developing technologies may help process and authenticate future transactions.

 

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