Navigant Research Blog

US State Legislatures Are Pivoting to Blockchain—Will Energy Follow?

— March 1, 2018

Blockchain’s high profile in the news, particularly the billions of dollars pouring into Initial Coin Offering fundraisers (ICOs) and yet more cryptocurrency heists, is pressuring governments and policymakers globally to develop new laws and standards to guide the developing technology.

Policy changes are happening at all levels of government. China has banned ICOs and cryptocurrency exchanges but remains interested in commercializing the underlying technology. South Korea wants to ban cryptocurrency trading altogether. Even in regions where no new laws have passed, existing legislation designed to regulate centralized systems of energy supply or data privacy are barriers to blockchain development and scalability in many parts of the world.

Stakeholder consortia and other groups in the energy sector that see value in the architectures that support cryptocurrencies are working hard to convince utility commissions and local governments to adopt more blockchain-friendly policies. Some worry that too much regulation too soon could scare away developer talent and potentially lucrative new blockchain-based businesses.

In the US, States Are Moving First on Blockchain Regulations

While the US lags behind Europe and Asia Pacific in the number of energy-related blockchain projects, it is making some promising progress in the regulatory space. At least eight states are already tackling issues surrounding legal treatment of blockchain signatures and blockchain data. A few examples:

  • In California, Assembly Bill 2658 would formally recognize blockchain signatures and records as legal electronic records, paving the way for smart contracts
  • In Florida, House Bill 1357 ensures that blockchain smart contracts are treated with the same legal weight afforded to traditional contracts
  • In Arizona, House Bill 2417 adds blockchain databases to the list of electronic records with recognized legal status and enforceability
  • In Wyoming, the House approved two bills in 2018 that set standards for when digital currencies can be exempted from securities regulations (House Bill 70) and modifies regulations on financial transactions that would exempt digital currencies and allow exchanges to operate legally in the state (House Bill 19).

Progress Is Being Made in Unusual Places

What’s particularly interesting about the above list is the range (geographical and political) of states jostling for position in the market. The next question for the energy sector is how, or if, state-level regulations will translate into real change in these states’ energy markets. Utilities have been understandably bearish on blockchain so far, even in traditionally experimental states like New York and California.

Some of the states experimenting with blockchain regulations are usual suspects when it comes to energy market experimentation, but others are not. Will public utility commissions and regulatory authorities in the latter group take cues from their state governments, or will real progress require more pressure from the bottom up? Either way, the pressure will come.

States are often called laboratories of democracy, and they have the potential to become laboratories for blockchain as well. A range of approaches and experiments is the best way to develop best practices and determine a path forward for a rapidly evolving technology. Check out Navigant Research’s upcoming Utility Blockchain Applications report for more insight into blockchain’s growing role in the energy sector.

 

Cashing In on Blockchain

— January 23, 2018

The 325 initial coin offering (ICO) events in 2017, as tracked by CoinSchedule.com, raised a combined $3.7 billion that the Securities and Exchange Commission is still working out how to define and regulate. Surging cryptocurrency market capital is drawing huge numbers of new players into the market—some are pioneers, some are sheep, and some are going to jail for using ICOs to make a quick buck.

It is not just ICOs and greenhorn startups that dangle blockchain as a shiny object in front of investors. The combination of uncertainty, novelty, and potential for wealth has created an environment where a finance firm’s stock price can grow by 2,000% just by acquiring a blockchain company that has yet to post revenue. Seekingalpha.com put together a graphic showing how non-alcoholic beverage company, Long Island Ice Tea, boosted its stock value 183% in one day just by changing its name to Long Blockchain and by making vague promises about experimenting with the technology. Similarly, Kodak’s share prices doubled after it announced a blockchain-based photo licensing platform.

Something Is Rotten in the State of Blockchain

It is tempting to look at the explosion of blockchain projects in 2016 and 2017 as an encouraging sign that blockchain has earned its way into the mainstream as a powerful and innovative technology. Surely the diversity of companies announcing pilot currencies and proofs of concept can only be good for R&D, right?

The answer is that a yawning gap exists between announcing a project and treating the underlying technology seriously, just as there is a gap between announcing an ICO and having a real and sustainable product. Projects like this only help blockchain progress if the companies behind the announcements have a legitimate purpose beyond capitalizing on the world’s blockchain fever.

Where We Are Headed

It is possible—maybe even likely—that fraud, exploitation, and publicity stunts are a natural part of blockchain’s growing pains. And it is true that for the strong applications and business models to rise to the top, the weaker applications must drop out, one way or another.

We should not be afraid of projects and experiments failing. But is a cause for concern that blockchain has become a talisman, drawing in everyone from first-time investors to established companies, few of whom seem aware that most will fail. When the hype dies down, share values will drop with it—blockchain’s status as a magic word simply cannot last.

It is not just the opportunists that benefit from all the hype. Developers of serious blockchain solutions need to work doubly hard to separate themselves from the chaff, and they have an obligation not to let the investment flowing their way go to waste. The question is not whether the crash will come, but, as the creator of the joke turned billion dollar reality, Dogecoin, asks, “will there be enough magic left to build something real once it does?”

 

Even If It Doesn’t Survive, the Tesla Vision Has Already Won

— December 14, 2017

Whatever the ultimate fate of Tesla as a business, the vision of its founders seems assured to come to fruition. They set out nearly 15 years ago to build an electric sports car that would show a skeptical public that EVs aren’t the car form of broccoli (good for you, but not much fun). The envisioned electric car would be a gateway to electrifying all transportation.

With every new job at an EV maker, we are moving closer to that goal. Sales of the Chevrolet Bolt EV climb steadily with each month, Nissan is about to launch the second-generation LEAF, and more options will arrive in the coming months. Perhaps most importantly, the future combination of automated driving and electrification will provide great synergy in making transportation clean and safe.

The Bolt and LEAF are examples of automakers taking inspiration from Tesla and mixing traditional expertise in mass manufacturing and support. These automakers and most others are now aggressively developing and planning deployment of automated EVs like the Chevy Bolts being tested in San Francisco, California by GM unit Cruise Automation.

Can Tesla Stay Afloat?

Sadly, Tesla’s own quarterly financial statements don’t bode well for the brand that kick-started this next era of mobility. The company has shown an inability to execute on the core task of profitably building consistently reliable, high quality products to customers. The 3Q 2017 report showed the company was spending more than $2,000 per year per vehicle providing service while only generating $1,000 in revenue. Given the reduced maintenance an EV should require compared to an ICE, this is a clear indicator of Tesla’s spending on honoring warranties. As the in-service vehicle fleet grows, this problem will grow rapidly unless the company can come to grips with the basics of mass manufacturing.

As Tesla attempts to ramp up production of the Model 3, it must first address these challenges—or the reputation the brand has built around Elon Musk’s cult of personality will be squandered.

The Quandary of Some Typical Tesla Customers

Take, for example, a Northern California couple that can afford to buy a Tesla, including the Model X they own. He loves technology and is the definitive early adopter, often buying the latest life-enhancing gadgets. His CEO wife is far more pragmatic, though she also appreciates what technology can do to make life easier and better. She wants to replace her current premium German performance car with an EV when the lease is up in the next month. On the surface, another Tesla would be the obvious choice, but they’ve had numerous issues with it that have taken multiple service trips to resolve. Some issues, like an Autopilot system that has a predilection for randomly shooting toward guardrails, remain unresolved.

They looked at the 2018 LEAF this week, and she is seriously considering it. While it lacks the performance of the Tesla, she expects it to be far more reliable, coming from a company that knows how to bend and weld steel. Despite the problems with the Tesla, her husband wants to stick with the brand to support the vision. Fortunately, he’s in a financial position where he can do that. Most of the car buying public can’t afford to be so tolerant.

If Musk wants Tesla to remain a viable business after he rockets off to Mars, he needs to start listening to frustrated Tesla owners like this pragmatic CEO rather than reveling in his adoring fans.

 

Realistic Goals, Measurable Outcomes Lead to Columbus Smart City Challenge Win

— July 21, 2016

Bangkok SkylineOhio won its first major victory of the year when LeBron James led the Cleveland Cavaliers to the state’s first major sports title in over 50 years. Soon after, the City of Columbus, Ohio was officially announced as the winner of the U.S. Department of Transportation’s (DOT) Smart City Challenge. The city is set to receive a total of $140 million, with combined contributions from the DOT ($40 million), Seattle-based company Vulcan ($10 million), and a group of local businesses called the Columbus Partnership ($90 million).

One of the keys to Columbus winning the competition and beating out the better-known technology centers of San Francisco, Austin, and Denver was the city’s ability to demonstrate that its plan would result in increasing poor residents’ access to new transportation options. The city has proposed numerous solutions in this area. A few of the key proposals were:

  • An autonomous vehicle program that would transport residents from the Linden neighborhood—which has 3 times more unemployment compared to the city average—to a nearby employment center.
  • The creation of transit cards for low-income populations to use for ride-hailing or carsharing services, with or without having smartphones or bank accounts.
  • The building of smart corridors through wireless technology, which enables a new bus rapid transit (BRT) system that is more safe and efficient for high numbers of users (it’s important note that Columbus is also the largest city in the United States to not offer rail service).

Several of these transport initiatives are also expected to be integrated with improved access to healthcare services to help address the high infant mortality rates in many of Columbus’ poorer neighborhoods.

Other components of Columbus’ transport plan include an increase in electric vehicle (EV) charging stations throughout the city, enhancing smart grid technology by using EVs as distributed energy storage devices, expanding the municipal EV fleet, and securing 50 of the city’s CEOs to personally commit to buying and driving EVs, as well as installing charging stations for their employees.

Additional Funding Sources Also Crucial

While a focus on increasing poor neighborhood access to reliable and affordable transportation options was vital to the final awarding of the Smart City Challenge competition to Columbus, the $90 million pledged by the Columbus Partnership (if the city was to be selected) also played a major role. Financing the development of smart city projects continues to be the most significant challenge in the market, as outlined in Navigant Research’s recently published Smart Cities report. The guaranteed added investment by the Columbus Partnership made the city a highly realistic option for successful implementation and more likely to achieve the outcomes that were highlighted in its final proposal.

 

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