Navigant Research Blog

Trust in Blockchain

— October 3, 2017

Trust. You can’t touch it or smell it, but it’s a vital ingredient in every commercial transaction. It exists between companies and their staff, suppliers, and customers. The entire worldwide monetary system is based on the principle of trust. One could argue that trust, above all else, is what binds the modern world together. However, trust is not blind: mistrust will also exist between the parties of financial transactions. Consequently, it is hard to build trust, but it can turn to dust in a matter of seconds.

Part of the attraction of cryptocurrencies, like Bitcoin, is that trust is placed in its consensus mechanism and not between a transaction’s counterparties. Anonymous users exchange Bitcoin without the need to measure a counterparty’s trustworthiness. Blockchain technology creates trust across the entire Bitcoin network through its distributed ledger and consensus-based transaction verification. While Bitcoin receives a great deal of media attention, blockchain technology is coming out of Bitcoin’s shadow as a potential game changer for transactions. Many industries are investigating blockchain’s potential to remove the requirement of central market functions, speed up transaction processing, and reduce overall costs. In addition, there are other use cases outside of transaction management. However, there are many issues with the technology that must be resolved before it becomes a mainstream technology.

Ironically, Trust Could Be Blockchain’s Undoing

Few technologies as immature as blockchain receive comparable media interest. Despite any current large enterprisewide deployments, blockchain evangelists have touted it as a technology panacea. It will likely be years before blockchain applications move into the mainstream. Blockchain startups have attracted billions in investment, yet these companies are exactly that: startups. In some cases, little more than a handful of enthusiasts with a good idea and some seed capital.

And therein lies the problem: blockchain could suffer from a huge trust issue. Not in the creation of trustless networks, but trust in the technology itself. The expectation of blockchain’s potential—driven by an unrelenting hype machine—far exceeds its current ability to deliver. It will likely be 4 or 5 years before we see any large-scale blockchain deployments. In the interim, some startups will run out of capital and close, others’ products will fail to deliver on their promises. What is certain is that blockchain developers will come across many issues converting blockchain from an open source software into something that is enterprise ready, scalable, and able to provide viable alternatives to existing technologies.

Expectations Could Be Set Too High

The problem is that 4 or 5 years is a long time to wait. The hype around blockchain is such that expectations can be set unrealistically high. I expect a great deal of negative press if too many startups fail or if too many projects become encumbered by too many unforeseen technology problems. The industry will lose its trust in the entire blockchain industry. A dollar value can be attributed to companies’ trust in blockchain—it’s currently the total amount pouring into trials and proofs of concept. A breakdown in trust will mean an end to project funding and the end of the road for blockchain.

Blockchain has some unique features that could benefit many organizations in the future. But it is not a panacea. It needs time to overcome its teething problems and to demonstrate its value. The hype surrounding the technology could well be its undoing.

Companies investigating blockchain should do so with the full knowledge that it is an emerging technology. It will take time, patience, and investment to adapt blockchain for enterprise-class deployments.

 

The United Kingdom Takes Giant Steps toward Market Transformation

— August 29, 2017

Coauthored by Marc Bartlett

In July 2017, the United Kingdom’s Department for Business, Energy and Industrial Strategy (BEIS) and energy regulator Ofgem published their Smart Systems and Flexibility Plan. This document outlines the United Kingdom’s next phase in its transition to a low carbon future. It is the result of a long consultation period launched in November 2016 with many different stakeholders. The United Kingdom is making significant progress toward a more flexible energy system by removing barriers, encouraging innovation, and placing the customer at the center of the energy market. The plan is bolder than many other countries’ energy policies and sets a foundation for business model innovation. For example, the United Kingdom could well be the first to introduce a residential transactive energy market.

However, publishing a plan is far easier than implementing one. BEIS and Ofgem must work closely with the industry to ensure the UK energy market transition remains on track, they manage the different aspirations of stakeholders, and consumer protection remains at the top of the agenda. The Smart Systems and Flexibility Plan focuses on three areas: removing barriers to smart technologies—with a strong emphasis on storage—enabling smart homes and businesses, and making markets work for flexibility.

Regulations Adapt to Incorporate Storage

Storage is considered an increasingly important technology for the UK energy market. However, the country’s regulatory environment had not adapted quickly enough to address the specific requirements of storage. For example, since the United Kingdom had no clear definition of storage, its regulatory status was unclear. This uncertainty led to the charging of final consumption levies on storage, despite it not being a final consumer. The Smart Systems and Flexibility Plan also incorporates improved planning and licensing processes for storage, encouraging the colocation of storage with renewable generation and providing more streamlined processes to connect storage.

As regulated, unbundled monopolies, UK distribution network operators (DNOs) will not be permitted to directly own storage. BEIS and Ofgem believe that storage services should be tendered in a competitive market and that if a DNO were to own storage, it could hinder innovation and market developments. Yet, there is also an argument for DNOs to become suppliers of last resort. In this case, they would be permitted to provide and own storage where open markets fail to attract investment. BEIS and Ofgem have yet to finalize their plans for storage and will publish further guidance on unbundling storage services from DNO operations.

Smart Households to Play a More Active Role in the Future Energy Market

Demand-side response (DSR) will play a significant role in future UK system flexibility. At present, there is no technology to support residential DSR. However, the nationwide smart meter rollout will provide this foundation. Smart metering will allow half-hourly settlement, enabling the creation of time-of-use and other tariffs that shift peak demand. Household appliances and EV smart charging points will be the primary loads targeted in residential DSR programs. The government has stated its intention to work with industry, appliance manufacturers, and other countries to develop a common standard to ease the incorporation of these loads into DSR programs.

Barriers to New Business Models Will Be Removed

The plan acknowledges the need to evolve existing roles and responsibilities so networks are efficiently managed and barriers to new technologies or business models are removed. It specifies regulated monopolies’ need to plan, engage with new businesses, and explore the use of markets to solve issues. The days of the asset-focused DNO are numbered. These businesses will transform into system orchestrators that create platforms to interact more closely with service providers, system operators, and transmission network operators.

 

Utilities Must Take a Pragmatic Approach to the Energy Transformation

— July 27, 2017

Few will dispute the fact that the industry is undergoing significant change. The shift to clean and distributed energy sources and the adoption of EVs will force significant changes to the way distribution companies run their businesses. However, much of what is written on business transformation can be high level. If everything that is written on the subject is to be believed, then there are huge utility transformation projects occurring across the world. While there is certainly a lot of activity, projects are typically targeted at specific areas rather than businesswide.

Transform Business Models via Planning

As discussed in Navigant Research’s Distribution Utility Transformation Strategies report, which highlights some of the leading examples of business model transformation within distribution networks, transformation does not happen overnight. Rather, it is a decade-long process that requires careful planning and a staged approach. There are many different drivers for transformation, including increasing competition, business process efficiency improvements, a renewed focus on customer experience, new product and service development, and the incorporation of distributed energy resources (DER). These drivers will affect utilities in different ways; the most striking difference is between competitive and monopoly markets.

Create a Vision for the Future

One key takeaway is that as with any large-scale project, utilities must set out a vision for their future businesses and a roadmap detailing how to achieve this goal. Companies cannot do everything all at once, so they must place their bets wisely and invest in projects that deliver the biggest returns. In addition, organizations cannot underestimate the contribution a strong stakeholder engagement program can make to a project’s success.

Develop an Actionable Roadmap

As a result, each utility’s transformation will be different and will happen at different times—and at different rates. Digital Utility Transformation Best Practices builds on some of the recommendations provided in Navigant Consulting’s “Energy Cloud Playbook” to offer best practices for creating an actionable roadmap for transformation. Most utilities will not be able to avoid the inevitable forever. Therefore, they must plan now for their future businesses. The right strategy will help utilities navigate political uncertainty; manage market-specific regulatory policies; access project finance from skeptical and conservative shareholders; and confront legacy issues such as corporate culture, a lack of skills, and outdated technologies.

The latest reports published in Navigant Research’s Digital Utility Strategies Research Service provide specific details on different utilities’ transformation projects. They discuss and compare initiatives in California, New York, the United Kingdom, Italy, and Australia while also providing some practical advice to organizations embarking on their own transformation projects.

 

The Future of Analytics in the Utilities Industry Lies in Strong Partnerships

— July 18, 2017

The utilities industry presents some unique issues for analytics specialist SAS, as I witnessed during a recent analyst event. The industry is no stranger to large volumes of data or analytics, and as it undergoes a digital transformation, it should present a huge opportunity. However, the industry’s approach to the procurement of analytics means that there are few low hanging fruit, and SAS must work hard if it is to dominate utility-focused analytics.

In its favor, SAS is unquestionably a market leader and continues to remain one step ahead of its competition. It is investing heavily in four areas, all of which will resonate with utilities’ changing requirements:

  • Platforms: In a similar vein to virtually every other enterprise data vendor, SAS is making a big bet on data platforms. While many will struggle to differentiate, SAS’ strength comes from its experience in data preparation, an area that many fail to discuss in detail. SAS’ strategy for its Viya product is to provide different types of user access to any type of data, from any source, using the most appropriate user interface.
  • Harness artificial intelligence (AI) and machine learning: Over the last couple of years, during which AI hype has hit peak volume, SAS has been relatively conservative. It is focusing more on machine learning and the benefits of massive compute—how analysts can interface with SAS in new ways, on new devices, using the most up-to-date algorithms.
  • Internet of Things (IoT). SAS wants companies to be smarter about their IoT data analytics. It discussed at length its partnership with Cisco—to embed SAS analytics within smart routers—which will take analytics to “the edge” much closer to the devices where the data is stored. It also promoted its event stream processing tool and announced the recent addition of Event Stream Manager.
  • Cloud analytics: Finally, SAS is investing heavily in cloud-based analytics, which will be increasingly important for utilities as their digital journeys mature. It is also important to note that SAS wants to offer a flexible approach to where analytics is performed. Cloud is just one option, among on-premise, in-database, in-stream, or in Hadoop.

SAS has a market-leading set of analytics products, it is investing in all of the areas utilities would want, and is not shy about discussing the issue of data governance. These are all messages that should resonate well with utilities. But should it expect a rich harvest of low hanging fruit in the utility orchard? In short, no. The biggest barrier SAS will face is utilities’ historic approach to analytics procurement, which is heavily siloed and task-specific.

Future Opportunities Lie in Partnerships

Many of the future opportunities for analytics within utilities lie in operations, where SAS has not historically had a strength. Operations typically procure analytics for a specific task, from a vendor with deep knowledge of the technical issues, but lacking the robust analytics engine SAS brings.

The answer for SAS lies in partnerships. SAS will never compete with large engineering companies for industry knowledge; likewise, these companies will never compete with SAS in terms of analytic capability. Unsurprisingly, SAS has begun conversations with all the global engineering companies. However, these conversations are at an early stage. Digitization and analytics will help utilities address their most pressing concerns: to improve operational efficiency, maximize customer experience and develop new products. The market needs a robust analytics platforms and algorithms designed by industry specialists. The market needs these partnerships sooner rather than later.

 

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