| Kit Winder | 30 July 2020 |
Why the technology behind bitcoin could change the energy system forever
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Amazon's stock is at the psychologically important $3,000 level. In the past, when the price was at the $1,000 and $2,000 levels, it ranged and then exploded upwards. But today, the situation looks different…
| | In today's Exponential Investor:
- Energising blockchain
- 5G's "bookkeeper"
- Decentralised microgrids
What is The Next Bitcoin?
Bitcoin is formed of two key parts – the idea and the technology.
The idea says that government control of money leads to problems like the boom-bust cycle and inflation, which only an open-source, decentralised, non-governmental new currency can solve.
The technology is called blockchain and it's what allows bitcoin to fulfil those criteria mentioned above among others.
It's that technology I want to look at today. And there are publicly available ways to buy into the blockchain revolution in energy, if that's something you'd be interested in...
Because blockchain can be applied to a whole host of things, the energy industry being one of them.
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There are some seriously cool companies and ideas floating around in this space, which it's fair today might not be visible with your British Gas contract in 2021, but they have already started affecting things behind the scenes.
It's part of a wider push towards digitisation in the energy and transport industry, which fits neatly alongside the electrification transition we are seeing.
It's a good reminder that when I say "energy transition" – in reality there are a bunch of them all happening simultaneously.
For example, as well as shifting from coal and gas generators to solar panels and wind farms, we are also moving to a world of 5G and local, automated energy trading.
There will be a lot more data, a lot more digital analysis, improved performance, and lower costs through the use of blockchain technology.
Your house will be able to converse with your neighbour's house, and balance supply and demand so that everyone gets what they need, when they need it, and at the best price.
When you're on holiday and have a full storage pack from your home solar panels, but your neighbour is having a huge number of people round for a big dinner or celebration... blockchain technology would allow you to smoothly (and effortlessly) sell them some of the solar power you generated at lunchtime that day – but never used.
It will be possible to give consumers like you or I greater control over our own energy use.
And it could also be used in commodities and energy trading at the industry level.
Through speed, cost and verifiability, blockchain is an improvement on current record-keeping and trading systems, which are subject to the usual minor delays, fees and book-keeping complications.
Currently, banks and energy majors spend huge amounts of money and human resources building their own proprietary trading platforms.
Blockchain cuts out middlemen, reduces costs of transaction and settlement fees, and more. It also allows for the creation of "smart contracts" which would essentially make carbon taxes across borders much simpler and automatically collected, whereas currently it's hard to do as there is such a hodgepodge of systems, borders, and regulations.
BTL Group, a blockchain startup, recently piloted a project with majors ENI, BP, and Wien Energie. The pilot demonstrated that the use of blockchain technology to facilitate and track gas trades reduced overall costs by 30-40%.
The oil and gas industry, from upstream through mid- to downstream, comprises thousands of companies, intermediaries and fee-suckers.
Blockchain has the potential to speed up the pathway from well to wheel, and save money doing it.
There are companies which are already providing energy token trading based on blockchain technology in Asia. One system allows big electricity producers and the grid to connect directly with retail consumers without a middleman – a utility company – getting in the way at all.
If household consumption can be linked in that way directly to the grid, you could simply pay for what you use as you use it, without being tethered to one supplier, an annual contract and a fortnightly email about smart meters.
No more lengthy calls with the customer service department, no more worries about bills rising unfairly, no more being stuck on inefficient, expensive long-term contracts.
While I'm on the subject of utilities by the way – a couple of things.
Firstly, if you are not yet on a renewable energy provider, or are still with British Gas or SSE or any of the big six, my guess is that you could do better.
My small provider SO Energy uses only renewable sources, offers me the ability to choose which source I'd prefer, and is noticeably cheaper than what came before. It's been easy to deal with and offers seasonal pricing with lower prices to reflect lower demand in summer.
Renewable providers are growing in number and size. Gas and coal-fired generation is falling away and becoming the costliest form of electricity provision to consumers – and those companies are shedding customers at an impressive rate. Just look at Centrica's share price, or British Gas' customer numbers. Both are declining in tandem.
My first piece of work at Southbank Investment Research was to do some research for James Allen's Exponential Energy Fortunes service saying the number one stock to avoid was Centrica. It was a dinosaur he said, on for continued decline.
It's down almost 70% since the day he published it to his readers early last year, and hopefully some of them acted in time. The point is this – renewable energy utilities are cheaper for the consumer, performed better during the pandemic and lockdown, and their share prices have performed much better than their coal and gas competitors.
Anyway, back to blockchain: one of the key ways blockchain technology and the energy transition interact is decentralisation.
We know that the ability to generate your own electricity with solar panels at home is growing, and storage solutions are improving too.
For decentralised energy to really take over though, local networks or "micro-grids" need to develop. These would take the shape of a street or local area with lots of local generation and a chunky amount of storage forming its own entity, becoming energy independent on a very local scale.
Decentralisation is probably one of the main challenges to utility business models – which are now becoming huge solar and wind farm owner/operators, with lengthy PPAs (power purchase agreements, which settle an inflation-protected fixed price of sale for the utility over 10-20 years).
That's why some utilities are preferring to get involved in the home solar game directly, offering lease agreements, and different payment plans and purchase options for home generation.
It's a sector that's changing incredibly fast and only the fleetest-footed will be able to play a role in the macro and micro-grids of the future.
The technology behind bitcoin is set to play a major role in this, and there are public companies out there which are driving this particular part of the digital transition in energy.
And talking of energy transition...
Yesterday, James Allen, the editor of Exponential Energy Fortunes, gave his keynote speech at our Beyond Oil 2 online summit.
And in his speech, James revealed his three top renewable stocks to buy right now. If you missed it, you can still catch it here.
Kit Winder
Editor, Southbank Investment Research
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