That their industry is being disrupted is no secret to the global energy companies. Once seen as a threat, this disruption, typically characterised by the 3Ds – digitisation, decentralisation and decarbonisation – is now seen as opportunity, and it is difficult to identify an energy company that is not embracing it. Of the top 20 global energy companies, all mention at least one of the 3Ds of disruption if not all three, as a major strategic goal.
On the heels of these 3Ds is the dawning of a fourth industrial revolution, driven by blockchain. Often compared to the birth of the internet, blockchain is on the cusp of creating immense change in how the world operates, transacts and communicates. Indeed, the energy industry may be one of the greatest beneficiaries, for blockchain offers many possible ways to streamline the business, improve operations by harnessing digitisation, give consumers more choice, enable the decentralisation of the energy consumed and accelerate decarbonisation.
Given these dynamic synergies, but also due to its nascency and the corresponding challenges, blockchain is an ideal investment for any corporate venture capital fund. This is true no matter the corporate objective for investing in a startup, including the two most prevalent of exploitation of current business models and exploration of new ones.
Above: Downtime for equipment can be reduced with blockchain
For exploitation, which focuses on increasing operational efficiencies, blockchain offers a host of potential gains. Millions of interactions and operations must be tracked within a complex ecosystem of contractors, suppliers, shippers, legal and regulatory authorities along with the associated land rights, invoices, maintenance, real-time operations, precise location of assets, contracts and so on.
With blockchain, all of this can be recorded and tracked on an immutable distributed ledger, creating a transparent, consolidated and secure record. From a paper management perspective, this reduces errors, fraud, administrative burdens and execution times while simultaneously increasing the ease of auditing, legal verification, and managing transactions. From a production management perspective, this minimises downtime of equipment, enables increased production, reduces capital investment and allows for better planning and execution. All of this translates into a lower break-even price of a barrel of oil or kilowatt-hour.
For those energy companies looking to expand into new markets, or even completely changing their entire business model, blockchain correspondingly offers great investment opportunities. One prevalent trend among energy companies is expansion into large-scale electricity generation and supply through endeavours such as wind farms and clean gas. The distributed ledger supports this strategy by enabling everything from distributed electricity trading platforms that improve the efficiency and transparency of wholesale market management to enabling green certificates and health improvements from cleaner electricity generation many are pursuing. For those energy companies aiming to grab a piece of the end-consumer market, blockchain, through automation and setting of prices signals, can improve control of decentralised energy systems, microgrids and the intelligent building by supporting local energy marketplaces.
With blockchain offering such potential, why is it, then, that the preferred path of investment may be through CVC funding of a startup? The core reason sits mainly in the infancy of the technology, with basic operational challenges not unlike those experienced in the first days of the internet, and the need for interoperability of the adopted platform between companies given the immense interdependency of this industry and the fungibility of the commodities in which the industry transacts (that is, oil, gas, electrons, and soon.).
Two core reasons blockchain is the ideal corporate venture fund investment:
- Allowing the many challenges to settle before internal adoption.
- Company interoperability is a must in an industry of fungible goods, contractors, shared logistics and cross-border trade.
Allowing the many challenges to settle before internal adoption
That there are a number of challenges with blockchain not unlike those of the internet during its infancy should not come as a surprise. That they are solvable should correspondingly come as no surprise.
The question is which of the vast array of competing solutions and approaches to solving blockchain’s challenges will lead to widescale adoption? From a corporation’s perspective, it is better to let the technology shake out and settle before committing.
To provide a bit of elaboration on these challenges, consider the chain of blocks is always growing – bitcoin grows at a rate of 1MB per block every 10 minutes – and, as the chain grows, so too does the capacity required for its computation and storage. In today’s world, where storage and capacity are touted as cheap, the current requirement is 1,450 exabytes. An exabyte is equivalent to 1 x 1012 megabytes. By 2023, the anticipated requirement is 2,300 exabytes. Fulfilling this requirement is not as simple as adding more resources. The nature of the distributed ledger is such that storage and processing would need to be added to every single node.
Which then raises the issue of latency. It currently takes 10 minutes to clear transactions on the blockchain, much too long in world where electrons,
drops of oil and devices need to interact non-stop. When prices change in increments of five to 10 minutes in most wholesale electricity and commodity markets, 10 minutes is just too long with regard to securing energy, shifting electrons or acquiring an asset at a particular price. Multiple companies, from startups like Pexapark, LO3 Energy, Power Ledger and Flexidao to IBM, are working to tackle this issue, and reductions are already being realised. All of this is yet further exacerbated by the immense legal and regulatory void in which many of these blockchain endeavours operate.
Then there is the required electricity consumption. With so many energy companies including as a strategic focus limiting their impact on the environment, the massive energy consumption requirements are doubly challenging. Ethereum’s current annualised electricity consumption is equivalent to that of 750,000 US households while bitcoin’s is equivalent to nearly 7 million US households. To power this requires approximately 500 natural gas plants or 12,250 onshore wind turbines. This is for two single currencies.
Fortunately, startups like R3 and Genesis Mining are arising to solve this issue as well. Soluna, a startup building blockchain mining data centers entirely by renewable energy, is one such endeavour.
Although these are just a handful of challenges, it is worth mentioning one last one, particularly for those companies playing in the end-consumer space. Where the customer is king, blockchain is definitely not ready to enhance the customer experience in a positive way. Many of the required interfaces are anything but user-friendly and accessibility to the average person is far from a reality, including a severe lack and uneven distribution of infrastructure, the bugginess of platforms – and the need to create some serious behavioral change and changes in expectations – lose it the key to your wallet, and you lose all the contents of your wallet.
Company interoperability is a must in an industry of fungible goods, contractors, shared logistics and cross-border trade
From an industry perspective, energy sits at the top with regards to the required interoperability of its fungible constituents. The core goods for which these companies exist – oil, gas, electrons – are indistinguishable from one company to the next. They share a common system through which they are transacted – the system of pipelines, the electricity grid, wholesale markets, logistics, and so on.
Above: Shared logistics mean its worth investing in a startup until the industry settles on one platform
With this interdependence, investment in an external endeavour makes much greater sense in that one company may be reluctant to utilise a platform developed by another company. This is likely true to a greater extent for an entire industry. By investing in a startup, energy companies can both gain access to, and knowledge about, the technology itself without having to spend massive capital and research and development to develop something in-house which may never be utilised given the industry adopts something entirely different. That each company pursue this agenda, only to have lack of compatibility, would be highly inefficient, delay adoption and its corresponding gains, and lead to much time and effort spent with nothing to show.
Derisking blockchain investments even further
Two continuums – development of blockchain to manage the production process and supply chain management, both supported through the use of IoT on the blockchain.
Which technologies, protocols and architectures, and ultimately which companies, survive to move towards widespread adoption, for the reasons elaborated above, will ultimately be left to market and regulatory forces. That said, by having a strategic option and given the high level of learning and piloting, it is impossible to see that having a stake will not positively impact the investing corporation. The probability that blockchain is not only going to change the world, but energy industry in multiple and likely yet-unanticipated ways, is high.
By investing in startups through a corporate venture fund, energy companies will be ready to pounce when the technology and platform winners shake out due to the critical knowledge, understanding, and awareness generated amongst staff and leadership alike. When blockchain does take off, and it will take off, these companies will not need to play a game of catch-up and will not get caught cold-footed. They need the organisational knowledge. They need to be ready to seize on this strategic investment when it finally does deploy in mass via a solution not seen to be tied to a single energy company.
Given this fit, there are a few obvious areas of more narrowed use corporate venture funds could consider that are agnostic of economic trends, regulatory decisions and consumer dynamics, making them even better, and less risky, investments. Foundationally, the first is in IoT-enabled blockchain. This enables fundamental changes in supply chain management and the production process itself, which when further enhanced by blockchain are transformed through a series of potentially substantial efficiency gains.
Any investment along these two continuums – deployment of blockchain to manage the production process and supply chain management, both supported through the use of internet of things (IoT) on the blockchain – is sure to prove to its strategic worth regardless of the economic, regulatory or policy environment.
Blockchain to enhance the energy industry’s reliance on IoT
The energy industry relies heavily on IoT devices to do everything from track fleets to monitor logistics to measure electricity demand – smart meters provide readings measuring in the trillions per year while sensing on oil rigs produces three billion readings per year. IoT sensors track the movement of goods and their acceptance from one party to another. With all of this data capturing nearly every aspect of energy supply and management chain, the opportunity to identify and implement operational efficiencies, cost reductions and profit increases is immense.
Yet, despite the vast quantity of data available, the models on which these readings are currently set up to be analysed do not enable the data to be used as it could be. This is due to the centralised nature of the current legacy platforms which manage, store and process all of this data. Two electricity meters sitting a few years from each other or two drills just a few miles from each other have to transfer their readings over the internet to a centralised server. This central server is then required to carry out all of the processing operations to analyse the data, which most are not set up with the necessary power to do so efficiently nor in anything near real-time.
Above: The ability to optimise data capture away from a central server is a plus
This is just for the existing data. With 20 to 50 billion IoT devices forecast by 2020, and a substantial portion expected to be in the energy industry with reading taking place up to every second, scalability is also a major detriment when it comes to being able to harness the full insight lurking in the data. A global energy company with multiple business chains and locations throughout the world will be generating data at speeds and quantities that simply are not compatible with a centralised server.
Even if storage and processing is not problematic, this central server, which not only stores and processes the data, but controls all the nodes of the network, creates a single point of failure. Servers go down and do fail, which makes the system unavailable in the immediate, breeds gaps in collection and control, and results in inefficiencies where control and real-time analysis are critical to operations and performance.
Beyond the immediate, the centralised model is also subject to security and privacy concerns. Sensitive information is housed in a single location, making it an ideal target for various types of attacks. Data privacy is also questionable given the real-time data of the IoT devices are stored in a remote server outside of the user’s control and with the authority of the server only – think about your personal energy consumption, personal demographics (yes, utilities do keep extensive personal demographic information on you) and payment information.
Then there is the misnomer of speaking about a centralised server, with gives the incorrect impression that there is one, single server for all of the data that is produced within the supply chain. Rather, there are a multitude of servers which exist for various business units, contractors, shippers and the myriad of other third parties to the supply chain. Scalability and processing are limited even in the absence of integration, which then only compounds the problem.
Consider the single process of the drilling cycle. Large volumes of data coming from seismic studies on multiple potential well sites feed into a reservoir model run by subsurface staff. An even wider variety of data from the drilling and well completion phases go through the wells group. Data on hydrocarbon flows through the well, which is now coming in as a constant stream, go through the operational production group. None of this data is shared in an integrated and automated way, sitting in unrelated tables and servers that limit access. Bain found that less than 1% of the information gathered from about 30,000 separate data points was being made available to the people in the industry who make decisions.
Enter blockchain. Through its decentralised, distributed ledger, data siloes are torn down, security is increased, and processing power is greatly enhanced. The visibility and access gained by operators to the C-Suite undoubtedly translates into better decision-making across all levels. Consider that while oilfield sensors offer real-time data on operations, the information is usually used to make immediate, binary decisions—either do this, or do that—rather than being stored, filtered and analysed to inform future decision-making in a dynamic way across all timescales.
Startups on any corporate venture capitalist’s watch list might then include blockchain applications ensuring interoperability of IoT applications and devices with a strong focus on security. Two such start-ups making waves in this realm are Atonomi and Xage. Two more nascent players to keep an eye on are PQShield and Peaq.
Atonomi consists of a downloadable software development kit that allows Atonomi enabled devices to participate in a distributed ledger set up by a company through Atonomi’s identity validation protocols and device reputation protocol. This creates a highly secure interoperable network of devices regardless of the manufacturer. Xage offers a competing platform, although it has a leg up in the energy space, including a partnership with the Smart Electric Power Alliance , a well-respected non-profit in the electricity focused on just such issues and whose members are a who is who of the electricity industry.
Blockchain enabled IoT’s superpowers – production optimisation and supply chain management
From a base of blockchain enabled IoT, the benefits of blockchain grow exponentially, with some of the greatest potential arising in optimising production and supply chain management.
Production optimisation
Promising applications in production optimisation span end-to-end operations and include real-time monitoring, prescriptive maintenance and 3D imaging. These applications not only result in direct financial gain as more is produced with the same level of (or less) resources, but complementary gains with regards to the environment, reputation, and health and safety.
A great example is pipeline leakage, a major challenge in the oil and gas sector which can result in substantial financial, occupational, environmental and reputational risk if not detected and remedied quickly. With IoT enabled blockchain, the pipes, pumps and filters of the entire pipeline system can all be monitored in real-time, with problems quickly identified and communicated. Staff can then be dispatched when and where needed and will have complete situational intelligence rather than arriving onsite with limited or even no prior knowledge of the situation at hand, itself a huge safety risk.
Situational intelligence is further enhanced by 3D imaging as part of real-time monitoring. Computer-assisted design (CAD), the long-standing prevailing approach to 3D rendering of a physical object, has been critical in allowing companies to cost-effectively model prototypes of everything from oil rigs to wind turbines. With CAD, the needed configuration of the system can be tested and optimised while situations can be run to investigate performance. IoT takes this to the next level by providing real-time information on the performance or structure. Problems detected on a pipeline or with a pump can be assessed in real-time at remote locations through virtual, 3D imaging rather than an alert of an abnormality. Staff can actually see the problem before being dispatched, rather than just being aware of it, with potential fixes tested ahead of dispatching staff.
The value of this real-time data is further enhanced through its use in predictive maintenance. Major hazards or issues can be detected and remedied before a problem occurs rather than afterwards or, correspondingly, after sending humans out for proactive inspection where condition may not be fully known.
A further enhancement is through predictive maintenance. Major hazards or issues can be detected and remedied before a problem occurs rather than afterwards or, correspondingly, after sending humans out for proactive inspections where conditions may not be fully known.
McKinsey, in studying the offshore sector, found that rigs in the North Sea, its largest sample group, were up and running as planned only 82% of the time relative to a target of 95%. Lost production amounted to 13% due to unplanned outages and maintenance, no small amount. Critically, the oil and gas companies could improve their production by 6% to 8% with proper utilisation of data.
Above: Major hazards or issues can be detected and remedied before a problem occurs
All of this serves to lower costs, whether they be realised in reduced downtime of equipment, more efficient operation of both the plant and staff, and even lower insurance due to a safer working environment. The risk of potential costs, whether they be environmental or reputational, are correspondingly reduced.
While it should go without saying, the potential benefits of IoT enabled blockchain span the entire energy industry and are not limited to oil and gas alone. The management costs of smaller scale renewable energy systems generators could be lowered by remote maintenance and control enabled by intelligent integration of hardware, software, sensors, data, analytics and cloud connectivity. Electricity companies could optimise consumption through the deployment of IoT in homes, all part of the vision to make the home smarter. Essentially, IoT enabled blockchain ensures that any operational process takes place as required and within specified parameters, both in real-time and the future.
Startups to keep an eye on then include those above – startups such as Atonomi and Xage – and which are working on the interoperability and security of IoT application and devices. The Germany-based startup Konux is another potential company to keep an eye on. Although currently focused on the rail system, its end-to-end industrial IoT solution utilises artificial intelligence to perform predictive maintenance by continuously monitoring and analysing every aspect of the rail system in real-time. The company, however, is expending its domain and the energy industry could offer the next deployment.
Supply chain management
The energy supply chain consists of a complicated web of interactions between an uncountable number of actors and items – contractors, sub-contractors, rig operators, administrative offices and government workers across all corners of the globe. The sheer size and volume of contracts and transactions to execute capital projects in oil and gas have historically caused significant reconciliation and tracking issues, challenges made all the more difficult given the amount of record keeping via paperwork and intricate operational procedures. Challenges in managing logistics for supplies, tracking costs and deploying inventory thus requires a heavy manual lift. That this system breeds bribery, collusion, bid rigging and theft should come as no surprise.
With no energy company immune – the electricity supply chain, while not nearly as complex as is in oil and gas, is still complex – to these pervasive challenges, all could identify operational efficiencies to be gained at every touchpoint by deploying IoT on a distributed ledger. Eliminating fraud, streamlining transactions, reducing the administrative burden of contracting and invoicing and even improving regulatory processes, including everything from reporting to cross-border movement of goods to verifying rights – all benefits to be gained.
The platform for realising these gains is no different from that of production optimisation. As a digitised, immutable, distributed ledger capturing IoT readings, the movement, location, transfer cost and quantity of capital items, raw outputs, intermediary goods and final products can be recorded on a blockchain, allowing permissible parties to the chain to know with perfect certainty where goods are at any moment, confirm and verify relevant data on these goods, and provide transparency to all.
Above: The distributed ledger can confirm where goods are at any one time
Consider wellbore samples, which often are tracked manually via spreadsheets and emails and which pass through several hands. Extremely expensive and non-replaceable, the tracking of the movement can be transferred to a blockchain, reducing everything from the potential for human error and thus correspondingly large regulatory fines to inefficiencies in finding the corresponding metadata critical for operational efficiency and general business operations. Unfortunately, this tracking of wellbore samples via emails and spreadsheet looks rather efficient and modern when compared to the global transfer of goods, which still mainly exists in the form of paper bills of lading and regulatory approvals confirmed by stamps and seals.
The recording extends beyond these outputs and products to include purchase orders, change orders, shipment notifications and trade related documents. Data on documents, the subject of these documents, geography and other key relevant information now can be viewed to verify the location and transfer of any good at any moment in time. Real-time tracking, in turn, enables manufactures to better prepare for and receive goods and turn them around more quickly, optimising “just-in-time” manufacturing. Missing and damaged goods are minimised. With this information, payments, sourcing, transfer, manufacturing processes and distribution can all be analysed and further optimised to squeeze even more efficiencies out of the supply chain. Not only is the existing process itself made more efficient, but so too is the process going forward.
With this record comes a reduction in theft and fraud. The origin and history of raw materials, ingredients and finished products can be recorded on the blockchain through data points such as the source and transfer points, with all parties needed to confirm this accuracy before finalising the record. Quality and ethical standards can be easily confirmed by not only the immediate parties to the transaction, but managers, regulators and C-suite executives thousands of miles away. Services provided and goods bought and sold along the way can be corresponding recorded, tracked and verified. There is no retroactive tampering, making a cover-up near impossible and regulatory reporting (EMIR, MiFID II) a more seamless action.
Further opportunity comes through the deployment of smart contracts. Parties to any transaction can ensure that no element, from payment to transfer to closure of the contract, is executed without the underlying requirements, such as quality assurance or confirmation receipt.
Through the creation of smart contracts, steps within the supply chain can be fully automated based on predefined conditions. These speeds up the entire process while further ensuring the quality, authenticity and availability of goods, the completion and satisfactory performance of services, and receipt and confirmation of any necessary regulatory and legal approvals. Long sales outstanding place a heavy toll on the supply chain and while most companies have terms of 30 days, the average sales outstanding is closer to 60 days, often due to no malicious reason other than invoices are issued and processed by humans and are often tracked via paper or an archaic, legacy software system. If moved to a smart contract, payment can be automated based on pre-defined actions such as receipt of a good, service fully and satisfactorily rendered, and so on.
Smart contracts also greatly increase the number of transactions an organisation can handle at any given moment. Given the sheer volume of transactions within the energy supply chain combined with the number of humans involved in issuing and reviewing paperwork, even if electronic, transferring these tasks to a smart contract will speed up management of the supply chain, improve efficiencies, eliminate error and improve quality and satisfactory completion of services.
Not only is more achieved with the same or less resources, but “the same old story” of dynamic decision-making along the entire time spectrum is again realised. Corporate headquarters and business units could use the data to better forecast, improve capital project spend analytics, track real-time financials and have greater visibility in general to where priorities for needed improvements reside – for example outstanding payments by a creditor or benchmarking contractor performance to eliminate poor performers.
Blockchain is the ideal investment for any energy company corporate venture fund. There is not an aspect of the energy industry that would not benefit from blockchain’s deployment. Yet there is a good reason that this technology should not yet be embraced internally by a corporation. Young and with many challenges not unlike those faced in the early days of internet, there is still a great deal of progress to be made before the technology is ready for prime time. With the number of potential solutions to even begin counting, energy corporations are best served by allowing the market to shake out before committing to any single response. This is further reinforced by the need for company interoperability of those solutions adopted. The fungibility of the core goods in which the energy sector operates and the shared system of movement and transactions of this indistinguishable goods necessitates compatibility and performs best when done through a common approach.
While internal development is not recommended, to not have any involvement is also not ideal. Given the power of blockchain to change the industry, and the high likelihood that it will become a daily part of life, companies should also ensure a toe in the water. By doing so via investments in startups, energy companies can ensure they are capturing valuable knowledge and expertise about the technology and will not be playing a game of catch-up when the fourth industrial revolution does widely take hold.
With no shortage of areas, platforms, and use cases to invest in, corporate venture funds have options that are sure to yield strategic returns regardless of whether their chosen startups captures the market, regardless of economic conditions, and regardless of end-consumer acceptance. Sure strategic winners include startups in IoT enabled blockchain, and the corresponding start-ups working to deploy this technology in optimising production through predictive maintenance and 3D imaging as well as those in supply chain management.
This is an extract of the report available at www.CorporateVenture.com and will also be part of the next Global Energy Council quarterly report published next month before the GCV Digital Forum 3.0 on January 27.
These startups were selected from the GCV Connect powered by Proseeder platform, where corporates can review company profiles and request more information or meetings.
Follow this link and select Startup Sign Up
| Pexapark | Website | pexapark.com |
| Primary contact | Justin Owen Chief Financial Officer justin.owen@pexapark.com Phone: +41 (0)43 215 5872 |
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| Main email | hello@pexapark.com | |
| LO3 Energy | Website | www.lo3energy.com |
| Primary contact | Lawrence Orsini Chief Innovation Officer, Co-Founder & Board Member lorsini@lo3energy.com |
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| Power Ledge | Website | www.powerledger.io |
| Primary contact | Jemma Green Co-Founder & Executive Chairman jemma@powerledger.io Phone: +61 (0)8 9322 6659 |
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| Main email | sales@powerledger.io | |
| Flexidao | Website | www.flexidao.com |
| Primary contact | Simone Accornero Co-Founder, Energy Leader & Chief Executive Officer simone.accornero@flexidao.com Phone: +34 62 361 0206 |
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| Main email | info@flexidao.com | |
| R3 | Website | www.r3.com |
| Primary contact | Charley Cooper Managing Director & Chief Communications Officer charley@r3.com Phone: +1 (646) 630-7421 |
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| Genesis Mining | Website | www.genesis-mining.com |
| Primary contact | Marco Streng Co-Founder & Chief Executive Officer marco.streng@genesis-mining.com |
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| Main email | contact@genesis-mining.com | |
| Xage | Website | xage.com |
| Primary contact | Susanto Irwan Co-Founder & Vice President, Engineering susanto@xage.com Phone: +1 (650) 234-0400 |
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| Atonomi | Website | atonomi.io |
| Primary contact | Michael Mackey Chief Technology Officer & Vice President of Engineering mike.mackey@atonomi.io Phone: +1 (801) 675-4277 |
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| Main email | info@atonomi.io | |
| PQShield | Website | pqshield.com |
| Primary contact | Ali El Kaafarani Founder, Chief Executive Officer & Board Member elkaafarani@pqshield.com |
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| Peaq | Website | www.peaq.io |
| Primary contact | Cival Van Der Lubbe Founder and Chief Executive Officer cival@getkanoa.com |
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| Main email | info@peaq.com | |
| Konux | Website | www.konux.com |
| Primary contact | Maximilian Hasler Co-Founder, Chief Financial Officer, Managing Director, Board Member & Advisor maximilian.hasler@konux.de Phone: +49 (0)89 1895 5010 |
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| Main email | info@konux.com | |
| Blok-Z | Website | www.blok-z.com |
| Primary contact | Selim Satici Co-Founder & Chief Executive Officer selim@blok-z.com |
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| Lightency | Website | lightency.io |
| Primary contact | Jaafar Saied Chief executive and co-founder www.linkedin.com/in/saiedjaafar/ |
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| Primary contact | Mohamed-Ali Gam Executive board member www.linkedin.com/in/mohamedaligam/ |
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| Main email | contact@lightency.io |