Digital ledger technology has historically experienced significant market volatility. Blockchain might sound to many like a solution from the future that is generally not well understood, although it is a field with many practical applications within an evolving market. Projections vary, although it would be sensible to expect double-digit year-on-year CAGR over the next 5 years.
The Energy Sector Backdrop
It is crucial to understand what justifies such projections, more so than the technology itself and certainly beyond the constraints of bitcoin applications. Decentralised, peer-to-peer transactions are set to become the backbone of new markets across many sectors, with significant opportunities presenting themselves for reimagining existing ones. Shifts in regulation have provided recognition for such applications and have afforded some pathways to early adoption. The energy sector is a prime example of high transaction complexity, undergoing significant and simultaneous structural change. Sustainability and the energy transition remain strategic, long-term and government backed objectives for many countries around the world, imposing changes to energy supply chains that demand new ways of maintaining or improving profitability.
The Opportunity
Opportunities for greater efficiencies through smart contracting can be achieved while opting for underlying consensus technology on a sliding scale of functionality, potentially including blockchain technology. Use cases involving smart contracts can span many segments of the energy sector and can form the lynchpin of technology infrastructure when architecting the energy supplier of the future. Representative examples may be grouped into the following areas, reflecting broad segments of the energy sector:
| Energy Sector Segment | Example Use Cases |
|---|---|
| Wholesale (Large-scale transactions between producers, utilities, and corporate buyers) | – Tokenised carbon credits – Trading automation |
| Trading (Direct transactions between businesses/individuals) | – Decentralised trading platforms – Payments & incentives |
| Upstream (Production & emission tracking and reduction at the extraction level) | – Carbon capture & real-time emissions tracking – ESG compliance |
| Downstream (Final energy use, refineries, utilities, corporate sustainability programmes) | – Smart meter integration – Carbon-neutral energy packages – Green bonds & carbon-backed tokens |
Unpacking the Potential
But how might an energy supplier capitalise on such technology? Let’s imagine an aspiring early adopter aiming to become a sustainability market leader. The board decides to monitor legal and regulatory frameworks in the countries it operates in to determine the extent to which smart contract initiatives can be accommodated in order to exceed ESG targets, improve supply chain efficiency and tap into previously unavailable production facilities.
- The supplier partners with a blockchain-based decentralised exchange to trade tokenised carbon credits. They begin converting carbon credits into digital assets, each representing one ton of CO₂ offset. With smart contracts automating issuance and validation, the supplier can sell credits directly to multinational corporations needing offsets. This eliminates intermediaries, reduced settlement times from weeks to minutes, and provides regulators with tamper-proof audit trails to ensure compliance.
- They subsequently open a peer-to-peer carbon credit marketplace, allowing smaller companies to buy and sell credits seamlessly. Using stablecoins, buyers could instantly purchase credits, avoiding the bureaucracy of traditional banking systems. Meanwhile, staking rewards are introduced, encouraging industrial partners to cut emissions and hold carbon-backed assets for additional incentives.
- Sensors and advanced analytics track real-time emissions. Whenever methane capture targets are met, smart contracts automatically mint carbon credits and update balances.
- The supplier extends blockchain integration to its utilities and retail energy business. Smart meters track household and industrial energy consumption, allowing customers to purchase carbon-neutral energy packages bundled with automated carbon offsets.
Balance is Key
Of course, as with any disruptive technology, broader business and regulatory considerations determine the extent and impact of its adoption. Whether an organisation is taking its first steps in the direction of smart contracts or planning to institutionalise their use and launch new initiatives at a larger scale, it is crucial to carefully define the business model and adhere to the regulatory framework that applies. Emrys has a strong focus on the ESG agenda and has prioritised the support of the energy transition through technologies such as smart contracts. Once the benefits of a likely reduction of intermediaries have been weighed in, the upside can form an attractive business proposition worth exploring in pursuit of differentiated products and services.