Before diving into how blockchain can improve the energy sector, it’s important to first understand how this sector operates. In general, upstream generators produce raw material that is processed and transported by the midstream delivery network to downstream distributors, which sell to the end-user. While this seems like a fairly simple process at first, its complexity increases when considering the number of generators, different sources of energy (solar, wind, nuclear, oil, etc.), and the degree to which these processes begin overlapping.
For instance, when electricity is delivered to your home or business, it’s likely sold to you through a retailer (downstream) who contracts with the utility company (midstream) that owns the necessary power lines and purchases power from an (upstream) electricity generator. But where does that electricity come from? The upstream electricity generator itself is a downstream customer for oil, natural gas, solar and more to generate the electricity it produces.
On top of this supply chain system is an ecosystem of commodities traders, leading to highly competitive and efficient markets, but also greatly increasing the financial complexity of the energy sector.
Finally, there are the consumers, who need to use and pay for the energy they use. The bill arriving in the mail at the end of each month is the culmination of this entire process. Unlike most supply chain systems and commodities markets, the end-user of the process is actually directly using the commodity purchased.
Together, these elements make the energy sector a highly suitable candidate for innovation by blockchain technology. It comprises not only a complex supply chain with a need for increased transparency and improved data management, but also a highly transactional marketplace that would benefit from instant settlement. The transparency and immutability of blockchain can empower the end-users of this business- and consumer-facing industry.