Electric utilities are in the midst of a once-in-a-lifetime business model transformation. To capitalize on energy technologies that give customers new choices and change the structure of the electrical grid, utilities must adapt to a new reality.

We at Alectra Utilities Corp., a utility serving one million homes and businesses outside of Toronto in Ontario, Canada, believe that blockchain technology can help to power our transformation.

Here’s some background on why we think blockchain has so much potential for our industry.

Navigating a two-way grid

Historically, utilities generate electricity centrally and then distribute it to customers through a one-way hub-and-spoke architecture. Today, however, customers have more options, such as generating electricity from solar banks or storing electricity in batteries. This leads to two-way flows of energy and information on an electrical grid that is increasingly distributed.

At Alectra, we welcome distributed technologies like solar and batteries, because they can lead to cheaper, cleaner energy and a more efficient grid. But if they can’t cooperate, if they aren’t integrated, and if they can’t be co-optimized to serve the needs of both customers and the utility, they’re not much use.

Explore IBM solutions for Energy & Utilities

We need a way to integrate emerging technologies and information to offer new services to customers who exchange energy, beyond the typical credit on their electric bill. At the same time, we need a fresh approach to optimizing the grid as a two-way information highway.

A possible solution is blockchain, a networking technology based on a shared, immutable and trusted ledger. To date, however, blockchain has been used mostly for peer-to-peer energy trading, basically trading energy among neighbors. We thought blockchain had the potential to create new value through a network ecosystem of our customers and partners outside the energy industry.

That’s why we engaged the iX software design team from IBM Services to explore a blockchain solution.

Exploring a blockchain ecosystem

We chose IBM because it’s one of the few companies with a highly progressive view of blockchain. IBM has invested heavily in developing blockchain expertise and exploring the permissioned models of blockchain that interest us as a utility. We also hoped to leverage IBM’s network of blockchain partners.

After conducting a Design Thinking workshop to clarify our business needs, we collectively identified a number of potential blockchain use cases, and they suggested Interac Corp., a leading Canadian payment processing company, as a promising partner. That was the genesis of our current blockchain project that combines Alectra’s energy expertise with Interac’s network for financial transactions.

At present, we are working on a 20-customer pilot to test the viability of trading energy from customer sources down to the transaction level.  It is one of the first examples in North America of using blockchain to facilitate and optimize an end-to-end value chain for distributed energy trading and grid management.

Weaving it all together

The solution will let us group a neighborhood’s solar and other energy assets into a marketplace. When a network need arises, the assets will automatically dispatch energy to the utility. Customers in return will be compensated, either by fiat or by tokenization of the compensation value. The system can also incentivize customers toward desirable behavior, such as conserving energy or purchasing energy efficient vehicles. Interac provides the e-transfer capabilities for converting tokens to cash or for spending them in its network of 500,000 merchants.

A blockchain fabric weaves the ecosystem together. It provides a ledger that lets us record energy transactions. It helps us devise smart contracts for settling transactions once they are completed and verified. And blockchain can help us manage the transactions between customers, banks and the merchant network.

Although it’s still early, the project shows blockchain’s potential for the energy industry and for our community. Individual customers can make only a marginal difference, but when aggregated into a virtual powerplant they can make life better by relieving network congestion and reducing the grid’s carbon footprint.

Listen to Vikram Singh discuss blockchain’s potential in utility transformation: