Towards the end of the 19th century, the organizations that were responsible for generating electricity began to share this electricity with third parties. What started out as electric supply to trams and street lights soon became something available to the general public once large-scale electric companies came on the scene; and thus, the retail electricity market was born.
Since then, there has been an explosion of energy-generation companies competing in this market. The birth of retail competition in the energy sector has given the end-consumer the choice of where to purchase their electricity and the type of energy to buy but it also provided flexibility with regards to energy plans, allowing consumers to spend what they can afford. Furthermore, thanks to market competition many retail value-added services are now available to consumers.
All these merits sound great, but in the retail electricity market, all that glitters isn’t gold. Despite deregulation and energy reforms, recent studies have shown that there are still problems in this sector. Consumers have long complained about abusive marketing campaigns, including the fact that several energy companies now practice deceptive business policies aimed at exploiting the end-consumer.
These shocking allegations were further reinforced by revelations based on a two-year study carried out by the office of Massachusetts Attorney General, AG Healey. Extrapolations from the study revealed that electric service providers have aggressively targeted low-income (elderly and minority) citizens, utilized malicious sales tactics, and issued false promises of affordable electricity bills. According to the report, consumers that switched from their regular utility supplier to a competitive electric supplier paid an extra $176.8 million in electric bills.
Citing these findings as evidence of corruption, AG Healey has now issued a report calling for the end to the competitive electric market:
“Competitive electric suppliers promise big energy savings but are actually burdening customers with hundreds of dollars in extra costs,” said AG Healey. “In two years, Massachusetts residents lost over $176 million to these predatory companies. I’m calling for an end to this industry because that’s the best way to protect our seniors, low-income residents, and minority communities from these persistent scams.”
The sad thing is that this is not an isolated problem; several other cases of abuse in the retail energy sector have also been reported in other places. Ending the competitive electric market will definitely solve the problems detailed by the AG’s office; however, a number of blockchain startups and initiatives are proposing a different solution, one that relies on the use of blockchain in the retail electricity sector to address these legacy challenges.
Although the idea that integrating distributed ledger technology (DLT) will reduce the expenses of an electric retail company has not been firmly established, blockchain companies are coming up with other unique concepts that will differentiate them from the traditional energy service companies (ESCOs) and help them provide actual affordable electricity for their customers.
A good number of blockchain startups aim to expose residential consumers to wholesale markets and help monetize their investments via energy trading through peer-to-peer transactions with their neighbors, allowing customers who are also producers of electricity to benefit from the system. To accomplish this feat, blockchain startups are looking to develop “transactive energy” applications.
CleanEnergyBlockchain is one of the startups hoping to democratize clean energy. They teamed up with PowerLedger, a blockchain platform that allows the decentralized trading of renewable energy. CleanEnergyBlockchain will implement Powerledger’s API to serve commercial, public and industrial sectors with a system termed “blockchain PPA”. Although the project is still in its infancy, projections stipulate that it will lower costs compared to the conventional ESCOs. Right now, with inadequate trials and few customers, it is too early to tell if they will succeed in this area.
Grid+ is another blockchain company planning to penetrate the competitive electricity market. Grid+ is a Texas-based company with the mission to leverage blockchain technology to automate payment and cut management costs. With the Grid+ platform, real-time power purchase decisions are made by a smart agent that also allows its users to sell back to the grid and generate income. The GRID token powers the Grid+ network.
The use of cryptocurrency in its transactions has drawn criticism from the Texas Ratepayers’ Organization to Save Energy and Texas Legal Services Center because the system makes it mandatory for customers to prepay their accounts in order to reduce credit-risk associated expenses.
Drift also plans to enter the market by offering lower costs. The New-York based energy retailer makes use of a “distributed energy aggregation platform” that utilizes machine learning algorithms and artificial intelligence to carry out arbitrage and price discovery in the New York market, after which it transfers the saving to the consumer. Initially, Drift wasn’t a blockchain company, but plans have been announced to move over to the Ethereum network and take advantage of the rising blockchain technology.
Drift recently applied to the New York Public Service Commission (NY PSC) to offer its service to low-income markets, but its proposal was denied. The PSC remains cautious about exposing low-income markets to ESCOs since a report in June 2016 detailed that customers had not profited from the competition in the energy sector. Aside from this, the NY PSC has stated that so far, Drift has been “unable to demonstrate how it would guarantee savings to low-income customers.”
There is no denying that the adoption of blockchain in the retail electricity market could add tremendous value to the energy sector, but its success hangs in the balance. Its ability to provide data transparency and security could lead to the development of smart grids, monetization for its users, and highly efficient real-time energy markets. However right now, as we have seen with these up and coming blockchain startups, the blockchain alternative solutions are facing operational and regulatory resistance and consequently poor adoption because of the bad reputation that traditional ESCOs have given the industry.
The writing on the wall is crystal clear. The retail electricity market needs an overhaul if it is to successfully embrace the blockchain. Startups need a better business environment to thrive, and regulators can help out by providing the rules that will govern peer-to-peer transactions in energy trading, and finally give consumers a chance to benefit from the competitive energy market.