Utility Week

Utility Week 24th February 2017

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20 | 24TH FEBRUARY - 2ND MARCH 2017 | UTILITY WEEK Operations & Assets Market view F or many years the voices clamour- ing for the decentralisation of energy and utility systems, the adoption of new technology and the democratisa- tion of energy have been shouting in the ears of government, regulators and energy companies across the UK. They have been largely unheard. Oen regarded as isolated point solu- tions – solar PV, wind, ground source heat pumps, district heating, storage, electric vehicles, smart home – they have been eas- ily dismissed by boardrooms and manag- ers alike as marginal and unlikely to affect the traditional, slow, asset-intensive and non-switching customer business that have underpinned their careers and profits for the past 20 years. But that attitude is turning out to be flawed and decision-makers are waking up to the fact that their world is changing rap- idly. The problem is that while they were busy ignoring it, the change has already happened and it may be too late to save their business models. So, why is this change happening? There are many factors driving this change, of which three are arguably the most significant. First, there is a fundamental mistrust of anything established and "large" (govern- ment, big business). From the unfolding anger on both sides of the Atlantic – mani- fest in the result of the Brexit referendum and Donald Trump's rise to power – expec- tations about the citizen's role in how deci- sions are made on their behalf has become polarised and changed forever. The second driver is that "everything must work on a smart phone or not at all". This is not a "strategic choice" for business or government, it is a given. Thirdly, user experience for services, things and content must be immediate: entertainment accessed anywhere, any- time, on any device from Netflix and Ama- zon; algorithms deployed by Facebook and Google to tailor content to the individual; artificial intelligence in everything to enable service and utility for all at an affordable level. The situation, then, is that technology, previously seen as isolated point solutions is becoming much more connected and able to be bundled together in ways that actually work, and fundamental factors are in play that are favourable for mass adoption by individuals at a fundamental level. However, until now there has been one thing missing: an underlying fabric that allows frictionless interactions between individuals and devices to occur, removing the barriers created by a lack of trust, out-of- date processes and closed systems that exist today. In short, the phenomenon known as the blockchain. It is the emergence of the decentralised internet of value, represented by blockchain and distributed ledger technology, that will provide the platform for true disruption of business models globally, and the energy and utility industry will not be safe from this disruption. The three pillars that will underpin decentralisation and disruption are distrib- uted ledgers (blockchain), digital identity and trusted execution environments. Although widely known as the block- chain, the technology enabling the complete restructuring of everything from payments, healthcare, retail, criminal justice, energy and utilities, banking, real estate and gov- ernment, to the homes in which we live, con- sists of three pillars. Distributed ledger. A secure way of mak- ing and recording transactions, agreements and contracts. Rather than being kept in one place like the more traditional ledger book, the database is shared across a network of computers. The use of complex algorithmic gov- ernance and the decentralised nature of a node-based network enables the distributed ledger to provide an immutable record of the truth of a transaction. A blockchain data- base consists of blocks and transactions. Blocks contain batches of transactions that are "hashed" and encoded. Each block con- tains the hash of the block before it, which links the two and forms the chain. This pro- cess validates each block, all the way back to the original, and is integral to the database's security. There are three types of distributed ledger models: l Public blockchain: a distributed ledger that uses a native digital currency to incentivise the operation of a network without the need for trust, for example Bitcoin, Ethereum. l Enterprise (private) blockchain: a dis- tributed ledger that relies on consensus achieved via a network of trusted nodes, for example Hyperledger, R3, Ripple. l Hybrid model: the basis of many of the "use cases" currently in operation, built on public blockchain infrastructure but with some form of permissioned node governance in place. Secure digital identity. In a digital world, who we are and who we trust matters. Unless we have absolute confidence that the individual or device we are transact- ing with has a recognised set of credentials and is authenticated and authorised on a persistent ongoing basis, then a trust-less decentralised network will break down. A "reputation layer" on top of the blockchain with the appropriate level of assurance will be required. At the highest level this will involve private keys and three-factor authen- tication (something you have, something you are, something you know). Trusted Execution Environment (TEE). This is a secure area of the main processor in a smart phone (or any connected device). It ensures that sensitive data is stored, pro- cessed and protected in an isolated, trusted environment. The TEE's ability to offer isolated safe execution of authorised security soware, known as "trusted applications", enables it to provide end-to-end security by enforcing protected execution of authenticated code, confidentiality, authenticity, privacy, system integrity and data access rights. Along with end-to-end encryption of data, the TEE is essential for ensuring decentralised appli- Enabling decentralisation The 'blockchain' will be a new concept to many utilities, but such is its power to enable decentralised energy systems that we will be hearing a lot more about it in future, says Neil Pennington.

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