1 Introduction

The blockchain disruptive innovation effect, was probably not clearly realized and understood by Nakamoto when he published his famous Bitcoin paper back in 2008 (Nakamoto 2008). During the last decade we have seen so many applications of blockchain and cryptocurrencies, that have revolutionized existing practices and introduced new disruptive ways of doing business (Delgado et al. 2017; O’Dair and Beaven 2017). The examples are endless ranging from academic certificates published on a blockchain to land registry solutions, healthcare applications, fintech and supply chain management implementations to name a few (Cocco et al. 2017; Cuccuru 2017; Dai and Vasarhelyi 2017; Gomber et al. 2018; Lei et al. 2017; Lemiex 2016).

In this paper we concentrate on the energy sector to describe the current way of doing business as well as its limitations. Then we propose a disruptive way of selling and buying energy through a solution that combines blockchain technology, Internet of Things (IoT) and smart energy grids (Christidis and Devetsikiotis, 2016, Kshetri 2017; Li et al. 2018; Novo 2018). Such an application leads to radical changes to the existing business models and ecosystem and brings new challenges for the existing energy players and the new entrants.

The remaining of this paper is organized as follows: In Sect. 2 a review of the blockchain technology is presented, followed by the conceptualization and the research question of this paper. Section 4 describes the research methodology adopted in this article where Sect. 5 reports the empirical data and it is followed by the Analysis and Discussion section. Conclusions are drawn in the last section of this paper.

2 Background Review

Blockchain technology is like Internet in a sense that it cannot be manipulated or switched off by anybody. It was initially introduced in late 2008 and its first application was the well-known Bitcoin crypto-data. A Blockchain is a list of blocks with each block containing a number of transactions. Each block consists off (a) a pointer to the previous block using a cryptographic hash, (b) a timestamp and (c) transactions data. Blockchain technology decentralizes trust and enables value flow without intermediaries. As a result, it reduces cost and complexity and increases trust. It is based on distributed ledger which means that all members of the blockchain share an identical ledger (system of records) instead of maintaining their own proprietary view of it (Dorri et al. 2017; Shermin 2017).

The main characteristics of the Blockchain technology are consensus, provenance, immutability and finality:

  • Consensus: the blockchain uses consensus mechanisms to verify that each new block that is appended to the chain is a valid one. Even though consensus mechanisms have a critical role in the functionality of the blockchain they have some limitations too. For instance, consensus mechanisms like Proof Of Work (PoW) are expensive in terms of the energy they consume or the computational workload.

  • Provenance: All participants of a Blockchain, know the history of changes of an asset (e.g. they know where the asset came from as well as all the details about the changes in the ownership of this asset over time). This means that information and cryptocurrencies are traceable. For instance, with blockchain technology we know where a bitcoin was mined and its whole journey from the miner’s wallet to our wallet. In other words, we can know whether or not a specific bitcoin was used for illegal purposes.

  • Immutability: A blockchain (or distributed) ledger is an append only ledger which means that transactions cannot be amended once they are recorded on a ledger. In case of an error, a new transaction can be used to reverse the error Bloomberg (2018).

  • Finality: In blockchain there is only one way to study a specific transaction or to find out who owns what, as we only need to visit the ledger. The blockchain ledger is the only source of truth and it is trusted by all participants.

3 Conceptualization

The current landscape of the energy supply chain, involves multiple stages and participants. As it is illustrated in the Fig. 1, the supply chain begins with the production of energy in the power stations and it is followed by the transmission and the distribution of the power for consumption by the commercial and industrial business consumers and residential clients.

Fig. 1.
figure 1

Current landscape of energy supply chain

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In such a supply chain, various actors do participate like the energy producers, intermediaries (e.g. energy grid owners), business and residential consumers. The underlying business model used in most of the cases is that of producer-consumer. The current landscape and business model are associated with numerous limitations that have an impact on the participants. In this paper, we focus more on the limitations of the existing landscape in solar energy sharing as our empirical data come from that area (Pop et al. 2018).

Solar energy companies tend to install and manufacture thousands of solar units for the residential market, while some of them are also providing leasing services. A basic limitation is related to the fact that energy derived from the company’s farm is sold at a specific price to consumers. The price is predefined, and it is fixed which is not “fair” for the participants. There are periods that solar energy production costs less compared to other times and this is not reflected in the bills.

In addition to this, solar energy production may look better and more efficient than fossil fuels, but such a process is generally not transparent and trustworthy, as it is centralized. Consumers should trust these companies that they actually produce the volume of renewable energy they claim. Another limitation of the current landscape is the absence of a peer-to-peer local marketplace. The last but not least limitation is that electricity producers do not get paid immediately but usually after 2 months.

Based on the abovementioned limitations and the existing landscape we formulate the following research question which we are investigating in the next sections:

RQ1: How does the implementation of blockchain applications in energy sector disrupt the current ecosystem and models?

4 Research Methodology

To test the abovementioned research question, we adopted a qualitative methodology and employed action research approach. We chose action research as we participated in an applied research project that focused on the development of a blockchain solution in solar energy. According to Rapoport (1970), “action research aims to contribute both to the practical concerns of people in an immediate problematic situation and to the goals of social science by joint collaboration within a mutually acceptable ethical framework” (Rapoport 1970, p. 499). Action research focuses on the collaboration of practitioners and researchers (Avison et al. 2007) and it is an appropriate methodology for our case as we had an active role in the whole project and we took decisions related to the analysis, architectural design, implementation and testing of the blockchain solution.

For the purpose of this research we collaborated with a solar energy firm with presence in European Union (EU) and the United States of America (USA). Due to confidentiality reasons we will refer to this organization using the coded name Solar ENergy CORPoration (SenCorp). The project started in June 2017 and ended a year later on and the main participants where SenCorp and the authors. During the whole duration of the project we spent 2 days a week working with the company in its premises and the remaining time we worked from our laboratory at the University. Data was collected thru observation, artifacts (e.g. memos, white papers, internal documents), semi-structured and unstructured interviews that took place during coffee and lunch breaks or face-to-face meetings with key employees. Overall, we had interviews with 14 key players from SenCorp. Data were triangulated using various triangulation methods such as data, investigator and theory triangulation.

5 Empirical Data

For the purpose of this project we employed Ethereum as a blockchain platform to exchange data and cryptos. We also used Hierarchical Deterministic (HD) wallet as this is an advanced and secure type of wallet that works better with Ethereum. Since Ethereum is based on the use of tokens that can be sold, bought, or traded we employed Ethereum Request for Comment 20 (ERC20). ERC20 defines a common list of rules that Ethereum based tokens should follow. ERC20 specifies six functions (total supply, balanced of, allowance, transfer, approve, transfer from) and two events (transfer, approval) that an Ethereum token contract should implement. We also implemented smart contracts to automate and speed up transactions. Smart contracts are programmable contracts stored in a blockchain and executed by computers that eliminate the middlemen. In doing so, smart contracts can manage agreements between different parties-users, save data about an application, provide utility to other contracts and automate the transfer of tokens between users, based on an agreement. To implement our solution, we used Remix-IDE, solidity and testRPC as well as proof of work as consensus algorithm. The outcome of this implementation is a blockchain application that exchanges information between Ethereum and our smart contracts. The application facilitates the communication and support the transactions among users and smart energy batteries installed at home level.

The solution automates the following basic scenario:

  • Solar panels are installed on the roof of home users to produce energy.

  • The amount of the solar energy produced is stored locally using smart batteries.

  • The owner of the battery, sets the price and the quantity of the energy (s/)he wants to sell, based on the competition and the weather conditions.

  • In case (s/)he reaches an agreement with a potential buyer, (s/)he discharge the electricity from the battery to the energy grid.

  • Smart meters are used to calculate the quantity of the electricity sold and the transaction is completed through the use of smart contracts and the financial compensation through the use of cryptocurrencies. All relevant transactions are put in a block that is sent for validation.

  • Proof of work is used as a consensus mechanism to validate the block, and the block is finally attached to the blockchain.

  • Using the smart grid the buyer receives the energy he bought and consumes it at home or to charge his/her electric car.

Currently the following improvements are in progress:

  • A specialized team of experts is enhancing the features and functionality of the smart batteries by incorporating sensors-Internet of Things (IoT).

  • In collaboration with SenCorp we design Artificial Intelligence (AI) algorithms to improve the performance and enhance decision making.

Upon completion of the above improvements the smart battery will automatically be able to:

  • decide whether to sell or buy energy

  • analyze existing and historical data to define the selling price

  • operate on a machine to machine (M2M) mode with no or limited human intervention.

6 Analysis and Discussion

In order to test our research question, we use the 4Ps framework proposed by Tidd and Bessant (2013) that investigates innovation at Product, Process, Position and Paradigm levels.

Product Innovation refers to the changes in the things (products/services) which an organization offers; (e.g. a new car design, a new insurance package). In our case, the proposed solution supports the creation of new applications, such as smart contracts, decentralized trust services, etc. In addition to this, private keys that store transferable ownership rights can be used to control physical objects (keys, operation control, etc.), thereby connecting blockchains to IoT and the physical world. Another type of product innovation we have in our case is thru the application tokens which are the fuel of decentralized value networks and crowd-sourced distributed ventures.

Process Innovation denotes changes in the ways in which they are created and delivered; (e.g. Amazon’s logistics and vertical/horizontal integration). From the empirical data it appears that we observe changes in the process due to the use of cryptocurrency which relies on novel forms of labor and consensus (computational power, proof-of-stake or other issuance/verification mechanism). Moreover, we notice changes as now governance is based on consensus, instead of a single point of control (both at the network level (majority consensus) and at the transaction level (e.g. multi-sig)). A third process innovation comes from blockchain application; while elements of the transaction verification and currency issuance mechanism are innovative in themselves (such as PoW/PoS/etc.), when used in the context of the blockchain, they implement a novel process of establishing the veracity of any transaction/record in a shared ledger.

Position Innovation states changes in the context in which the products/services are introduced like for example the Coca Cola’s journey from a patent medicine to a world-leader in soft drinks. Through our use case we can see changes in position innovation in terms of decentralized governance, Initial Coin Offerings (ICOs) and autonomous economic agents.

Paradigm Innovation refers to the changes in the underlying mental and business models (e.g. digital currencies, blockchain, ICOs, DAOs.). In our case we notice a real business model transformation as through the proposed application we can alter the business model from producer-consumer to prosumer. It is clear that with such an application transforms the commercial, industrial business and residential clients to entities that are able to produce, sell, buy and consume energy.

7 Conclusion

The introduction of blockchain technology brings tremendous changes and challenges to our business environment. Through this work we study the potential impact of the implementation of blockchain applications in the energy sector. In doing so, we developed a blockchain solution for an industrial partner from a solar energy sector and we investigate its impact on the disruption of the current ecosystem and models. We used an action research approach to test our research question and we worked with our industrial collaborator for about one year. The empirical data reveal that the application of blockchain in energy may cause significant disruption at different innovation levels such as product, process, position and paradigm. One of our main findings is the transformation of the underlying business model from producer-consumer to prosumer or to peer to peer. Clearly there is ground for further research as there are many issues and challenges in this area. For example, the implementation of peer to peer energy applications requires legal and regulatory changes in many countries. Since we are still in the early stages of blockchain adoption there are many open issues that need to be examined and addressed with regulatory issues being among the most important.