Blockchain – a type of distributed ledger technology (DLT) – has become a buzzword of late. Leaving the hype aside, when applied to the energy sector, it has the potential to reduce business complexity and improve profitability. It has immediate application in energy asset management and energy trading, for example. Moreover, as the industry’s understanding of blockchain increases, new applications and use cases are emerging all the time. In particular, when applied to the nuclear power sector, blockchain has the potential to increase supply chain transparency, effectively monitor and track the life-cycle of an asset, enhance site security and improve regulatory oversight.
As the physical movement of energy, fuel and materials remain at the heart of the nuclear industry, it is necessary to consider how blockchain applications will interface with both physical assets and the regulatory framework governing the sector. Such industry-specific considerations must also be overlaid with other, more ubiquitous, regulatory requirements, such as rules relating to data privacy, corporate governance, fraud prevention, and source of funds and anti-money laundering requirements. The result is a complex regulatory matrix which varies according to jurisdiction and which will inevitably need to adapt to accommodate the opportunities presented by blockchain.
The focus of this briefing is the application of blockchain to the nuclear sector. However, the application of blockchain technology to the broader energy industry will also be important. For a more detailed account of blockchain in the context of the energy value chain, see Norton Rose Fulbright’s Unlocking the Blockchain: A Global Legal and Regulatory Guide, Chapter 4: Digitizing the Energy Value Chain.
What is blockchain?
What we say about blockchain in this briefing applies equally to DLT more generally. Blockchain can act as a trusted platform enabling parties to communicate, record transactions and distribute information among themselves without having to share everything with a central entity. A single and shared version of data (commonly known as a “single version of the truth”) is created, as blockchain allows for the creation of synchronised electronic “ledgers” or records between transaction counterparties. This means parties can avoid having to transact on the basis of disparate and disconnected systems, which may otherwise lead to reconciliation errors. Using blockchain, recordkeeping and record validation can become a combined and automated activity, transaction time scales can be reduced and settlement time can be shortened to near real time.
Blockchain may increase cyber security for the data recorded. Digital records of transactions are not stored in a file. Instead they are represented by transactions indicated on a cryptographic hash available for all platform users to see (although it is also possible to design platforms to include restrictions on access to information). There is an audit trail of all information and data, ensuring greater accountability – transaction steps are recorded on the blockchain and all participants have shared access and can spot any errors. Blockchain also has the potential to share costs among multiple parties and reduce them overall by streamlining numerous processes.
Importantly, blockchain enables automation. Blockchain platforms can provide automated or partly automated products and services through the use of “smart contracts”. A smart contract is a computer program which encodes conditions and outcomes, and can move value or information across the ledger.
Application to the wider energy sector
The power value chain and the energy trading value chain involve a large number of actors which need to transact, share data but where there may not be complete trust and confidence amongst all such actors. Blockchain is potentially disruptive to every stage of such value chains by facilitating information flows and enabling trust between counterparties. The nuclear industry will undoubtedly be impacted by changes to the broader energy market, and so we examine these briefly first.
The power value chain is a heavily regulated market, traditionally divided into electricity generation and the transportation of electricity via transmission and distribution networks. Electricity is increasingly stored and delivered to customers via suppliers. In power markets, blockchain has the potential to enhance supplier – customer relationships, making metering and payment systems faster and more efficient. Key players in the sector are starting to embrace this technological shift. For example, in the UK, National Grid and Electron are working with a consortium to register electricity meters using blockchain technology.
Blockchain also has the potential to manage peaks and troughs in demand, as it can record and regulate metering systems, networks, generation facilities and demand-side response. Pilot projects are underway in this regard. For example, EDF Energy and UK Power Reserve reportedly traded capacity market obligations on a blockchain-enabled platform built by Electron.
The energy trading value chain sees transactions taking place on exchanges, via brokers or over the counter. Clearing houses often act as trusted intermediaries, managing the transfer of funds between parties. Blockchain could enhance energy trading by facilitating disintermediation, increasing efficiency and reducing transaction costs, as well as by automating the post-execution process of reconciliation and regulatory reporting.
We are seeing blockchain technology being used to ensure a more reliable means of verifying the origin and ownership of commodities - specifically emissions trading and low carbon energy certification, as (combined with intelligent sensors and smart meters) it can provide more accurate data. Monitoring asset movements could be made easier and, if combined with asset management tools, blockchain could enable the better tracking of construction works, more efficient payment mechanics and improvements in operational management systems.
Blockchain technology can also facilitate access to the electricity market by making it easier for micro-grids to function and by creating real-time payment systems, facilitating the trend towards decentralised energy. The development of new business models is made possible, with blockchain (such as peer-to-peer energy trading systems) allowing “prosumers” (a person who both produces and consumes a product such as electricity) to sell excess energy generated to other households, making small grids more commercially viable.
Application to the nuclear sector
In relation to the civil nuclear sector specifically, there are four key applications envisaged for blockchain.
The first is in the uranium fuel supply chain, which involves a number of parties and a significant amount of oversight, extending from the mine, fuel processing and purchase, to plant operation. This may involve reprocessing, or spent fuel may go directly to storage. As national and international regulators require that nuclear material is tracked and that records are kept for each movement, storing these records on a blockchain platform has the potential for greater supply chain transparency and reduced risk of fraud.
Regulators require strict inventories of parts and materials used in the construction, operation and post-operation of a nuclear power facility. By securely tracking ownership, custody and location of components and materials, a further application of blockchain technology could ensure effective management of these materials even after the decommissioning of nuclear facilities. When processes such as product lifecycle management (PLM) and building information modelling (BIM) interfaces are implemented, assets can be tracked over their life-cycle. BIM is set to play an important role in the nuclear industry in aligning with the government initiative Digital Built Britain,1 which seeks to digitalise the entire phase of an asset, allowing for effective data management. The software was crucial to the successful planning and construction of the Hinkley Point C nuclear power station in the UK, monitoring the movement of materials and helping to reduce the risk of delay.
To optimise the use of BIM, however, changes in workflow and practices must also occur, as implementing the software alone is not enough. Everyone involved in the project has a significant contribution to make and this must be filtered down the supply chain to ensure the software is deployed and updates to the data effected so that digital records represent the physical reality.2 A caveat to this is that project participants will need to trust the information the model contains. Blockchain can address such questions of trust by securely tracking and making available to participants the information uploaded to it, leading to increased accountability for contributors if something goes wrong, and enabling effective tracking of materials over their (often lengthy) life-cycle.
Another category of applications involves the use of blockchain (and DLT more generally) for recording events within a single facility or company - for example, the logging of entries to and departures from a secure site. Here the key benefit of blockchain is the creation of a tamper-proof record of events, thereby aiding security of the facility, and enabling guarantees to be provided to regulators, insurers, and business partners. These applications may only involve a single company rather than a consortium of companies.
Related to these applications is regulatory oversight. Blockchain may facilitate more effective and efficient interface with regulators. Domestically and internationally, there are a number of regulators and agencies involved in the nuclear power industry, some with direct oversight or who provide a peer review function (such as the Office of Nuclear Regulation and the International Atomic Energy Agency). By using blockchain technology, the burden of reporting could be reduced as regulators can access up-to-date information on a near real-time basis.
All industry sectors will be affected by broader changes to the energy market resulting from increasing digitisation; the adoption of blockchain technology is one aspect of this wider trend. Awareness of its potential applications is growing, as industries continue to explore uses of the technology.
Not only will blockchain have an impact on power markets and energy trading, but the nuclear industry could benefit from the use of blockchain technology to provide greater supply chain transparency, to enhance asset management capabilities and site security, as well as to facilitate more efficient interface with regulators.
For more information see BIM Report 2011 available here https://www.thenbs.com/knowledge/nbs-national-bim-report-2011>
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