- Supply Chain
- Energy Industry
How Blockchain Is Improving Supply Chain Management in the Energy Industry
Since the creation of Guidehouse Insights’ Energy Blockchain Project Tracker in 2012, transactive energy (TE) and certificates of origin (COOs) have remained as the use cases with the most projects tracked. Overall, most energy blockchain projects utilize blockchain for grid improvements and efficiencies applications, such as TE, COO, asset ownership financing, or grid balancing and management. Supply chain management (SCM) has emerged as an interesting application within the energy sector with its own subset of blockchain vendors and end users.
SCM projects employ blockchain to track materials or assets or validate transactions along an energy-related supply chain. This application and corresponding projects are particularly interesting considering recent supply chain challenges caused by the COVID-19 pandemic and the war in Ukraine.
Many supply chain challenges can be solved by blockchain. Supply chains struggle with securely and efficiently tracking and trading assets throughout production. Additionally, supply chains are complex, involving multiple stakeholders that require access to logistics information but often do not share the same data collection and distribution processes. Blockchain offers a single, trusted database of truth and transparency while allowing multiple stakeholders to share and access validated information. Similarly, as blockchain-based platforms collect consistent data, potentially for multiple assets, companies can identify inefficiencies and congestions points. Data can also serve to certify sustainable practices throughout the supply chain, such as emissions tracking.
Project Interest and Investment
SCM projects within the energy sector are used to achieve different goals. Most of the projects tracked in the Guidehouse Insights’ database focus on tracking raw materials or assets along the supply chain. Although this application is popular, it often remains at the pilot phase. Common materials tracked are cobalt, lithium, steel, and aluminum, often for battery components. In 2020 and 2021, Guidehouse Insights identified five projects with SCM capabilities, including:
- Blocksize Capital has traced agricultural fuel to incentivize sustainable farming practices by providing tokens, or rewards, to farms using efficient fuels.
- Circulor and Volvo have partnered to track cobalt used in the battery of Volvo’s first all-electric car. Circulor has also worked with other companies on raw materials tracking and management.
- VeChain created an application for Shanghai Gas Group to trade liquid natural gas storage tanks using Internet of Things sensors. The application tracks makeup and quality and helps the company streamline payments along its value chain.
- Everledger is combining its blockchain traceability platform with Source Certain International’s chemical fingerprint technology TSW Trace to improve transparency in mining.
In the next 5-10 years, Guidehouse Insights expects to see SCM projects reach commercialization and scale. A full-scale blockchain-based SCM project may include multiple materials or assets on the same platform. Additionally, SCM platforms could streamline settlement and payment for stakeholder transactions.
The Growing Need and Market for SCM
As supply chains become increasingly complex and inefficiencies and new barriers are posed, there is an increased need for SCM technologies and platforms. Blockchain’s decentralized architecture provides clear advantages such as increased security, transparency, automation, and information analytics capabilities.
SCM projects are expected to continue to grow in the coming years, especially considering the wide scope of assets that must be tracked from physical hardware valuations to raw materials to transactions to certificate validation systems. Companies may add on other assets and validations on a platform to reach environmental, social, and corporate governance targets, for example to validate fair working conditions.
Use of blockchain for SCM is executed by large companies influenced by investors, stakeholders, and social and regulatory standards. As pressures increase, blockchain-enabled SCM projects are expected to follow suit and smaller companies will likely adopt similar practices.
For an in-depth look at blockchain-based SCM solutions see Guidehouse Insights’ Analyst Insight: Energy Blockchain in Supply Chain Management and Energy Blockchain Vendor and Deployment Tracker 1Q22.