Master thesis
______________________________________________
The impact of information and communication
technology (ICT) on supply chain sustainability
The case of the blockchain in the energy industry
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Mathilde Charbonnier
11809280
Date of submission: August 17, 2018
Master: Business Administration – Digital Business Track University: University of Amsterdam
Supervisor: Merve Güvendik Second reader: Andreas Alexiou
Statement of originality
This document is written by Student Mathilde Charbonnier who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Table of contents
Abstract 4
Chapter 1 | Introduction 5
1.1 Topic 5
1.2 Research question 6
1.3 Theoretical and practical contributions 7
1.4 Thesis structure 8
Chapter 2 | Literature review 10 2.1 Supply chain management, innovation and sustainability 10 2.2 Information and communication technologies 16
2.3 ICT and sustainability 17
2.4 ICT in the SCM 18
2.5 ICT, sustainability and supply chain management 21 Chapter 3 | Research methodology 24
3.1 Research design 24
3.2 Research context 25
3.3 Data collection 27
3.4 Strengths and limitations 29
3.5 Data Analysis 30
Chapter 4 | Results 32
4.1 At a glance 32
4.2 Applications of the blockchain 33
4.3 Economic perspective 35
4.3.1 Cost savings 35
4.3.2 Decentralization 37
4.3.3 Efficiency and Optimization 39
4.3.4 Transparency 40
4.3.5 New business models 42
4.3.6 New roles in the supply chain 43
4.3.7 Local economy 45 4.4 Environmental perspective 45 4.4.1 Certification 46 4.4.2 Energy consumption 47 4.4.3 Waste minimization 48 4.4.4 Local production 48 4.5 Social perspective 49
4.5.1 Behavior 49 4.5.2 Community 50 4.5.3 Control 51 4.6 Factors 52 4.6.1 Regulations 52 4.6.2 Missing foundations 54 4.7 Conceptual model 55 Chapter 5 | Discussion 58 5.1 Research question 58 5.1.1 Economic perspective 58 5.1.2 Environmental perspective 59 5.1.3 Social perspective 60 5.1.4 Sub-conclusion 62 5.2 Academic contributions 63 5.3 Managerial implications 64 5.4 Limitations 65
5.5 Suggestions for future research 65
Chapter 6 | Conclusion 68
References 70
Appendix A - Overview of organizations and interviewees 77 Appendix B - Interview protocol 79 Appendix C - Codebook NVIVO 80 Appendix D - Conceptual model 82
Abstract
Sustainability and information and communication technology (ICT) are two topics that have gained influence in supply chain management over the past few years. The purpose of this exploratory research is to provide a better understanding at the overlap of supply chain management, sustainability and ICT from an economic, environmental and social perspective. Several research have focused on those three topics combined. However, this study is the first recent attempt to investigate the impact of ICT on supply chain sustainability from the three dimensions of sustainability. The research context of this paper is the blockchain technology in the energy industry. A qualitative approach is chosen and six interviews with blockchain experts in the energy sector are conducted. The findings of this research indicate that ICT have a rather positive impact on supply chain sustainability, gradually maximizing economic profitability, minimizing environmental impact and maximizing social welfare. A conceptual model illustrating those findings is proposed, identifying the effects of ICT on the diverse functions of a supply chain. Both scholars and practitioners might find this research interesting as it provides relevant insights for future research and guides ICT-related decisions in the supply chain.
Keywords: environmental sustainability, economic sustainability, social sustainability, supply chain management, information and communication technology, supply chain sustainability
Chapter 1 | Introduction
1.1 Topic
Sustainability has become a major preoccupation in business operations. Concerns around climate change and business practices not compliant with sustainability are growing, and sustainability in business is not only an alternative anymore, but a requirement (LeBlanc, 2018). Supply chains activities are increasingly at risk due to global warming disruptions or reputational risk. To ensure the long-term existence of a firm, it is essential to develop resilient supply chains (Scott, 2013). The sustainability of supply chains (SCs) is therefore a global problem. Information and communication technologies (ICTs) are playing a significant role in its development (Luthra et al., 2018).
The potential of ICTs to achieve the economic, social and environment pillars of sustainability and to influence the mechanism of our society is important (Luthra et al., 2018; Hilty & Aebischer, 2014; Grabot & Schlegel, 2014). Despite this, ICT is not automatically favorable for sustainable development. Some of the unfavorable effects can be the need of materials and energy (direct effects), the stimulation of other resource consumption (induction effect) or the limitation of the life of other resources (obsolescence effect) (Hilty & Aebischer, 2014).
Therefore, to maximize the benefits and to minimize the drawbacks, it is necessary to control ICT’s development and applications concerning sustainable development (Hilty & Aebischer, 2014). It is controversial whether ICT appears as a threat or a remedy to sustainable development (Chiabai et al., 2012). Generally, the link between IT and sustainability is going two ways: information technology can grow to be more sustainable or the usage of information technology can lead to sustainability (Schatten, 2009 in Thöni and Tjoa, 2017).
1.2 Research question
The adoption of novel information and communication systems is considered as a key opportunity, and their impact inspires new possibilities for business and allows the increasing information flow to assist supply chain management and operations (Pieter Van Donk, 2008). According to Markovic et al. (2012), ICT has undoubtedly a positive influence on sustainable development.
In spite of the clear evidence in regard to the role of ICT on supply chain management, it is essential to understand more about the usage, implementation and impact of such technologies on supply chains (Pieter Van Donk, 2008). Likewise, the knowledge and the understanding of ICTs’ effects on the sustainability of the modern society is limited, and also strongly contested (Chiabai et al., 2012).
Additional empirical research is required to grasp a better understanding of the extent to which information technology impact sustainability throughout supply chains (Thöni and Tjoa, 2017). The number of papers researching about this topic appears to be restricted, and there seems to be no in-depth connection to all three economic, environmental and social dimensions of sustainability in these papers. Furthermore, the existing literature has up until now focused a lot on sustainable supply chains, sustainability and ICT, or ICT in the supply chain, but very few studies concentrate on the three concepts altogether. Hence, Thöni and Tjoa (2017) have identified the lack of research about social sustainability, and consequently have analysed in what manner information technology is able to enhance sustainable supply chain management (SSCM), limiting their study to social and environmental sustainability.
To address the lack of research at the overlap of ICT, sustainability and supply chain management, this study aims to analyse and offer an updated perspective in regard to the impact of ICT on supply chain sustainability from three different perspectives: economic, environmental and social. This study responds to the following research question:
How does information and communication technology (ICT) impact the sustainability of supply chains from an economic, environmental and social perspective?
This study contributes to the theoretical literature by providing a new perspective on existing knowledge and combining topics together in a novel way. As such, it extends preceding research in a twofold manner. First, it strengthens the understanding of the influence of ICT in supply chains. Second, it examines each of the three dimensions of sustainability, therefore offering an expansive overview of ICT’s impact in SCM in the contemporary society.
With technologies developing at a fast pace, sustainability becoming of greatest significance in the core strategy of a business (Kachru, 2016), and supply chains becoming increasingly complex coupled with high risk of disruptions (Culp, 2013; Yu et al., 2009), it is most likely that the need for knowledge and evidence about the effects of ICT on the sustainability of supply chains will be growing in the near future.
The results of this paper provide guidance to practitioners to embrace and implement information and communication technologies to the best of their abilities within the context of supply chain management, and to take wiser ICT-related investment decisions. Lastly, the results of this study offer relevant insights for managers concerning the potential and the consequences of ICTs on sustainability.
1.4 Thesis structure
The structure of this research is defined as follows. Chapter one presents the topic, the research question and the contributions. The second chapter discusses the theoretical background and provides a literature review connected to the research question.
Subsequently, chapter three explains the research design. Chapter four presents the results and chapter five discusses the findings, contributions, limitations and suggestions for future research. Finally, the last chapter concludes this study.
Chapter 2 | Literature review
This section provides a thorough overview of the literature on supply chain management, information and communication technology, sustainability, and their link to each other. First and foremost, the notion of supply chain management is explained, as well as how it is viewed by researchers. Secondly, the concept of innovation and its link to supply chain are discussed, in addition to an overview of supply chain innovation and its potential to lead towards sustainability. Thirdly, information and communication technologies are introduced, followed by a summary of the existing literature on information and communication technology’s link to sustainability. Then, the role of ICT in supply chain management is discussed. Lastly, the research question and the literature gap are explained.
2.1 Supply chain management, innovation and sustainability
Supply chain management (SCM) refers to “a set of three or more entities (organizations or individuals) directly involved in the upstream and downstream flows of products, services, finances, and/or information from a source to a customer ” (Mentzer et al., 2001, p.4). Although the development of supply chain management started almost two decades ago, the concept of supply chain management is still very broad and it is mainly due to the lack of similarities among definitions that various authors have attributed to this concept (Ellram and Cooper, 2014).
Moreover, a great number of researchers have observed that this extensive notion of SCM might prevent the progress of supply chain management studies and thereby the development of its applications (Ellram and Cooper, 2014). Chicksand et al. (2012) believe that the concept is not coherent enough to qualify it as a scientific discipline. Ellram and Cooper (2014) claim that a few authors have assessed the state of supply chain management and whether it is identified as a discipline. The opinions vary from one author to the other. Ellram and Cooper’s study concludes that SCM probably has not become a discipline yet, however this field is growing more and more, on the way to standardization - scholarly and practically-, impacting the world and growing as a considerable field of study. A conceptualisation named the “3S Model” - synthesis, synergy and synchronization- is proposed by Giannakis & Croom(2004) with the aim of articulating the nature of previous theories and interests in the supply chain, and provides a basis for future theoretical developments in the discipline.
Schumpeter (Croitoru, 2012) originally recognized innovation as new ideas creating economic value. Recently, innovation is identified as an important and popular concept in the literature. Multiple analytical perspectives exist in order to classify the different types of innovations (Roy et al., 2004). From the level of novelty perspective, researchers (Bessant,1992; Gao et al., 2017;Roy et al., 2004) observe two types of innovations: radical and incremental. A radical innovation is defined as a considerable advance in products or processes, while an incremental innovation corresponds to an improvement of existing products, services, processes or methods. Innovation is known
to be more radical in the supply chain, with a priority on the economic dimension rather than the environmental and social dimensions (Gao et al., 2017).
Isaksson et al. (2010) argue that the innovation potential of supply chains for sustainability is generally high. However, they conclude that even though numerous companies are compliant with environmental and social performance regulations, and despite the fact that potential for sustainable development is recognized, most companies focus on profit maximization. The concept connecting innovation and supply chain management is called supply chain innovation (SCI). SCIs have the potential to improve the performance of a supply chain and are known as development initiatives in the supply chain management. The implementation of a new supply chain technology is an example of the area of innovation in the supply chain (Munksgaard, B. K. et al., 2014; Arlbjørn, J.S. et al., 2011).
Gao et al. (2017) focused their study on supply chain innovation associated with sustainability: sustainable supply chain innovation (SSCI). The authors define a SSCI as a SCI balancing social, environmental and economic dimensions. In other words, for the innovation to be sustainable, supply chain profitability should be maximized, the environmental impact minimized and the social well-being maximized. Observing the lack of a concept linking innovation, sustainability and supply chain management, the researchers develop a framework which illustrates the concept of sustainable supply chain innovation. In Figure 1, SCI is depicted as an umbrella which includes innovative
activities happening in the diverse functions of the supply chain. Those innovative activities are likely to provide beneficial changes and encompass every party, for instance suppliers, producers, retailers and consumers (Gao et al., 2017).
Figure 1 Sustainable supply chain innovation framework from Gao et al. (2017)
This framework is developed on the basis of the sustainable supply chain framework provided by Hassini et al. (2012) in their research.
Figure 2 Framework for sustainable supply chain from Hassini et al. (2012)
The researchers imagine a sustainable supply chain “as wheels constituting of six spokes, representing the major relevant functions within the chain: sourcing, transformation, delivery, value proposition, customers, and recycling” ( Hassini et al., 2012, p.73). Figure 2 illustrates this. The concept is the following: the focal company pushes the adoption and adaptation of technologies and practices leading towards efficiency, ethics and sustainability by its upstream suppliers. Sourcing refers to renewable resources, fair trade and greenhouse gas emissions.Transformationalludes to sustainables practices and processes, as well as fair labor practices. Delivery is related to various operational processes such as the location, the proximity to the customer and the transportation mode. The value proposition for sustainable products often has a higher price. In many cases the cost is assumed by the end users. Companies need to evaluate the benefits of such products and explain the value
proposition to the end users in order to market those products with success. Consumer and product use refers to customer education and the use of energy. Lastly, the reuse, recycle, return function alludes to the concept of reutilisation and recycling of the product (Hassini et al., 2012).
The social, environmental and economic dimensions of sustainability constitute altogether the triple-bottom line (TBL) framework, illustrated in figure 3. The main idea is the following: through social standards improvements and through the preservation of the environment for succeeding generations, economic benefits are made possible (Varsei et al., 2014). This concept developed by John Elkington in the mid-1990s (Slaper and Hall, 2011) transformed the manner sustainability and projects’ performance is measured by businesses, nonprofits and governments. The challenge is to measure it, since there is no such thing as an universal standard method of measurement. The advantage is that it enables organizations to apply and adapt the framework in the best suitable way to their needs. The TBL is an established concept, already well accepted into the business world (Slaper and Hall, 2011).
2.2 Information and communication technologies
A variety of novel communication capabilities have developed in the previous decades. Information and communication technologies (ICTs) are now associated with productivity and global communication, and assume great significance in most businesses, helping them to maintain their competitive advantage (Zhang et al., 2008; Zuppo, 2012).
ICT is an acronym that has different meanings depending on the context of its application. Therefore, there is a wide array of definitions. Nonetheless, the elementary definition of ICT focuses on the devices and infrastructures that enable information to be transferred digitally in an easier way (Zuppo, 2012). Zhang et al. (2008) perceive ICTs as technologies that organization and people use in order to process information and to communicate.
To understand and study ICT in a specific context, it is important to define ICT within the specific context and to know their pertinent applications. From the educational perspective, ICTs assist the learning and teaching process. From an organizational perspective, they enable the workplace to be timeless and more virtual. From an economic development perspective, they help to prepare, react and communicate when disasters come (Zuppo, 2012). However, it is important to note that ICTs change and spread more and more rapidly, and that the necessity to assess the impact is constant.
So as to understand the contribution of ICTs, one must continuously evaluate their ever-changing input to development (Heeks, 2010). Lastly, information and communication technologies’ capabilities - such as collecting, processing, structuring, storing, transferring and managing large amount of data and information, as well as reducing the barriers of space and time - allow the data, the information and the knowledge - that organizations and individuals have - to be shared and easily available (Carbonara, 2005).
2.3 ICT and sustainability
Sustainability has become an everyday concern for most businesses and organizations worldwide. In general, the concept of sustainability brings many questions and few answers. The current challenge is to clarify the situation and have the questions answered. ICTs are simultaneously part of both the problem and the solution ( Grabot and Schlegel, 2014). It is ambiguous how ICT impacts sustainable development and whether it is a threat or an opportunity to the environment (Chiabai et al., 2012).
Nonetheless, Markovic et al. (2012) assess that ICT has undoubtedly impacted on a positive way environmental sustainability. They claim that ICT greatly helps in reducing resource intensity - which measures the resources needed for the supply of one unit of goods or services. On the other hand, they also acknowledge that ICT contributes to the development of lifestyles that are more resource-consuming. In order to find solutions to the increase in resource consumption of ICTs themselves, hardwares are now pushed
to their physical limits. Nanotechnology is therefore playing a role in the reduction of resource consumption (Markovic et al., 2012).
In their study about ICT applications in research for environmental sustainability, Chiabai et al. (2012) conclude that there is a need to develop and implement ICTs in particular contexts, where the needs and expectations of users are taken into consideration. Overall, a communication gap is observed between environmental scientists and other stakeholders. ICT has the potential to bridge this gap and enable the scientific knowledge to be easily transferred among all stakeholders (Maurer et al., 2010).
2.4 ICT in the SCM
In their paper, Llach and Alonso-Almeida (2014) discuss that information and communication technologies (ICTs) in supply chain management are not only tools for communication, but more than that. They enable a firm to achieve better performance and competitive advantage.
Similarly, Zhang et al. (2011) assess that ICTs have a generally positive effect on SCM and performance. Nevertheless, it is not clear which technologies have the most effect and how positive effects work. Pieter van Donk (2008) claims that there is little knowledge about ICT’s general impact on supply chain management, even though contemporary firms are inspired by ICT and consider the adoption of new technologies as an opportunity to support the firm’s operations and supply chain management.
Radio Frequency Identification (RFID) is one of the ICT commonly used in the supply chain management. It is an automatic identification technology that can identify and track the smart devices coupled to the item using electromagnetic fields (Bertoni, Duccio, et al., 2010; Yan and Huang, 2009). Yan and Huang (2009) based their study on the combination of RFID and the Internet of Things (IoT) for supply chain management and believe that those two ICTs together are able to facilitate information sharing among businesses, and therefore help firms to avoid and step out of the “bullwhip effect”. The IoT technology solves the problem of information asymmetry that1 arises with more traditional information sharing models and enable the members of the supply chain to have product information in real-time. IoT can greatly increase the performance of the whole supply chain, however it is necessary for the members of the supply chain to cooperate (Yan and Huang, 2009).
Supply chains have also a strong relationship with big data, which enables better data accuracy and clarity leading to more significant insights across supply chains. Big data is currently assisting the supply chains of large retail companies with predicting accurately consumer behaviors and consumer preferences. While some supply chains are already benefiting from big data, many other supply chains are not able to make the most of available data and produce valuable insights for their organizations (Tiwari et al., 2018). It is mainly explained by a lack of analytical capabilities when it comes to investigate and study closely big amount of data (Rowe & Pournader, 2017).
1 “The increase in the variability of orders at each stage in a supply chain is often called the bullwhip effect. Bullwhip effect causes excessive swings in different demand or inventory-stocking points throughout the supply chain.” (Paik and Bagchi, 2007, p.321)
Tiwari et al. (2018) conclude that big data analytics is a discipline that is gaining in importance, that can help supply chains to become more sustainable and reliable, and that can lead businesses towards useful insights and better decision-making. By reacting rapidly to environment changes, improving relationships with suppliers, and enhancing business management processes capabilities, big data and predictive analytics offer opportunities for transforming supply chain management (Gunasekaran et al, 2017; Schoenherr and Speier-Pero, 2015).
In his paper about agri-food supply chain, Tian (2016) claims that the extensive applications of emerging technologies - such as the blockchain technology - undoubtedly enable products to move along the supply chain in a transparent, clear and trustworthy way. Kshetri (2018) examines about blockchain and supply chain management objectives, and he affirms that this technology can be employed to identify the members of a supply chain and their roles in the supply chain, as well as the time and location of their activities. Nonetheless, there are concerns and challenges to overcome in order for the potential of this technology to be reached. For instance, the compliance of various parties in a supply chain with numerous regulations and laws is needed. It is worth noting that blockchain’s effects on diverse activities in organizations have barely been assessed by scholars (Kshetri, 2018).
Kewell et al. (2017) use the term distributed ledger technologies (DLTs) to define the different possible blockchain technologies. Their study considers potential DLT solutions - including in supply chains - for the accomplishment of the sustainable development
agenda. The study also validates the significance of blockchain’s potential, suggesting the concept of ‘blockchain for good’ as a nascent phenomenon created by different actors forming an ecosystem (Kewell et al., 2017).
2.5 ICT, sustainability and supply chain management
The literature has presented so far the concepts of supply chain management, sustainability, and ICT, as well as the interconnection between those topics. The goal of this research is to analyse the potential that lies at the intersection of those three crucial themes. Figure 4 illustrates the focus of this research.
Figure 4 Illustration of the focus of this research
Information and communication technologies enable businesses to develop new possibilities and solutions to improve their supply chain management. While the role of
ICT on supply chain is well integrated, its impact on supply chain is not clearly understood (Pieter Van Donk, 2008). Similarly, the comprehension of ICT’s impact on sustainable development is limited and disputed. The controversy is the following: is ICT a threat or an opportunity to sustainability? (Chiabai et al., 2012).
In order to fully understand the overlap between supply chain management, sustainability and ICT, as well as the extent to which ICT impact the sustainability of supply chains, additional research is necessary. Until now, there is a lack of research investigating the overlap of those three major themes from the three dimensions of sustainability: economic, environmental and social.
The potential of the blockchain technology to facilitate the creation of a sustainable ecosystem (Park and Chang, 2018), as well as its emerging popularity lead the researcher in its decision to focus the case study of this research on this particular ICT: the blockchain technology. Moreover, the energy industry is chosen for this case study since it is a sector currently expanding (Huang et al., 2017).
Thus, this research about the impact of ICT on the sustainability of supply chains is defined as follows. First, it determines the impact of the blockchain technology on the sustainability of supply chains from the three dimensions of sustainability separately. Third, the research highlights the factors influencing the impact of the blockchain on the sustainability of supply chains. Forth, a conceptual model is derived from the findings.
To conduct this research several academic concepts are used as a basis. Gao et al. (2017) sustainable supply chain innovation framework, which is developed on the basis of Hassini et al. (2012)’s perception of a sustainable supply chain, serves as a basis for the conceptual model. Additionally, Elkington’s triple bottom line framework is guiding this study. Aiming to offer an updated perspective of ICT’s impact on supply chain sustainability this study answers to the following research question:
How does information and communication technology (ICT) impact the sustainability of supply chains from an economic, environmental and social perspective?
Chapter 3 | Research methodology
3.1 Research designQualitative data are relevant for this study because of the nature of this research. This study seeks to analyse the impact of ICT on the sustainability of supply chain and needs qualitative inputs from experts. Moreover, the impact of technologies on sustainability is difficult to quantify. Therefore a qualitative approach is chosen for this research. The purpose of this study is mostly exploratory and inductive. Nonetheless, the study also uses some aspects of a deductive approach. Consequently, the study combines elements of both inductive and deductive approaches. The review of existing theory at the beginning of the study, as well as the usage of current theories to shape data collection (i.e. the interview questions) and some elements of data analysis refer to the deductive approach. The development of a theoretical framework after the analysis of the data, in addition to the fact that some theory is emerging as an outcome of the research process, refers to an inductive approach (Saunders et al., 2016).
The research strategy is a single case study. A case study is an investigation of a modern phenomenon in its actual context (Yin, 1984). The main focus of a case study is to grasp an understanding of the existing dynamics in a case (Eisenhardt, 1989). A single case design is selected because it enables the researcher to observe and analyse in depth a phenomenon, find new relationships in the theory and question existing ones (Dyer and Wilkins, 1991; Saunders et al., 2016). Therefore, this single
case study aims to challenge and extend the existing theory. Sub-units of analyses are incorporated within this single case. Those sub-units increase the potential for extensive analysis (Yin, 1994), and are derived from the existing literature and defined as: economical, social and environmental. Therefore, the analysis of the qualitative data is made within the sub-units separately (Baxter and Jack, 2008).
3.2 Research context
The energy industry is chosen to illustrate the impact of information and communication technologies on the sustainability of supply chains because the energy sector is currently experiencing important structural changes. Modern ICTs are getting integrated in traditional energy systems, and renewable energy sources are starting to substitute conventional fossil fuel energy supply (Huang et al., 2017). The supplier and the consumer are the two parties involved in any energy consumption transaction. For the development of an integrated solution, it is necessary to consider both parties (Watson, Boudreau and Chen, 2010).
Managing the consumer demand might be an opportunity that suppliers would like to have. For instance, in the electricity domain, turning off a few devices in the course of peak demand periods. And consumers might want to have those information in real-time about the usage of their devices, to then leverage those information. Therefore, the need for an integrated information system across the supply chain is real (Watson, Boudreau and Chen, 2010).
Smart homes, smart buildings and smart cities, which offer environmental and economic benefits in energy transactions, have recently been mentioned in the literature and aim for sustainable development. In order to create and maintain a sustainable ecosystem, a blockchain-based system to trade the energy and offer the benefits above-mentioned is suggested in the literature, and now tested through pilot projects in reality. This specific application is called peer-to-peer energy trading, and connects in a democratic way different energy sources with users to provide them with energy (Park and Chang, 2018).
The open and global infrastructure of the blockchain technology enables the removal of the middleman when making transactions, and the reduction of transaction costs and time. The digital distributed ledger architecture and the consensus process form together the basis of the blockchain. The distributed ledger does not belong to one central organization. The ownership is shared among participants - computers - in a network and is available to all users on this network. Core characteristics of blockchain are immutability, transparency, security and trustworthiness (Underwood, 2016; Mengelkamp, 2017). Mengelkamp et al. (2017) discuss the potential of the blockchain technology in the energy market in their study. They assess that local energy markets can operate with the blockchain. With its secure, transparent and decentralized structure, this ICT has the potential to offer advantages to users and thus create a
sustainable ecosystem and eliminate the existing monopoly of a small number of energy prodivers (Park and Chang, 2018).
Currently, significant attention is given to the blockchain technology, which triggers the birth of numerous projects related to multiple industries (Nofer et al., 2017). However, blockchain is still an emerging technology and encounters diverse issues. The complexity in regard to its implementation and its current protocols continues to challenge researchers and practitioners (Mengelkamp, 2017). Therefore, the context of this study is focusing on companies investigating, evaluating and implementing the blockchain technology in the energy industry.
3.3 Data collection
Multiple data collection methods are selected for this research. Triangulation is the use of multiple data collection methods, and it allows evidences to be more solid. Moreover, it enables the case study to be analysed from various perspectives (Eisenhardt, 1989). Two data collection methods are chosen: interviews and document analysis. Interviews are a relevant method to gather insightful and qualitative data. Document analysis provides additional coverage of the topic (Yin, 1994), and complements data from the interviews.
Sampling methods are used for the selection of the interviewees. Sampling allows the researcher to lower the quantity of data needed to gather by taking into account
exclusively data collected from a specific sub-group . The construct of a sampling frame is not feasible, therefore this research makes use of non-probability sampling techniques (Saunders et al., 2016).
One of the sampling techniques chosen for this qualitative research is purposive sampling. With this sampling technique, cases are selected according to the researcher’s judgment. Heterogeneous sampling, which allows data to be collected with the aim of describing and analyzing key themes, is chosen as a purposive sampling strategy (Saunders et al., 2016). In addition to purposive sampling, snowball sampling is selected. The choice of those sampling techniques is appropriate because the blockchain technology is an emerging and novel technology, that few people understand in its entirety. Thus, it might be difficult to identify members dealing with this new ICT in the energy industry.
Seven semi-structured interviews are conducted in order to answer the research question. Professionals working closely to the blockchain technology in the energy industry in the Netherlands and in Switzerland are interviewed. The interviews take place at the participants’ preferred location or online, through Skype. All participants are informed beforehand on the subject of the research and the objectives of the interview. An interview protocol, located in appendix B, is created before conducting the interviews. The purpose of this interview protocol is to guide the researcher. All
interviews are recorded with a voice recorder, with the consent of the participants. Consequently, interviews are performed and transcribed.
In this research, Hive power and HanzeNet are startups trying to implement a peer-to-peer marketplace and provide a platform for consumers to create and manage energy locally. SIG, Nuon/Vattenfall and Eneco are large energy producers and/or suppliers, diving into the world of blockchain to try to understand which applications can be valuable for them and for their consumers. And CGI helps large energy firms to integrate the blockchain technology in the future grid within the energy transition. The difference of scope and structure of those organizations offers a good overview of the current energy sector. See appendix A for an overview of the selected organization and interviewees.
3.4 Strengths and limitations
Rigor is essential in qualitative research and there is an imperative for evaluation of a study, in order for the findings to convey conviction. Such evaluation focuses on the notion of reliability and validity. Reliability refers to the stability of data collection instruments (Long & Johnson, 2000). Denzin and Lincoln (1994) define reliability as the non-existence of random error. To ensure the reliability of this study, a case study protocol is used to outline the structure and the procedures of the case (Yin, 1994).
The construct validity alludes to the extent to which a procedure prompts to a correct observation of a phenomenon (Denzin & Lincoln, 1994). The construct validity of a case is guaranteed with triangulation - i.e. multiple sources of data - , which is used in this study (Gibbert & Ruigrok, 2010). In addition to the literature review, extensive desk research of articles and organization websites is performed to complement the interviews.
3.5 Data Analysis
After the transcription of the interviews, the data are inserted into the qualitative data analysis computer software NVIVO 12. This computer software tool assists the researcher in the codification and categorization of the qualitative data. This process is iterative. Additional categories and codes are developed gradually (Yin, 2009). A code is “a technical term from the analytical procedure and signifies a named concept” (Flick et al., 2004, p.271). First, a general strategy is defined in order to most wisely prepare for the data analysis. The reliance on the theoretical background is the chosen strategy to start with the data analysis process (Yin, 2009).
The three main perspectives of this study - economic, social, environmental - mentioned in the research question are used as starting point for the coding process. Nonetheless, the rest of the coding process is done more inductively. Open coding is the first type of coding considered for the data analysis. With this method, short passage of text are analyzed and subsequently a multiple concepts are developed. The following is called
axial coding, and enables the creation of connections and/or difference between the different concepts already identified (Flick et al., 2004). The coding process is done iteratively, for the categories of codes to progressively be more accurate and complex (Yin, 2009).
Chapter 4 | Results
This chapter discusses the insights derived from the interviews. As mentioned in the previous chapter, the three perspectives - economical, environmental and social - are used as a basis and codes are derived from there. During the interpretation process of the data, codes are collapsed into key themes. First, a brief overview of the key themes is presented. Second, the different applications of the blockchain technology are quickly mentioned followed by an overview of the interviewees. The following subsections present the results of each perspective of sustainability. Consequently, the factors identified through the data analysis are explained. The chapter concludes with a conceptual model created in the wake of the findings.
4.1 At a glance
On the taxonomy below, the key themes are depicted in an organized way. This taxonomy enables analysed data to be classified and structured (Verdellini & Scagnoli, 2013). During the data analysis process, codes are ultimately collapsed into key themes. The codebook can be find in Appendix C. Figure 5 gives a general overview of the results generated from the data analysis and guides the structure of this chapter.
Figure 5 Taxonomy
4.2 Applications of the blockchain
The applications of blockchain technology in the energy industry are numerous and many companies involved in the energy supply chain are investigating those applications. In this research, the applications that companies target are peer-to-peer energy trading, certification of renewable energy sources, grid management, metering and decentralized generation. Most of the companies interviewed are in a testing phase of those applications and conduct pilot projects. They currently try to understand how the blockchain technology can create value in the the energy sector and they investigate the new business models coming from those applications of the technology. There are a lot of questions and uncertainties about the comprehension and
implementation of this technology in the energy supply chain, as well as its impact on sustainability. The implementation of blockchain technology is definitely part of the energy transition and all the organizations playing an important role in the energy supply chain are looking into it. Below an overview of the different organizations, interviewees and their role.
Company Company activities Interviewee name Interviewee function Country Eneco Large producer
and supplier of natural gas, electricity and heat in the Netherlands Roelof Reineman District Heating Expert & Blockchain Lead Netherlands Services Industriels de Genève (SIG) Provide local services such as water, electricity, gas and thermal energy.
Anonymous Anonymous Switzerland
Hive Power Startup developing a solution for the creation and management of local energy communities Gianluca Corbellini CEO & Co-Founder Switzerland
CGI IT and business consulting services firm
Sjors Hijgenaar Information Analyst & Blockchain Expert Energy Transition
Netherlands
Nuon/ Vattenfall Nuon, part of the group Vattenfall, is a leading European
Michiel Sintenie Senior Business Developer, Business Innovation & Strategy
energy provider HanzeNet Startup bringing together energy supply and demand locally Willem Poterman Co-Founder Netherlands
Figure 5 Overview of organizations and interviewees
4.3 Economic perspective
This subsection highlights and explains the key themes that emerged from the economic perspective analysis. The economic dimension of susatinability appears as prominent in this study. The key themes are presented with the support of quotes.
4.3.1 Cost savings
Many applications of the blockchain technology enable organizations to save costs. Blockchain leads to cost efficiency and lowers market prices. Those two advantages are described below.
First, most projects with the blockchain focus primarily on cost efficiency. Many companies choose cost efficiency as their main drive for their projects because it is a concept that everybody can comprehend. Moreover, it is easy to measure. It seems that choosing cost saving as a first objective for blockchain-related projects is a good manner to tackle this immature technology in the energy sector.
______________________________________________________________________ “The main drive for the roundabout projects is cost efficiency [...] It thrives the business case, it funds the projects and sustainability is an after part.” Roelof Reineman - Eneco “I think the way to start with blockchain within large energy companies and the energy markets in the government is lowering cost at first.” Michiel Sintenie - Nuon/Vattenfall ______________________________________________________________________
Second, the blockchain has the potential to lower the cost for consumers. With the blockchain, the energy could be cheaper and leave final consumers with a lower bill. Many benefits could arise for consumers becoming prosumers. Prosumers are consumers involved in the production and the consumption of energy. Peer-to-peer trading has the potential to reduce energy-related costs for end users. Nonetheless, the current transactional systems in place cannot handle that many transactions, which means that for the blockchain to be implemented, those systems need to change too. ______________________________________________________________________ “The advantages that we can provide could be for the final users between 10-20%, maybe 25% in the future saving on the bills.” Gianluca Corbellini - Hive Power
“If you put blockchain in between, you could sell your energy for instance to your neighbors, you could get a fair price with the energy unit that you could use .” Sjors Hijgenaar - CGI
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To conclude, blockchain impacts positively the costs of two main actors in the energy supply chain: energy companies and consumers. The administrative burden of large
companies is reduced and therefore lowers their costs. The costs of consumers is lowered especially with the peer-to-peer trading application of the blockchain.
4.3.2 Decentralization
Decentralization is one of the main characteristics of the blockchain. This emerging technology could change the roles of suppliers and consumers in the whole energy supply chain. With the blockchain, consumers have a new role called prosumers and are able to re-inject energy back to the grid.
Therefore, the energy supply chain is impacted, the roles of each party changes and the production and consumption of energy is more decentralized. The energy flow going traditionally one way from producer to consumer, is now able to go both ways. The energy supply chain, including the energy flow as well as the consumption habits of consumers are transformed and the network becomes more complex and distributed. On a general level, the energy market is going from central to decentral. With this shift happening, the blockchain appears to be a good technology to implement because of its decentralized structure.
______________________________________________________________________ “The change is quite strong because electricity will be consumed and distributed differently.” Anonymous - SIG
“We won’t have a unique flow from producer to consumer like it was the case before. We will have a complex network of exchange instead.” Anonymous - SIG
“Now, because the decentralization of the system itself, we see that this responsibility is shifting more towards a decentralized level.” Sjors Hijgenaar - CGI
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Consequently, decentralization facilitates the use of different energy sources, which can lead towards more sustainability in the energy supply chain. However, the traditional systems in place are still very centralized. To reach decentralization, many challenges are on the way. A fully decentralized system means that no central entity has the control of the system. It means that there is no one to report to in case of loss or theft. The governing structure of decentralization can be scary to people and organizations.
______________________________________________________________________ “With the introduction of solar rooftop, solar panels and electric vehicles; these are all energy sources that have a potential effect in the local grid but don’t really have a place yet in our centralized market system.” Sjors Hijgenaar - CGI
“If someone gets your private key, you cannot get it back. It is the good and the bad of this fully decentralized system, no one has the control.” Gianluca Corbellini - Hive Power
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To summarize, blockchain leads towards the decentralization of the market. Decentralization is mainly positive, enabling the supply flow to go both ways which facilitate the creation of a sustainable ecosystem. However, a full decentralization also means that there is no entity in control and the current market might not be ready for that yet.
4.3.3 Efficiency and Optimization
On a general level, efficiency and optimization can be improved with the blockchain technology. More precisely, it can make the administration more efficient and reduce disputes between parties. The blockchain is a decentralized and immutable database, which means that parties have only one source of the truth instead of silos. That enables the administrative burden to be reduced.
______________________________________________________________________ “The administrative burden for any company entering or participating is 50% lower than it has been before.” Roelof Reineman - Eneco
“We have taken out a lot of dispute which you can have about what actually happen, on what is the truth.” Roelof Reineman - Eneco
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Nevertheless, some participants disclose that the blockchain technology might not be the right solution for everything and that applications of the blockchain might not be all relevant to the energy sector. It is important that all parties in the energy supply chain are aware of this and that they choose the blockchain for the right cases. A crucial question many companies ask themselves is whether the blockchain technology can create value for their business case and increase efficiency.
______________________________________________________________________ “You have to use the right blockchain technology for the right solution or the right problem.” Michiel Sintenie - Nuon/Vattenfall
Several incumbent pointed out that the lack of scalability is the main disadvantage of the blockchain. Of course, scalability varies with the different types of blockchain. The standard blockchain is not scalable at all; not only adding transactions to the blockchain does not increase the speed of transactions, but it decreases the speed (Malanov, 2017).
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“Beyond sustainability, the largest downfall of blockchain implementation is the scalability.[...] I think that it is the biggest concern of the blockchain technology in the current ecosystem.” Sjors Hijgenaar - CGI
“The disadvantage of blockchain is the more transaction you put in it, the less efficient it will be.” Michiel Sintenie - Nuon/Vattenfall
“ The blockchain is really secure, but not scalable.” Michiel Sintenie - Nuon/Vattenfall _________________________________________________________________
In summary, blockchain has a positive impact on the efficiency and optimization of administrative processes. This ICT also improve the communication between actors of the supply chain. Nevertheless, this technology is still mostly not scalable, therefore impacting negatively the efficiency of the network and the speed of transactions.
4.3.4 Transparency
Transparency is another of the key characteristics of the blockchain technology. The latter can enable more transparency at various level. On one hand, it prevents fraud. Every transaction in the blockchain is immutable and every change in the ledger is recorded forever. Moreover, the standard type of blockchain is public ( Moss, 2018).
Those characteristics prevent people to manipulate the data. On another hand, it enables more visibility on trading and administration. Finally, it provides a good overview of the different parties in the supply chain and to which extent they are sustainable.
______________________________________________________________________ “We want to make sure that nobody is fooling around with the data, that is the reason why we use the blockchain.” Willem Poterman - HanzeNet
“When you take the certificate part into account it becomes bloody transparent how sustainable your actual suppliers currently is” Roelof Reineman - Eneco
“I think it will make the administration and the trading of energy much more transparent than it is now. And I think that it is something we can only do the way we work with the blockchain right now.” Willem Poterman - HanzeNet
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To conclude, the blockchain technology allows the data and the trading process to be more transparent. Additionally, it brings more visibility in the supply chain. Through transparency, blockchain has a positive impact on the ecosystem and the processes.
4.3.5 New business models
Figure 6 Contemporary energy markets - Image from Killian (2017)
Contemporary energy markets, as illustrated in figure 6, include more parties than in
earlier times and demonstrate more complexity. Energy management is changing and
new business models are emerging, slowly replacing the traditional business models. Energy-as-a-Service is one of those emerging business models where the consumer pays a flat fee and the company guarantees a certain service (Killian, 2017). Energy suppliers are trying to find a way to continue impacting the market, to anticipate and fulfil the needs of consumers. They try to anticipate the disruption. On the other side, startups are coming up with disruptive business models, such as peer-to-peer. In
summary, the blockchain technology stimulates the development of new business models and forces incumbents to re-evaluate their current business models.
______________________________________________________________________ “In fact what we came up with is a completely disruptive business model where we want to implement peer-to-peer marketplace for energy where people that have a surplus of energy can sell it to the people that have a lack of energy. ” Willem Poterman - HanzeNet
“The run on kWh, I see it as a dying business. From Eneco point of view, how can we stay relevant? If consumers want to be taking care of, I can provide you with Energy as a Service as we call it.” Roelof Reineman - Eneco
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4.3.6 New roles in the supply chain
New business models are emerging, which means that new roles are being created for parties in the energy supply chain. There is shift in the system: gradually many energy producers will supply to many, instead of the traditional system in which a small number of power plants are supplying to many. The big energy suppliers are not bound to disappear in the near future, they might just play a different role in the supply chain. With the peer-to-peer application of the blockchain, consumers also have a new role. They are becoming active in the energy supply chain, therefore labelled as prosumers. With the creation of new roles in the supply chain, the whole ecosystem is thus becoming more and more complex.
______________________________________________________________________ “We will no longer supply kWh we will supply the service.” Roelof Reineman - Eneco
”From an energy company point of view, we are always the middleman. We purchase power from power plants and wind power plants and we sell it to the consumers. We are the ultimate intermediary in the energy industry. And we are most prone to be disrupted” Roelof Reineman - Eneco
“I don’t see any possibility for the next 20 years that they can get rid of those energy suppliers. Because some of them are using so much energy, that you need an energy plant for that.” Willem Poterman - HanzeNet
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Alongside the creation of new roles in the supply chain, the blockchain technology enables that creation of new market opportunities. For example, the project of Eneco rerouting residual heat from the port of Rotterdam to households is the first step towards the creation of a heat market. The implementation of the blockchain in the energy sector also lowers the barriers of entry in the market. As a consequence, smaller suppliers are now able to join the market. That transforms the whole ecosystem as well as the generation, transmission and distribution of energy.
______________________________________________________________________ “The solution I think is something in between, so you can have big power plants still, but most of the energy could be produced locally.” Gianluca Corbellini - Hive Power
“The barrier of entry has lowered. I see more sources becoming available to the market.” Roelof Reineman - Eneco
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To summarize, the blockchain enables the supply flow to go both ways instead of traditionally one way. The blockchain technology however won’t cause the disappearance of incumbents. On the contrary, new roles are created for other parties
willing to join the market and incumbents are more likely to play a different role than disappear.
4.3.7 Local economy
The blockchain technology has the potential to boost local economies, support and help small and medium local businesses (Bock, 2016). HanzeNet’s application of the blockchain directly stimulates local production and consumption, therefore supporting the local economy and prompting prosumers to be more sustainable.
______________________________________________________________________ “We also want to stimulate the local economy and that is another reason why we use the blockchain.” Willem Poterman - HanzeNet
“It is a virtual coin that you can only use in your own city. [...] I generate electricity here in Deventer, I cannot take my hanze and go to Amsterdam and buy something.” Willem Poterman - HanzeNet
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4.4 Environmental perspective
This subsection highlights and explains the key themes that emerged from the environmental perspective analysis. Those themes are discussed and supported with quotes.
4.4.1 Certification
One concern is to make sure that the energy is coming from a sustainable source. Tradable certificates currently keep track of green energy production, but the management of those certificates is costly, not efficient and is slowing down the investment in renewable energy (Orcutt, 2017). The blockchain has the potential to solve those problems. Certificates could directly be written on the blockchain, retrace the energy to its source and bring more transparency into the supply chain. At the same time, that could increase consumer trust. According to several participants, certifying green energy in the grid is one of the main challenges.
______________________________________________________________________ “When you take the certificate part into account it becomes bloody transparent how sustainable your actual suppliers currently is.” Roelof Reineman - Eneco
“ [...] guarantee the origin of a kWh for people to know where it was produced initially at least to increase consumer trust.” Anonymous -SIG
“The moment you have a link with the distribution at country level, you are not 100% sure where it comes from.” Willem Poterman - HanzeNet
_____________________________________________________________________ Certification is a crucial aspect considering that it is not possible for buyers to verify the type of electrons going from the grid to their facilities. Currently, the green energy certification process is very heavy, costly and opaque. This process is different in every market and the technology used it clearly outdated. The development of new tools to deliver reliable products and improve current processes is highly needed. Blockchain is
part of those new tools that have the potential to change the status quo and bring more transparency and user-friendliness in the renewable energy market (Miller, 2018).
4.4.2 Energy consumption
Referring to academic theory, ICTs are simultaneously part of both the problem and the solution (Grabot and Schlegel, 2014). It is ambiguous how ICT impacts sustainable development and whether it is a threat or an opportunity to the environment (Chiabai et al., 2012). The impact of blockchain on the environment depends on the type of protocols in place. The Bitcoin proof of work consensus algorithm is known to be the most energy-consuming protocol. Companies are therefore looking into alternative solutions, trying to reduce the environmental impact. Some companies use a different consensus algorithm, some other create their own blockchain.
______________________________________________________________________ “Bitcoin proof of work is making Bitcoin really energy intensive.” Roelof Reineman - Eneco
“Well our two guys are very smart and they created their own blockchain and that is not using energy.” Willem Poterman - HanzeNet
“In our case we are using a PBFT, Practical Byzantine Fault Tolerance. Which is a lot less intensive than the proof of work.” Roelof Reineman - Eneco
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To conclude, the blockchain today is still quite energy-intensive and has a negative impact on the environment. Some more sustainable solutions are currently studied and implemented.
4.4.3 Waste minimization
Some projects, such as Eneco’s blockchain project to reroute waste is innovative and promising. Not only this application enables to heat thousands of home, but it is a large sustainability gain. With the peer-to-peer application of the blockchain and local production and consumption of energy, the energy wasted is minimized. The energy has therefore less chance to be lost during delivery. In summary, waste minimization is a huge environmental gain that the blockchain technology can provide.
______________________________________________________________________ “The energy would normally be waisted. But now this heat is used to warm up households. We are talking about incredible gain on the sustainability level.” Sjors Hijgenaar - CGI
“If you take energy long distance, then you are losing a lot of energy in the cabling.” Willem Poterman - HanzeNet
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4.4.4 Local production
Some applications of the blockchain technology bring to light new business models and prompt local production of energy. HanzeNet’s system stimulates the consumption and production of energy by making cheaper the energy closer to the geographical location of the consumer. Thus, the blockchain technology has a very positive impact on the local production of energy and lead the way towards a more sustainable supply chain. ______________________________________________________________________ “The solution I think is something in between, so you can have big power plants still, but most of the energy could be produced locally” Gianluca Corbellini - Hive Power
“The system wants that you consume local energy.” Willem Poternam - HanzeNet ______________________________________________________________________
4.5 Social perspective
This subsection discusses the key themes that emerged from the social perspective analysis. The key themes are presented with the support of quotes.
4.5.1 Behavior
Besides a technological evolution, mentality needs to change too. It is important to think of a system in which users participate (Venkina, 2018). Users play an important role in the energy supply chain and the blockchain impacts them as much as the other players in the ecosystem. Multiple participants mention that users don’t want to deal with complex technologies and change their habits. It is more difficult for them to understand the added value of this technology.
_____________________________________________________________________ “Today, our consumers trust us to invoice them in a transparent manner. So what is the added value to have a complex and energy consuming system that the consumer does not understand. [...] Moreover, the cultural adoption is not there.” SIG - Anonymous “Exactly, the consumer typically does not want to change his habits. [...] They want the energy in their home, pay fewer bills and keep the same comfort.” Gianluca Cornellini - Hive Power
For the implementation of the blockchain technology to be successful, market rules will have to be defined as well as the clear contribution of each party. In order to modify the behavior of users, a solution could be to incentivize and educate them. The incentives could be financial for instance.
______________________________________________________________________ “If you reward people in the right way, then it might lead to sustainability. [...] you really have to teach people” Willem Poterman - HanzeNet
”Based on that the grid operator and the energy retailer can propose economical
incentives to modify your behavior, but in a coordinated way.” Gianluca Corbellini - Hive Power
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4.5.2 Community
Consequently, the blockchain technology encourages consumers to help each other. It stimulates collaboration at local level. Moreover, this ICT encourages the creation of partnerships and synergies between businesses. It not only connects businesses together, but also people with businesses. A system with the blockchain technology requests alignment of the different actors. Therefore, it becomes clear that this ICT brings people together and forces them to build a solution as a community. But at the same time, the need for collaboration can become a barrier to blockchain’s implementation for parties with conflicting goals.
______________________________________________________________________ “The other is that people can help each other. When I have solar panel I can donate a few kWh to my mother. ” Roelof Reineman - Eneco
