Blockchain technology in the energy market

Whether in electricity trading or plant control. Blockchain might play a central role in the digital transformation of the energy system. Because, the transaction technology simplifies the exchange, validation and documentation of data.

A core aspect of sustainable energy supply is decentralisation. More and more producers are generating energy for sale to consumers. At the same time, consumer demand for short-term electricity supply at different locations is growing. Among other factors due to the increasing importance of electromobility. Increasingly, producers and consumers of energy are merging into so-called prosumers. Consequently, the number of transactions for even small amounts of electricity will rise significantly in the future.

One solution for handling the exchange and trading of electricity between producers, consumers and prosumers economically and securely is blockchain technology. This can be used, for example, to set up an intelligent, secure power supply from different decentralised renewable energy sources. In which consumers and producers communicate with each other. It offers a way to balance production and demand. “Blockchain is interesting in terms of the transition to renewables because it enables electricity to be traded directly between generating plants and consumer systems,” explains Norman Pieniak. He is the head of the “BEST – Blockchain-based decentralised energy market design and management structures” research project from the Reiner Lemoine Institute in Berlin.

What is blockchain technology?

Blockchain is mostly associated with Bitcoin and crypto-systems. But, the technology can essentially be used for transactions of any kind. Including electricity trading. At its simplest, a blockchain is a time-stamped series of immutable data blocks. They are not managed on a central server. But, by a network of computers that do not belong to any single company, organisation or person. Each data block is secured cryptographically. The secure data blocks are then linked together to form a chain, so a “blockchain”.

A blockchain requires a correspondingly large number of computing operations, which means applications such as Bitcoin consume lots of power. However, alternative blockchain solutions are already available today whose innovative algorithms require only minimal computing power. And so, they consume much less.

Wide-ranging potential uses

Blockchain technology establishes a “platform of trust” among all parties. Because it documents and verifies ownership or transportation, specific measured values, or contractual information transparently and irreversibly for all concerned. This paves  the way for processes among all parties involved in a value chain to be automated further. Potential applications are many and varied. Because, suppliers in a supply chain could share quality assurance data with their customers, for example. Or pharmaceutical companies might use a blockchain to set up reliable batch tracing.

And – even in the energy sector – blockchain technology promises added value for companies and consumers alike in many areas. At least that is the finding of a study by the German Energy Agency (dena) on blockchain in the context of an integrated transition to renewable energy. The technology can help cut operating costs through automation and process optimisation. And can deliver additional benefits based on data management. Areas of application in which the economic benefits of blockchain use are expected to be particularly marked. However, they include the certification of guarantees of origin, the registration of plants in the German Bundesnetzagentur’s Core Energy Market Data Register. As well as energy services for buildings and industrial processes.

Blockchain as basis

Blockchain could be used to create a decentralised digital directory of device identities, for example. Based on blockchain technology, this enables the connection and control of millions of decentralised generating plants with the aid of a smart meter gateway, and forms the basis for many other digital services. “Blockchain can make it technically possible for market players to register and operate their plants in different markets over different time periods,” explains Christian Sander, Lead Blockchain & Distributed Ledger Technologies at energy company EnBW.

Above all else, the technology enables a direct trading relationship between generating and consuming facilities, in the course of which owners of smaller facilities can sell excess energy directly to other consumers. “The entire energy system benefits from this peer-to-peer trading because it is able to react much more flexibly to fluctuations,” asserts Norman Pieniak. “Consequently, blockchain supports the decentralised approach of the ongoing change of energy policy and can help to reduce the demand for offsetting measures such as storage facilities or grid expansions.” This peer-to-peer energy trading is made possible by “smart contracts”. Which automatically trigger transactions under specific conditions.

The electricity flow is automatically encoded in the blockchain, while algorithms bring buyers and sellers together in real time. Smart contracts are then fulfilled once the electricity is supplied, automatically triggering payment from the buyer to the seller. The fact that the financial transactions and fulfilment of contractual obligations are no longer controlled centrally brings an entirely new level of decentralisation and transparency that was previously absent from the industry. In a pilot project, ABB has already shown how blockchain-enabled inverters with integrated digital functions enable utility companies, aggregators, and energy networks to bring the cost of investment and operation down. In this scenario, the smart contracts are generated in the inverter itself.

Initial practical trials planned

Some experiments on the use of blockchain in the energy sector have already been undertaken. Blockchain was first used to trade electricity in 2016, when the owner of a solar panel in a Brooklyn microgrid sold his energy to a neighbour. Later that year, the first European trade took place in Amsterdam. In the UK, residents of a housing estate in Hackney swapped one kilowatt-hour of solar power between buildings.

The “BEST – Blockchain-based decentralised energy market design and management structures” research project is looking to conduct a wider-ranging trial. Its three-year mission is to investigate how blockchain technology can best be used for trading electricity. This, in the context of the transition to renewable energy. To that end, it is setting up a blockchain-based electricity market bidding system (SMBS). To enable local trading and provide immediate automated balancing of surpluses and shortfalls.

At the end of the development phase, there will be a six-month trial in the supply area of electricity provider e-regio, west of Bonn, with customers testing the system under real-world conditions. Project manager Pieniak summarises the project’s goals: “With the blockchain electricity trading system that we are developing in BEST, we are making an important contribution to the process of digital transformation, and helping speed up the transition to renewables. It is also important to us for research purposes that the SMBS should be developed as open-source software, with the technology underlying it being fully disclosed, and verifiable and reproducible by any party interested in doing so.”


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