Blockchain , Power Sector

Blockchain , Power Sector  

 Introduction

. The new energy paradigm combined with digital technology has been bringing about not only more decentralized energy production but also new services and energy products. Cost control, self-consumption, modeling and optimization of consumption, peer-to-peer power transaction, predictions of billable amounts at the individual level are some of the most prominent issues that entrepreneurs and energy companies have been solving systematically one by one.

Although it may not seem to be that way, these are all fairly complicated issues to solve in an industry that has been for ages focusing on centralization, various combinations and clusterization of processes and scale. But there is a new facilitator that could make all of this happen rather quickly, efficiently, securely and cost-effectively. It is what we call the blockchain.

Definition

A blockchain is a shared, encrypted ledger that is maintained by a network of computers. These computers verify transactions—in the case of Bitcoin, the transfer of cryptocurrency between individual users. Each user can access the ledger, and there is no single authority   Advocates say the technology could be especially promising in industries where networks of peers—electricity producers and consumers, connected via the grid, for instance—depend on shared sets of data. Blockchain is a technology that makes information into a thing. In other words, blockchain helps to make sense of the abundant free information into a scarce product, something we can trade. This is true not only for cryptocurrencies but also other asset classes and things. It’s a technology that ultimately helps us with accounting for things.

Examples

We two parties indulge in a commercial transaction  their is need  to account for the fact that  the transition has taken place and paid for. But this activity need not involve a central entity, such as bank tracking the transaction details, doing that verification for us. This makes blockchain useful anywhere where there is inefficiency in the transactions because multiple parties are involved and the transaction needs to be secure at the same time. It is essentially a way of automating a control function for a fairly complex operation.

Blockchain in the energy sector

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The blockchain aspires to become a platform that all actors connected to it can easily trust. It is undoubtedly the advent of a new way of using, sharing and accessing data, which could allow the implementation of protocols that will have an impact comparable to that of the Internet.

Many demonstrations and experiments openly display the use of the blockchain as a communication tool rather than a technologically secure workaround. It is also a particularly effective way to promote your project while raising substantial funds in record time.  An example could be a wind or solar power project that could raise financing without a secured power purchase agreements because the output could be sold to individuals at below market rates based on tokens representing solar company’s commitment to produce and sell this energy. There’re already companies   that are actively working on creating these energy trading and project fundraising platforms. 

Financial Applications

Blockchains  in its simplest form, a public ledger that records transactions   promises to radically speed up transactions and cut costs by facilitating a trusted transfer of value without the involvement of traditional intermediaries. Already widely used in the financial services sector, a growing number of industries are experimenting with the technology. Unlike in banking, however, the power sector has been slow to recognize blockchain’s potential and awareness across the industry is lacking. Now, a growing number of enthusiasts believe blockchain can significantly revolutionize a sector that is becoming increasingly decentralized and connected.

Blockchain wouldn’t be the first technology to unhinge the sector. Technological breakthroughs in panel efficiencies have seen solar costs fall by 80% over the last three years and they’re set to fall further. Advances in battery storage technology now mean households can store electricity for back up or load shifting, allowing for greater flexibility to buy and store electricity when rates are low, and consume it as needed.

Alongside the rollout of smart meters and continued development of demand side response measures, new digital peer-to-peer platforms are starting to emerge that cut out the middle man and seamlessly connect green energy producers directly with those wanting it. What we are witnessing is a power shift – the advent of an energy sharing economy. These changes are empowering consumers to take control of their energy usage and reduce energy bills.

It is these changing characteristics that are exciting the blockchain community. They are drawn by the growing complex web of transactions, the need to balance the geographical mismatch between supply and demand, and significant security and trust concerns given the proliferation in IoT connected devices.

Power Sector Applications

Electric power systems around the world are rapidly changing. For over a century, these systems have relied largely on centralized, fossil fuel plants to generate electricity and sprawling grids to deliver it to end users. Utilities had a straightforward objective: provide electricity with high reliability and at low costs. But now, governments have new ambitions for electric power systems. Many are requiring these systems to rely heavily on volatile wind and solar power; several are also aiming for a high share of electric vehicles (EVs), which can strain grids. Further complicating the matter, customers are installing their own equipment—from solar panels to batteries and smart appliances to control their production and consumption of electricity. The electric power system is undergoing a fundamental evolution. The traditional architecture is quickly evolving and new generation, control and information technologies are reshaping the foundations of the industry. However, in order to drive this evolution further and fully unlock future scenarios, more is needed in term of enabling technologies and regulations.

The traditional electric system relies on centralised hub-and-spoke grid architecture where a small number of large and very reliable power plants produced the energy necessary to feed a basically predictable consumption. Energy flows in just one direction, from the plants to the grid, from the grid to a large number of passive customers.The power system operates as a single system, with long planning cycles that have the objective to provide adequate resources to meet expected load. Operational capabilities, reserve and ancillary services grant that the system operates securely at all times.

In recent years the traditional vision of hub-and-spoke, one-way flow electric system is rapidly changing. Improvements in performance and cost reductions of Distributed Energy Resources (DERs)are offering new options for on-site generation. DERs increasing deployment is changing the way distribution grids have to be operated.

DERs, energy efficiency and new uses for electricity (e.g. electric vehicles) are changing demands patterns in the system. An unprecedented availability of computing power in the electric system allows for the collection of an immense volume of data on power and its usage, for greatly improved visibility and control on generation, grids and loads .Data, visibility and control are making possible to provide new services and added value to customers.

Moreover, climate change debate and action is catalyzing public and political attention on DERs potential as a clean and resilient option for the electric systems. Energy consumers are becoming energy producers (prosumers) and their consumption is becoming more interactive and dynamic, through smart devices they are becoming more and more connected and social.

Features of a future electricity market could include:

·         The granularity of the information available makes reconciling physical and financial flows quick and error free;

·         Participation to power markets is extended to micro generators;

·         Local resources are used to locally balance the distribution network, opening the market of grid services to all prosumers;

·         Smart appliances respond autonomously to load and price signals;

·         Prosumers can choose to buy or sell electricity within their neighbourhood and share community’s DERs;

·         It is possible to change energy suppliers instantaneously or have more suppliers at once;

·         Electric vehicles autonomously decides whether to buy from or to sell energy to the grid;

·         Electricity consumed in different places (e.g. to charge an electric vehicle) is invoiced in an central place

·         Potential applications include authenticating renewables at the point of origin or keeping a record of emissions’ permits. Many are also considering its application as a grid management tool that can record energy flows to highlight anomalies in the network. But  peer-to-peer energy trading is the use case that is gaining most traction. This is being made possible by the ability to pre-program “smart contracts” that can trigger transactions automatically.

·         These smart contracts can be set to allow prosumers to feed surplus energy into the grid through a blockchain-enabled meter. The flow of electricity is automatically coded into the blockchain and algorithms match buyers and sellers in real time based on preferences. Smart contracts then execute when electricity is delivered, triggering payment from buyer to seller. Removing financial transactions and the execution of contractual commitments from central control brings a whole new level of decentralization and transparency that the industry has never had before.

Blockchain technology could be used to digitally track the exchange of electricity across a distributed grid, enabling the secure and transparent trade of electricity directly between consumers4. A blockchain system can support a cryptocurrency in the form of tradable tokens, each representing one kilowatt-hour (kWh) of electrical power. The price of each token could be determined by regulator-approved market access software parameters interfacing with market drivers established by the grid (think mobile phone apps) and which might be designed to encourage sustainable and balanced network services (e.g. discourage long distance power transmission and peak demand use, and incentivise use of energy storage). A blockchain participant will require a digital wallet that can either be linked to a traditional bank account or charged up with digital currency. That individual's participation software can then transact with other participants, by buying and selling tokens, with immediate credit settlement, to correspond with their electricity supply and demand requirements.

Potential

The increase in small-scale distributed generation, the resulting decrease in the scale of energy transactions and the increase in trading volume create challenges for grid balancing. Blockchain can eliminate the need for a centralised approach to market clearing and trusted third parties, opening the way for a secure, transactive electricity environment where balancing is continuous

Benefits of blockchain include (i) initiating and carrying out transactions directly, quickly and efficiently between users, i.e. peer-to-peer (P2P), with no "middleman"; (ii) providing transparency, as those with access to the blockchain can view the entire chain3; and (iii) providing immediate credit settlement on transaction verification.

Tacking energy flows and reconciling them with financial ones is a complicated task today, power is produced by large generators and sold in big chunks. Grid operators then track and settle the transactions in a process that involve qualified resources and sophisticated software. The limits of this model create a barrier for the participation to electricity market of small and micro-generators.

The multi-tiered nature of power markets and of power attributes markets (green certificates and emission reduction certificates), the expensive and redundant platforms and the need for third-parties intermediaries (either to ensure trust or to redress information asymmetries) all cooperate in generating transaction costs too high to track and settle separately micro deals.

  Programs requiring aggregation and control over DERs and smart devices (e.g. virtual power plants, demand response and energy efficiency) involve a level of data sharing and trust toward a third party that few customers feel comfortable with. In order to fully exploit local DERs, integrate them in the grid service market and provide truly innovative services, grid balancing and management should be transformed from a top-down to a bottom-up process.  

 In a decentralized energy , transaction system in which blockchain and physical grid overlap, with a physical node on the grid representing a node in the blockchain network. Transactions settlement and management, and balancing of the grid are in this case ruled by smart contracts that take into account the physical limitation of the infrastructure and the security of the power system. Nodes are able to transact between themselves while operating within the boundary of the grid control system.

With this premises, Blockchain can deliver seamless reconciliation of physical and financial flows. The multi-tiered system would be simplified allowing direct transactions between producers and consumers. Every transaction (large, small or micro) is initiated by the blockchain system, broadcasted and chronologically recorded in tamper-proof distributed database and thus settled.

The direct linking between producers and consumers, the distributed nature of the system and the disintermediation of the transactions can dramatically reduce the costs, making possible for micro players to participate in the power market.

DLT is able to deliver data security and, applying zero-knowledge proof methods, the required privacy.

The power grid would controlled through smart contracts that can signal to the system when to initiate what transactions. Predefined rules will ensure correct dispatching and energy flows in an automatic way, balancing supply and demand.

The potential in term of business models is exceptional. A new product or service could be launched simply developing a smart contract (we can call it an application) on the platform. Theoretically, the match between DLT and power grids seems perfect; electricity in power grids is naturally scarce and DLT deals with creating and managing scarcity, the power grid is evolving toward decentralization and DLT manages it.

In practical terms there are still unsolved issues; scalability and consensus mechanism are the most important:

Scalability. A power grid (even geographically limited) includes a mind-blowing number of nodes, especially taking into consideration IoT development. The biggest public blockchains are today composed of thousands of nodes, the requirement for a power grid would be of a different order of magnitude. Geographically contiguous blockchains would need the capacity to work together.

  Consensus mechanism. The main innovation introduced with the bitcoin blockchain was how the combination of Proof of Work (PoW), cryptographic signatures, Merkle chains and P2P networks was used to create distributed, trustless consensus. The lack of a trust model with a responsible central authority makes necessary to establish a process by which the entire network agrees on the same truth that, in this case, is the transaction ledger stored as blockchain.

In order to make possible the use of DLT to manage power grid and market, a suitable consensus mechanism has to be found. The mechanism will have to grant all the security and resiliency characteristics of the original blockchain but also an efficiency able to cope with numbers of transactions and complexity of an electric power system. Finally, an adequate ecosystem of technologies and regulations needs to be in place to make possible such a fundamental revolution.

The case of the decentralised power grid is the most “hard-line” in term of integration between DLT and electric system; however, blockchain could also be used in more specific and limited applications.

Possible use cases are numerous, back-office processes, trading platforms, green certificates, billing and payments are just some of them.

Expectations

In 2017, start-up companies raised over $300 million to apply blockchain technology to the energy sector in myriad ways. Some of these start-ups want to enhance existing markets for trading electricity or even to create new ones, for example, by using blockchain to facilitate peer-to-peer transactions that bypass a central utility or retail energy provider. Others hope to use blockchain to track the production of clean energy. Still others have proposed using blockchain to make it easier to pay for charging EVs, raise funds to deploy clean energy, manage customer appliances, and more power systems.

As utilities struggle to sustain reliable service, meet new policy objectives, and cope with rising complexity, innovators are peddling a putative solution: blockchain technology. It’s most popular application is in recording peer-to-peer transactions of bitcoin and other so-called cryptocurrencies. In theory, blockchain technology could enable swift, frictionless, secure, and transparent currency trading. But the potential applications of blockchain extend well beyond currency trading; blockchain could also be used to cope with increasingly complex electric power systems which include variable supplies and power flows needs , also the market arrangements  allow many forms of bilateral contrast and energy sale and purchase options   

Proponents of blockchain technology liken its potential to that of the internet three decades ago. But so far, little of this potential has been realized. Although most blockchain ventures aim to replace today’s centralized power system with decentralized energy trading, the ventures most likely to achieve commercial traction in the coming years will largely work within the existing system and partner with incumbents such as utilities regulators or clearing or settlement agencies.  Like any emerging technology labeled as "disruptive", blockchain is a technology that generates both fear and hope for a revolution in various areas of its application. This phenomenon was particularly noticeable in the energy sector during 2017. The number of proposed use cases exploded along with the number of experiments and demonstrators

A real life example could be a customer who wishes to sign a smart demand response contract with the utility that authorizes the utility to turn the air conditioner off anytime the grid conditions are right. The contract allows the customer to be paid for providing this service to the utility. After signing the contract, the customer’s air conditioner will be able to turn off at any given time. The information could be stired on a blockchain. That way every time the utility would send a particular signal to the customers air conditioner, it would know it has to turn off and the transaction would be verified via blockchain. This example is just one of many potential applications we could see emerge in the energy space. Already today, most of us are connected to the Internet in some way. This connectivity increasingly includes devices, machines, etc. The experts expect 50 billion or more devices to be connected to the Internet in the near future. This means that we're going to be swimming in crushing waves of information, data, coming out of a huge number of devices and then all of us will want to interact efficiently with those devices and based on that information.

  When a renewable-power plant generates a unit of electricity today, a meter spits out data that gets logged in a spreadsheet. The spreadsheet is then sent to a registry provider, where the data gets entered into a new system and a certificate is created. A second set of intermediaries brokers deals between buyers and sellers of these certificates, and yet another party verifies the certificates after they are purchased. Such a byzantine system racks up transaction costs, while leaving plenty of room for accounting errors that can range from honest mistakes to outright fraud. The lack of transparency also scares many people off entirely. If the meter wrote the data directly to a blockchain instead Most of these problems would vanish. Many energy experts are convinced that blockchain technology has the potential to touch off a fundamental transformation of modern energy grids.

The electricity sector is, for the most part, still based on massive, centralized power plants that generate power sent long distances over transmission and distribution lines. In recent years, though, a growing number of smaller “distributed” power generators and storage systems, like rooftop solar panels and electric-vehicle batteries, have been connecting to the grid.

The owners of these systems struggle to maximize their value because the system is so inefficient, For instance, it generally takes 60 to 80 days for an electricity producer to get paid. With a blockchain-based system,   producers can get paid immediately, so they need less capital to start and run a generating business.

In such a system, neighbors could simply trade energy with one another a far more efficient process than selling electrons back to the grid first. Power Ledger has demonstrated a product that can turn an apartment building into a micro grid based on a shared system of solar panels and battery storage  

To unleash the potential of blockchain in the energy sector,   work will begin with applications like tracking renewable-energy certificates. In the longer term, though homes and buildings will be equipped with software that automatically sells and buys power to and from the grid on the basis of real-time price signals.

Conclusions

Because the electric power sector is highly regulated, policymakers will play a crucial role in determining how much of blockchain’s potential can be realized. In order to effectively regulate blockchain, policymakers should first invest in understanding it. Next, they should actively support the development of technical standards. And finally, policymakers should make it possible for blockchain ventures to set up small-scale demonstration projects, for example, by creating regulatory sandboxes that loosen electric power sector regulations to permit experimentation.

 Blockchain undoubtedly has transformative potential. The technology has the power to disrupt the structure of retail energy markets, which may or may not be desirable. Just some of the issues that would need to be addressed for its deployment include charging methodologies for use of system; the allocation of imbalance charges for mismatches between the amount of electricity sold and purchased and the amount produced and consumed; rewriting of the network codes; whether such systems at national scale require a supplier of last resort; and a potential seismic industry shift in consumer service deliver models required to support consumers in a decentralised marketplace. In addition, the lack of an intermediary could be seen as a key risk. Central oversight is a key element in today's electricity trading markets, as it protects customers and manages risk. Privacy requirements, licensing, contracting mechanisms and market access rules are all further potential barriers to immediate adoption. Whilst there are considerable challenges to widespread deployment, the litmus test for the technology will be whether customers will culturally accept the technology and will want the offerings it can provide.

UPDATE:

Major Singapore utility SP Group has launched a blockchain-powered renewable energy certificate (REC) marketplace, which is amongst the first of its kind worldwide.

The platform allows local and international bodies of any size and in any location to trade in (renewable Energy Certificates)RECs related to a range of renewable energy sources. The use of blockchain technology allows buyers to be automatically matched with sellers around the globe according to their preferences. Blockchain also serves to ensure the security, integrity and traceability of each REC transaction, which will then help spur even more integration of renewable energy onto the grid,