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
.
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,