In October 2020, Wildpoldsried in the Bavarian Allgäu region became the first German municipality to try out blockchain-based electricity trading platform, intending to enable a local energy market. The platform enables local energy producers to sell energy directly to consumers bypassing grid operators and energy markets. Named pebbles, this platform envisioned by Siemens, the regional utility Allgäuer Überlandwerk (AÜW) and other partners connects producers, consumers, and storage facilities so they can optimise the way they locally trade energy with each other.
This demo could open a world of possibility in this niche yet the fast-developing field of blockchain-enabled energy trading that could help Europe attain its 2050 carbon-reduction goals.
Blockchain Solutions for the Energy Industry
Blockchain or distributed ledger technology (DLT) is not new but could become a disruptor for the conventional system of energy intermediaries or brokers. By relying on cryptographic proof of ownership, it could effectively cut the middle person out of the energy trading equation.
Through standardisation and smart contracts, blockchain in energy trading will reduce transaction costs, which will allow a dramatic increase in smaller lot sizes. This will enable the prosumer to participate in the markets directly to buy and sell energy.
Smart contracts application within the blockchain technology will enable automatic execution of preset codes that will help maintain price or volume conditions.
With the rising need for a decentralized electricity system, blockchain technology will help to provide better reporting, transparency, and secure dissemination of data.
Can Blockchain convert Mega-watts to Mega-bucks?
For a decentralized, renewable grid, there exists the need to record securely a ledger of activities and transactions between the various participants – e.g., homeowners with Renewable Energy Sources can sell their excess renewable energy back into their grid, regulators can easily monitor and maintain energy quality, and local utilities can efficiently aggregate customers into virtual power plants.
A simulation of a block-chain based Local Energy Market that allowed consumers and prosumers to trade energy without the need for a third party demonstrated optimized consumption and a significant reduction in electricity costs. Money saved is indeed money gained.
Overall, there is increasing trust towards blockchain energy trading as it provides better efficiency and clear traceability from energy generation to coin issuance to redemption.
Blockchain: A Power and Utilities (P&U) Perspective
Though blockchain was initially embraced in the finance sector, it has many interesting use cases in the energy sector. It would deliver a much more seamless countrywide scale of interoperability and payment mechanism for charging EVs.
Blockchain will facilitate peer-to-peer, market to consumer, and consumer to market trading. With a well-distributed system and energy optimization, there could real-time asset and commodity management and supply chain tracking.
The European P&U industry is engaging in collaborative pilot programs to explore blockchain technology, especially in energy trading.
The Swedish power company Vattenfall has come out with Enerchain that focuses on the execution of bilateral trade of physical electricity and gas within Europe.
Originally featuring 23 participants, the project now includes most big names in Europe including RWE, Eon, Uniper, EnBW, Wien Energie and Enel.
Blockchain in the Electricity Grid
The electricity grids in Europe are becoming more volatile with the growing share of renewable energy and maintaining grid stability is of prime importance. It was one of the reasons TenneT, Sonnen, and Vandebron joined forces with IBM for two pilot projects in blockchain technology for managing the electricity grid in the Netherlands and Germany. The projects aim to enable decentralized flexible energy sources to play a bigger role in the grid.
TenneT, Sonnen, and Vandebron joined forces with IBM for two pilot projects in blockchain technology for managing the electricity grid in the Netherlands and Germany. The projects aim to enable decentralized flexible energy sources to play a bigger role in the grid.
Blocks Awaiting Blockchain Technology
Some industry experts opine that the market is immature for adopting blockchain technology. In a survey conducted by EY, 70% of an entrepreneurial target group responded that they could not secure all the funding required for their blockchain projects. 17% did not receive any funding. Some large-scale project implementations are also said to be taking a backseat due to the lack of strong, supportive business cases.
The road ahead for blockchain-enabled applications could see these challenges:
An immature technology: The immaturity of blockchain as a technology is one of the biggest hurdles in front of innovators to implement pilots.
Regulatory and legal concerns: The lack of clarity around the legal and regulatory aspects of using blockchain technology is a deterrent for big organisations that want to be sure-footed.
Skill gaps: Shortage of talent to implement blockchain projects is an obstacle for most big energy companies.
Real Business Cases : The expectations are high, and blockchain technology is being experimented upon in multiple verticals within organisations. However, which of these can solve real and create enough traction to overcome legacy hurdles?
Unlocking Blockchain Technology
Blockchain’s full potential is yet to be unlocked and many startups and some P&Us are spending a lot of time and energy to win over sceptics – a mammoth task considering there are few and far use-case scenarios and small-scale tactical innovations to quote.
With distributed energy resources and renewables poised to grow exponentially, it would make sense for energy companies to invest more in R&D to develop the blockchain technology to democratize participation in the electricity grid. And to overcome existing hurdles, and prove its mettle, blockchain-enabled energy trading should deliver tangible monetary or time benefits that can overshadow legacy hurdles.
Dagny Osk Ragnarsdottir, business analyst at Landsvirkjun, Iceland will be speaking in detail about the traceability of PPAs and Green Certificates and Blockchain technologies for Direct Electricity trading at the 9th Annual Electricity Price Forecasting & Advanced Modelling 2021, on 16th-17th February. Join us online for the longest average minutes of direct peer-to-peer interaction with experts in the European electricity pricing & trading.