Energy Insider: Future of Energy

Trading electricity using blockchain technology 

by Bob Shively, Enerdynamics President and Lead Facilitator

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In January 2009, the bitcoin – a new form of currency – made its global debut. The previous year saw a financial crisis in which trillions of dollars of wealth was destroyed by an economic collapse at the hands of large financial institutions. In the wake of such turmoil, bitcoin developers were determined to offer a means of electronic payment independent of any centralized authority.

The software underlying the bitcoin is called blockchain technology. According to Don and Alex Tapscott in their 2016 book Blockchain Revolution, “the blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”

While blockchain experts struggle to explain the technology in layman’s terms, the key take-away is that blockchain technology allows peer-to-peer transactions without a middleman. It’s like making a digital payment to someone with no third-party service required. No checking account. No PayPal. No Google Wallet. Just you and the counterparty.

As discussed in our November 2016 Energy Currents’ blog Are eBay Style Transactions and Blockchains Ready to Transform Electricity Markets?, blockchain technology is being considered for electric trading. Significant developments have evolved since we published the article a year ago, so it’s worth exploring the concept further. Here is a look at the latest developments in blockchain technology.

Adapting to System Changes

Both bulk electric system operators and distribution engineers are grappling with how to adjust the system so that it operates safely and reliably with growing penetrations of renewable and distributed resources. See Renewables Require System Operators and Designers to Rapidly Respond to Changing Load Curves for more on this topic.

Many energy business pundits believe the ultimate solution is to combine battery storage and flexible loads. This may require market participation by large numbers of residential and commercial customers with multiple devices behind their meters.

But this leads to the question: How can the industry create a transactive market in which:

  • localized prices send economic signals…
  • …to a diverse set of consumer-owned devices…
  • …to stimulate the desired behavior given grid conditions?

As Enerdynamics facilitator Dan Bihn once told me, “my utility should just tell me what load curve it wants to see at the meter, give me the right price signals, and let me manage my own load.”  Technology is making this possible, but current regulation and markets are not there yet.

Challenges to a new world of price-responsive demand include:

  • the massive amounts of data that must flow (think of each device in your home potentially responding differently to a price signal and every response being tracked);
  • the many parties along the delivery chain currently involved in a single transaction;
  • and the lack of consumer trust in a post-Enron world.

Is Blockchain the Answer?

Some believe that blockchain technology is key to allowing parties to transact directly – no central intermediaries required. To fully understand this concept, look at the entities involved in an electric transaction in the Texas market:

Given this structure, you cannot:

  • sell power to your neighbor
  • switch suppliers each hour
  • or get paid for creating locational grid benefits

All transactions in this structure must go through multiple intermediary parties such as marketers and the system operator.  But use of blockchains promises an alternative. When paired with smart contracts that automatically allow participants to transact under certain conditions, blockchains could open the market to easily facilitated distributed energy trading. This trading may include energy and other grid requirements like frequency regulation and voltage support from battery systems or smart inverters.

Of course, much needs to be resolved before this concept becomes reality. Regulations need to change. Load forecasts and balancing need to be managed in a way that ensures the grid stays balanced and that settlements for imbalances flow seamlessly. Methods for handling disputes may be required, and participants must feel confident the system is not subject to manipulation or hacking. 

Despite the obstacles that remain, numerous energy companies and technology start-ups are testing blockchain-based trading. Examples include:

  • European energy companies Enel and E.ON, which recently traded 24 MWh using the blockchain-based Enerchain platform. (Watch a video from E.ON discussing their pilot.)
  • Power Ledger, which has facilitated residential power trading in Australia
  • Numerous other companies vying to enter the market including, Oneup, LO3 Energy, ConsenSys, The Sun Exchange, Conjoule, Electron, eMotorWerks, Drift, and Grid Simplicity

Certainly some will be more successful than others, and some may not succeed at all. But it’s possible that one or two may be the future Microsoft or Apple of the transactive energy grid.

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