Demystifying Blockchain: more than P2P, it unlocks value for Energy market participation
(Original LinkedIn’s article)
Since the first use case of Blockchain came out in 2009, this technology has attracted attention, dream and nightmare.
Blockchain offers up a distributed ledger, smart contracts and tradable tokens on exchanges that have no technical limits on their geographic scope.
Blockchain created some deception, or the expected benefit was less appealing than depicted at early stages of the use case
This often was associated to the panacea of all the problem: where you have an opportunity, you might consider a solution with blockchain. Most of the efforts did not bring the expected value added, maybe because the threshold was too high. So Blockchain created some deception, or the expected benefit was less appealing than depicted at early stages of the use case.
Back to the essence of this technology, it is designed to transport value along the chain.
Sometimes the mentioned value was associated to economic one, as in the first large scale use case: financial boom with Bitcoin.
In Energy sector, there are long term view use cases with pretty interesting influence in the market: 4 or 5 years ago, Blockchain was first thought to develop a cryptocurrency in exchange of generated energy, as in Solar Coin (SLR) case, where for each MWh produced you earn 1 SLR. Here the goal was “incentivizing a solar-powered planet“.
More often, the business model of Blockchain applied to this sector was related to digitalize the energy, or better known as “tokenize energy”.
In terms of how the token will work in the hands of end users, the most common application, is to govern the interchange of energy between a producer (prosumer) and a consumer, who compensates his production excess.
This is Peer-to-peer: although this trading is not yet allowed in most of the Countries, which recently embraced liberalization of energy generation from renewable sources, the pitfall of this practice is often related to ungovernable energy grid balance, so forbidden by TSO (Trasmission System Operators) and by main incumbent players.
In fact, for the latter, it is hard to put customers and DERs first as it will challenge their current and consolidated business model.
Besides Peer-to-peer generated a lot of hype in the Energy Market, its benefits are clear:
- lower transaction costs and infrastructure charges
- lower distribution costs; zeroed for those transaction before the Transformation Point and that does not occur across an Energy Grid
- not charged ancillary costs for Utility Firm generating electricity (which in EU average 40% of the bill)
- minimize transmission electricity waste, as this kind of interaction propels energy generation from local resources (e.g. sun, wind, water, biomasses, …)
- unlock information transparency and security (as by design Blockchain permits) which, above all, empowers Consumers
Peer-to-peer inflated the hope/hype of a transactive energy economy, and the market speculation (i.e. through ICOs, or Initial Coin Offerings, as depicted in this article) followed it up. For this reason, in the last years the investment on this class of project rose exponentially.
when DERs are going to spring overnight, the requirement will be to extend punctual control over production and consumption and to untangle the burden of players, even the smallest, i.e. the prosumers and consumers
From the infrastructure stand point, a distributed generation market is a great challenge requiring a huge evolution. Somehow a revolution: the current centralized governance model is generally stable, because it has slightly changed during the last 50 years, so TSO works in a comfort zone. But when DERs are going to spring overnight, the requirement will be to extend punctual control over production and consumption and to untangle the burden of players, even the smallest, i.e. the prosumers and consumers.
For this reason, blockchain will follow through a shift into the infrastructure governance, when Artificial Intelligence is required to deploy Neural Networks and hopefully a more democratic market pricing system.
This is the era of a client-centric infrastructure and market.
Unlock value for every market participation
To cope with this change in the paradigm of generation, distribution and consumption, it is necessary to develop Demand-side programs and services rather than Offer-side ones, as in the past.
As in the case of start-up as Bechained and Tecnalogic, the successful key is to play the role of Demand Side Response Aggregator: by aggregating consumption units needs, they will respectively drive each electricity prosumer to meet consumers compensating its production surplus, and provide energy flexibility and resiliency in offering Clients’ base consumption or production to DSO (Distribution Service Operators) to operate in energy market.
As they serve the consumers first, they are based on the proximity either to clients and to exploit energy sources, so creating that effectiveness and efficiency that nowadays sensible to sustainability consumers request from their commodity vendors and suppliers.
Although this process is only at the beginning, when it will (soon) reach a critical mass, they will then become wide spread accepted and assimilated, so unstoppable.
What will be the common factor of their diffusion? The participation.
DERs represent a massive opportunity, and blockchain is key to unlocking it
The more consumers will be involved in the ecosystem, the more they will be remunerated. So, for both of them, it will be a win-win challenge. Either DERs’s online services will raise more power (in terms of market electricity and economic generation) and consumers will gain a central role, with plenty of opportunity.
DERs represent a massive opportunity, and blockchain is key to unlocking it. Blockchains will be used:
- to manage digital identities for DERs,
- to integrate them into the grid,
- to exchange data between them,
- to drive trusted measurement and verification,
- and to unlock near-instant settlement for grid services
and most importantly with extremely low transaction costs. These are key ingredients to foster participation in this evolution.
the participation in the game requires a change in the consumers and producers mindset: this does not imply the cheaper the more they can consume. At the contrary, the more sustainable the more rewarded.
Not to forget the benefit for market traditional operators: they will have access to a global fleet of billions DERs resources (power generation and business opportunity), capable of unlocking value for every market participant involved.
Nevertheless, the participation in the game requires a change in the consumers and producers mindset: this does not imply the cheaper the more they can consume. At the contrary, the more sustainable the more rewarded.
As in the following example, “the system will use an average measurement of kWh in solar power usage and when someone uses more than average they pay for the excess in crypto tokens; if they use less they are rewarded in crypto“, as explained by Luïsa Marsal – in this article – for Catalan’s ION, whose goal was to incentivize distributed solar production to equal that from plants, to disincentive fossil fuels generation and to subsidy any kind of free market for trading or sharing energy.
Finally, once Blockchain wide spread at consumer level, it propels sustainable processes and allows the integration of technologies creating value flexibility on upcoming massive DER deregulation effect:
- Residential storage systems (e.g. batteries)
- Electric Vehicle public charge points and Vehicle-to-grid
- Dynamic pricing through Artificial Intelligence algorithms
Nevertheless, consumers and prosumers will be remunerated for a market driven combination of key factors, i.e. time frame, energy efficiency of appliance, energy flexibility, accordingly with their willingness and their availability to invest and to be key partner of a more sustainable (r)evolution.