Blockchain Potential in the Energy Sector

“How can blockchain technology support the energy market? How far away is a peer-2-peer energy economy in Germany?” Dr. Susanne Guth-Orlowski and Viktoria Anna Laufer have asked relevant players in the industry about the status quo in Germany.

At the beginning of the 21st century, a huge transformation started in the energy sector. This transformation was triggered on the one hand by the international policies addressing climate change and, on the other hand, by technological developments in terms of power generation and IT. The three key driving forces of this transformation are: decarbonization, decentralization and digitization¹.

The decarbonization trend strongly supports the shift from traditional fossil fuels and nuclear energy toward solar and wind power. It has resulted in large declines in the cost of renewable energy infrastructure. Therefore more and more residential customers are installing rooftop solar and household batteries. Even though various challenges of balancing the demand and supply with these new, renewable energy resources exist, there are also plenty of opportunities for the operators, as the local energy and the household batteries can be utilized as distributed energy resources. These trends will create multiple opportunities for consumers, such as to reduce their energy bills or to participate in energy trading markets. At the same time, future consumers will demand smartphone access to their energy consumption and production anywhere, anytime and they will want smart connected products (e.g. intelligent home systems).

The core problem of the energy sector is that the old assumptions about energy production and usage are no longer valid. New customer trends such as changed energy consumption, environmental awareness and energy production at the customers’ home require new governing mechanisms. In today’s world we have an increasingly variable energy supply, a flexible demand and increasing residential investment in energy producing infrastructure².The increasing distributed manner of the energy grid system and the digitization efforts to make the grid smarter is highly suggesting the usage of blockchain solutions in this segment.

Blockchain technology enables decentralized energy resources to act autonomously by utilizing smart contracts, while its audibility and security services makes it also a big fit for the energy industry. This is why there is a large interest from different energy operators, startups, financial institutions, governments and academia around this technology and its application in the energy market. There is a grand vision that, in a couple of years, every node in the power system will be able to join peer-to-peer networks for power production, distribution, and payment resulting in a blockchain-enabled smart microgrid available for everyone.

We analyzed the peer-to-peer energy ecosystem in terms of its current technological maturity, its present market readiness and the state of the German regulatory environment. Altogether we conducted 14 interviews with 11 companies (e.g. energy operators, smart gateway vendors, electric vehicle charging vendors, blockchain companies, various non-profit organizations) and 3 prosumers (i.e. consumers, who are producing their own energy). The results showed that important early stage peer-to-peer markets are already present or starting this year. In Germany consumers of the same supplier can trade energy among each other even today. It is a promising step, though these customers are still dependent on one supplier. In other countries similar early stage P2P markets are also existing. Advanced pilots, like the +CityxChange³ project in Norway, are experimenting with self-sufficient buildings and Vehicle-to-Grid solutions.

The learnings of these pilots support them in planning future-proof business models for applying microtransactions and micropayments. Experiments about grid flexibility, attempts to increase smart meter resiliency and establishing robust data communication are all milestones towards peer-to-peer energy trading. Eventually these trials will lead the industry to the IOTA vision about smart energy⁴, where we will all have electric vehicles participating in the energy ecosystem and have prosumers intelligently controlling their energy mix, while relying on smart devices to trade their energy in the most beneficial way.

However, bringing these solutions to every customer in Germany will take some time. Challenges on the technology side, but especially on the regulations side need to be addressed. But regulations and policies are changing. Whereas it was not allowed for a prosumer to consume his /her homemade energy ten years ago, today it is possible. We expect that in the coming years the regulation side will be significantly impacted by the growing demand for distributed, renewable energy solutions. In the meanwhile, we need certified smart meters, which are able to securely register values on a blockchain and we need to improve grid flexibility and capacity.

The good news is that electric vehicles could soon be attached to the grid as an alternative form of energy storage, which will increase grid flexibility. It is also promising that in Germany many households already own a solar panel and there are a lot of peer-to-peer pilots currently conducted collecting valuable insights. The end of the feed-in period of early adopter prosumers in 2021 can trigger new markets, as prosumers will look for possibilities (such as energy communities) to further benefit from their solar infrastructure, thus they will be more open to participate in peer-to-peer trading platforms.

Although it will take a few years before we will have a fully peer-to-peer energy market in Germany, all participants of the study believed that blockchain technology will be an enabler to reach this goal. Young companies are pushing their vision to improve the human ecological footprint with the help of blockchain/distributed ledger technology. Blockchains can help to uniquely identify the devices, increase the trustworthiness of exchanged data and enable transparency.

These blockchain companies are working on the registration of the smart meters, on certifications, carbon credits and on the traceability of energy production and consumption. They help to enable peer-to-peer business models and micro-transactions with smart contracts. They help to create secure open source software, scalable technology and open standards. They help to increase interoperability. Blockchain experts help to educate the energy industry on the blockchain potential. They are working towards creating a more democratized, more energy efficient and sustainable future consistent with the world’s needs.

Read the complete study on the T-Labs website in the Blockchain news section: https://laboratories.telekom.com/blockchain/

References:

[1] Lawrence, O. et all (2019) Transactive Energy. A New Approach for Future Power Systems. Viewed at: 11:56, 10.02.2020 https://exergy.energy/wp-content/uploads/2019/03/TransactiveEnergy-PolicyPaper-v2-2.pdf

[2] Tapscott, D. Tapscott (2016) A Blockchain Revolution. New York, New York, Penguin Random House LLC.

[3] +CityxChange. Viewed at 16:45 21.02.2020 https://cityxchange.eu/about-cityxchange/

[4] IOTA. Smart Energy. Viewed at: 16:08, 17.05.2020 https://www.iota.org/verticals/smart-energy

Authors:

Dr. Susanne Guth-Orlowski (Strategic Partnership Manager) and Viktoria Anna Laufer (Blockchain Consultant)

Dr. Susanne Guth-Orlowski (Strategic Partnership Manager)
Viktoria Anna Laufer (Blockchain Consultant)

Research. Develop. Impact. http://bit.ly/_tlabs

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