Application of blockchain technology to energy trading #7
Will blockchain democratize energy system? Part 2
What is energy democratization? (summary of article #6)
My previous article discussed the meaning and significance of democratization of energy by peer-to-peer energy trading. To sum,
- The primary meaning of democratization is being able to have options of who you buy electricity from, what origin of electricity (e.g. solar, wind, or thermal), and at what price. For owners of generators, it means being able to have options of who you sell surplus electricity to. Peer-to-peer energy trading is likely to increases options of buyers and sellers, though there will be a constraint of limited supply.
- The secondary meaning of democratization is peer-to-peer energy trading being able to trade electricity without intermediaries. Peer-to-peer energy trading still depends on utility’s distribution infrastructure to deliver electricity. It does not work 24/7 as supply is limited. It still needs to coordinate with existing utilities for charging and billing, and balancing. It is hard to say that peer-to-peer energy trading achieves complete independence from intermediaries.
Democratization that value added of distribution is passed on consumers
I recently read “Disruptive Innovations in the Energy Industry” authored by Nomura Research Institute and published by Energy Forum. The book has an interesting discussion of how value added of each element of energy value chain will change in the short, mid, and long run. The following is a statement regarding long-term change of value:
Value added of operation and control of distribution and retail has two scenarios depending on the degree of penetration of blockchain-based energy trading as aforementioned. In one scenario, value decreases and in the other scenario value is maintained. More specifically, if a system that shifts value added of blockchain-based energy trading to consumers is realized, distribution and retail business entities will no longer get major value associated with operation of distribution and retail. In this case, energy market is truly democratized and no business entities will get major profit with regard to operation and control of distribution and retail (my translation)
In my previous article, I discussed value associated with energy trading. “Value added of operation and control of distribution and retail” in the above statement seems broader than that of energy trading. Therefore I will revisit this point and augment previous disussion. I will again identify value added and think which one can be democratized by blockchain-based peer-to-peer energy trading.
I identified the below values in the previous article:
a. Availability (24/7 supply)
b. Delivery of electricity through distribution network
c. Charging and billing
d. Balancing supply/demand
To add, accurate measurement is also associated with the above c. charging/billing. Grid operator installs meters at customers’ premise. If peer-to-peer energy trading uses its own measurement device, the formation of value will shift to peer-to-peer energy trading. However, as peer-to-peer energy trading is supposed to take place in limited time of day and with limited amount of electricity, measurement of energy by incumbent grid operator will not be replaced in the short run.
Besides, there is an option of using data from existing utility meters for peer-to-peer energy trading.
In addition, I will add the below two pieces of new value provided by distribution grid operator.
e. Securing power quality
f. Securing reliability
e. power quality includes elements such as voltage, frequency, and harmonics. Grid operator usually manages power quality of grid and peer-to-peer energy trading can do little. For example, it is known that a large number of solar PVs with power conditioning systems connected to grid leads to increase in voltage of the grid. Peer-to-peer energy trading will not mitigate the voltage deviation from the standard (defined in the Electricity Business Act). Likewise, grid operator manages frequency of the grid by controlling generation fleet so the frequency fluctuation is within the standard. Peer-to-peer energy trading does not help frequency regulation.
f. reliability relates to outage and it is evaluated by index such as SAIDI ( System Average Interruption Duration Index) and CAIDI ( Customer Average Interruption Duration Index). To increase reliability, grid operator needs to make investment to minimize outage (e.g. open loop circuit topology) and take measures to minimize restoration time when an outage occurs (e.g. distribution automation that detects outages and isolate failed segments quickly). Except special cases such as microgrid, peer-to-peer energy trading does not contribute to reliability.
Summary
If shift of value of distribution and retail occurs by peer-to-peer energy trading, democratization is considered achieved. Possible shift of value is summarized in the below table (this includes the previous discussion).
In conclusion, the degree of democratization by peer-to-peer energy trading is limited, given that democratization means passing values of operation and control of distribution and retail on consumers by peer-to-peer trading. Note that the assumption is that peer-to-peer energy trading covers only part of amount of electricity supply, and runs in parallel with the conventional utility system. (i.e. prosumers and consumers still have contract with incumbent retailers.)
Thank you for reading and your feedback is welcome. In particular, if I miss anything in this consideration, please let me know at yasuhiko.ogushi@gmail.com or via LinkedIn.
