The Role of Blockchain Technologies in Power Markets
1. Introduction
Blockchain technologies offer an exciting opportunity for balancing demand and supply in decentralized trading systems. Their rise has coincided with power systems becoming more decentralized and a world in which consumers can collectively control quite large energy sources. Blockchain technology helps the transition of Consumers to Prosumers and it also contributes to Demand Side Management as well. It offers the opportunity for consumers to trade their power sources and their load effectively with the potential to reduce their energy costs.
There are three technological trends which are enhancing the transformation of the energy sector:
- the energy sector is becoming more electrified due to a shift away from the direct energy consumption of non-renewable energy sources for commercial sections (e.g. electrical vehicles, heat-pumps, heating and cooling devices, home-storage devices for prosumers and many more cases),
- the continuous deployment of renewable energy resources and distributed generation is facilitating the decentralisation of the energy sector but leads to increased and tremendous volatility on the operation of the power system in real time, and
- the increased development of digital technologies means that large parts of the energy value chain are digitalised (e.g. Internet of Things devices, smart meters, charging points, etc.).
Digital and technological transformation is subject to real-time communication infrastructure between different nodes across the energy value chain. Therefore, new emerging technologies, such as blockchain, facilitate the rapid changes in the energy sector toward digitalization and decentralization. Accordingly, blockchain supports bidirectional information flow between different nodes in energy systems while streamlining transactions.
As a definition, blockchain is a distributed and immutable ledger of transactions without the need for central governance and trusted third parties. In other words, instead of storing the data on some data servers, a copy of blockchain can be stored locally by each participant (peer) of the distributed network. There is a continuous growth in the chain of data records when new blocks are validated and before attaching to the chain. The peers of the distributed network are capable of verifying the validity of each block in the chain using a cryptographic hashing algorithm. However, the public key encryption model should be used for the validity of each transaction. Blockchain offers substantial changes in current energy systems by establishing decentralisation and highly-secure information flow.
Power Markets are largely centralised in nature; thus, authenticity and integrity of market data depends on trusting a central agency. Access to a centralised market incurs cost because of this and small players consequently do not have access to the organised market. Blockchain technology has the ability to solve both of these problems with a distributed and immutable ledger of transactions.
CIGRE has set up a working group C5.30 titled The Role of Blockchain Technologies in Power Markets to investigate the current progress in using blockchain solution in electricity markets.
The Terms of Reference for the WG were approved in December 2018. The first face to face meeting was held in Montreal in September 2019 and was very successful. There were 18 people in person and 6 on the teleconference.
In Montreal, some of the work undertaken was:
- Presentations by members of the working group on the current status of blockchain implementations in several countries including Estonia, USA, Chile and Australia
- Dr. Fazel Mohammadi: Blockchain Technology in the Energy Sector - A Systematic Review of Challenges and Opportunities
- The project selection methodology was discussed and the criteria for project selection was finalised
2. Working Group Structure
This working group has developed two streams of work.
The first stream, Exploration, is an assessment of the potential value and uses of blockchain technologies in energy markets and power systems. This includes an explanation of how they work and some simplified examples of possible applications. This stage is largely complete and specifically, has:
- gathered information on the characteristics of distributed ledger products.
- considered the range of potential applications in electricity both for financial and physical parameters
- considered the implications for the electricity industry: efficiency and scope for new approaches with vastly more transactions - vs - disruption and the risk that some of the transaction could be bypassed
The second phase, Assessment, is a review of a range of trials and examples of early adoption of projects that use blockchain, to document their value and practicality. During the project, a set of assessment criteria was developed and applied to the trials and examples. Study Committee D2 is represented in this WG with an observer due to the connection with information systems.
Given the fast-moving nature of this topic, there will be a short review/update as the last step in the development of the Technical Brochure to ensure that the document is as up to date as possible. The possibility of shortening the approval and publication timelines will also be investigated along with the possibility of early electronic publishing.
3. Assessment Stream
The working group has now assessed around 40 projects from 12 countries. All of these projects met the selection criteria which stated that each project must be:
- An operational project which affects real financial transactions with real customers
- Operational for at least 3 months (since first operational transaction)
- A project which makes a significant use of block chain technology
- A project which is connected to the main power system or is involved in the management of renewable certificates
The analysis of these assessments has commenced but is still in the early stages.
Some of the early results show that the most common blockchain framework for building systems is the Ethereum framework. Most pilot or use case projects are on permissioned networks and use Hyperledger Fabric for developing applications. It is also clear that the number of customers using each of these systems is still relatively low. The nature of the blockchain technology is that it is very secure but very resource intensive. One of the fundamental challenges is to find a way of reducing the level of resources required.
One way of addressing this problem is the use of a third generation public ledger, after Bitcoin and Ethereum. In the energy sector Hyperledger Fabric and other similar private networks are used in order to increase the speed of a confirmation for each transaction and to increase the number of transactions in real time. These new systems allow the flow of transactions to be in parallel with the flow of the traded energy in the real power system. Another aspect of the assessment was to document the functions within an electricity market which blockchain is used for. Although our criteria allowed for systems which transact energy or keep track of renewable energy certificates, it was clear that the vast majority of our selected projects are transacting energy. It seems that the most common functional areas are:
- Billing
- Trading and Marketing
- Automated control of decentralised power systems
- Smart grid applications and data transfer
- Transparency to improve auditing
4. 2020 e-session events
In August 2020, the working group has two major activities planned which will be open to all people who are registered for the e-session.
The first session is a joint webinar with the IEEE. The panel will consist of two IEEE representatives and two members of the CIGRE C5.30 working group. The IEEE has several interesting streams of work around blockchain including addressing the issues of standardisation and regulation.
The second event is a panel discussion webinar with four invited panellists. Each panellist will discuss a specific major blockchain project which they have been involved in to highlight the issues and challenges with implementing a blockchain project in electricity markets. This will be followed by a questions and answers session. We have already lined up project leaders from Equigy and WEPower for this panel.