Will the blockchain lead to a smarter energy network?

Blockchain technology enables secure trading without a centralized intermediary such as a stock exchange. This makes it attractive not only for cryptocurrency, where it was first applied to bypass banks, but also for large decentralized energy systems with a high percentage of renewable energy . In other words, it is attractive to the European energy market of the future based on "prosumers"; consumers who produce electricity using their generators.

Experts say that there are many important trends in the European electricity market that make blockchain a desirable choice. First, we move from a market of in which consumers buy electricity for future use, in an attempt to mitigate the risk of price increases – in a spot market – where Electricity is bought to be delivered at the latest the next day

The change occurs as a reaction to the drop in electricity prices, driven by low-cost renewable energy: end users are not afraid of increases in prices and want to benefit from increasingly cheaper electricity. Because the blockchain processes transactions almost in real time, it can become a spot electricity trading project.

Subsequently, the volumes of transactions on the energy market are decreasing . The share of the so-called "15-minute contracts" – containing 0.1 MW of electricity to be delivered in particular 15 minutes of the day or the other – is increasing. Such small transactions are more suitable for intermittent production of energy from renewable sources . In these conditions blockchain behaves better than traditional energy exchanges. Its transaction costs are lower with no payments to merchants and various service providers.

At the same time, the integration of the energy systems of European countries means a new approach to the trade of electricity to allow transnational trade at the lowest cost, without local intermediaries. And the cryptocurrency market has shown that blockchain is able to create global commercial networks.

Another important trend is the development of the residential renewable generation with small installed capacity which is a challenge to integrate into the traditional wholesale market of the ;electricity. This last was created to operate with a finite number of energy producers in series, while blockchain can handle a large number of participants.

Christoph Burger, a lecturer at the ESMT international school in Berlin, stresses that " the major trends in the transformation of energy are decentralization and digitalisation and blockchain is the ambassador of both. "

In this context, the latest blockchain successes allow smart contracts that can become the basis of automatic energy trading of the future .

Basically, these are programs executed automatically under certain conditions. It means that an intelligent meter can be programmed to buy energy when it costs X euros, and a renewable generator can be set up to sell electricity on the grid for Y euros. When X = Y, the smart contract is executed and the electricity is sold by the renewable energy generator to the consumer.

"Intelligent contracts are certainly one of the main features of modern blockchain.They have the potential to facilitate trading in the future, be it wholesale or retail markets and peer-to-peer transactions. ", stated the dott. Ole Langniß, CEO of the start-up blockchain OLI Systems.

electricity trading with blockchain is being tested on micro-grids. The above-mentioned start-up is partner of a major blockchain pilot project in Europe together with a number of partners. The project aims to test blockchain technology, including smart contracts, creating a self-sufficient community of producers and consumers.

"We currently have the first connected residential customers and industrial customers are waiting for us in. Generally, they are" first mover "or employees of the participating utility, I think their main motivation is to be involved in an alliance project. 39, to test now what can incentivize the use of renewable energy in the future, "explained Dr. Thomas Brenner, Chief Technology Officer of OLI Systems.

International utilities such as E.ON, Enel and Vattenfall have also expressed their interest in technology.

"Big utilities can be very interested in the use of blockchain applications, not in a disruptive sense, but rather as a software tool that makes the processes that exist in their business easier and cheaper (for example, contracts Smart can automatically disconnect debtors) or allow them to offer new products and services (such as shared use of batteries), "said Thomas Brenner.

However, it is still necessary to solve a number of problems . "The scalability of transactions is a fundamental challenge," said Christof Burger. In other words, blockchain can process a limited number of transactions per second and this number is far below the capacity needed in an interconnected intelligent energy system . To cope with this, energy blocks are attempting alternative approaches to validate new blocks.

Issues related to access and data protection must also be solved . To operate in a complete and autonomous way, the system must collect and share grid data through connected devices. This requires both robust data protection and compliance with the new General Data Protection Regulation (GDPR).

Many regulatory obstacles must be overcome . Currently, the blockchain is not reflected in European energy laws and the new technology must meet existing regulatory requirements. At the same time, market players see their roles change significantly with blockchain. Electricity suppliers who buy energy from producers to sell it to end consumers are put aside while producers and consumers start trading directly. The role of network operators is also changing to adapt to the new market scenario.

Blockchain is still in its infancy and the variety of possible future scenarios is enormous. It can become the key to a sustainable energy system or remain in a niche of peer-to-peer transactions in microgrids.

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