This report was prepared by PwC for a german consumer advice centre about the recent developments in blockchain, specifically in the context of the financial sector and applying them to that of the energy sector. The report explains how blockchain technology works before describing blockchain applications, with private/public block chains, smart contracts, cryptocurrencies being the major blockchain technologies which are applicable to the energy industry. Several case studies are included before the regulatory and legal challenges are dived into. Overall, the report takes a consumer-centric perspective, highlighting the implications for them given the developments in blockchain in energy, including the potential and challenges.
How can block chain technology be applied to energy systems?
- Smart contracts to decentralise buying and selling for P2P energy trading market
- documentation of ownership e.g. to record ownership of energy producing asset and also to certify renewable energy and emission allowances
- documentation of distributed transaction records i.e. metering, billing
- using cryptocurrencies to pay for energy
Public or Private Block Chain?
Figure showing the difference between the two kinds in terms of data, costs etc.
A public block chain allows users to be anonymous while a private block chain is cheaper and easier to operate. The latter is often used by companies in the financial sector since it allows them to gain access to customers and provide them with services. However, the latter allow for
From the case studies, it can be seen that there are also a great variety of models as to how blockchain technologies can be incorporated into energy markets.
Brooklyn Microgrid It started as a project for 5 households in Brooklyn to produce solar energy and sell it directly to 5 others. It has since expanded into a energy marketplace in New York City. It is also linked to Exergy, the distributed ledger system for the energy market place and the parent company is LO3.
Power Ledger This is an Australian company which raised $26 million during its ICO (initial coin offering). They offer a digital ledger platform and partner office/residential developments to allow P2P energy trading.
Issues and Challenges
Figure showing image of how roles in the current market compare to roles in a market with decentralized producing and consuming using blockchain (PWC, Figure 15, p. 30)
- redundant roles e.g. the balancing group manager will not be necessary, and the meter operators no only need to collect and record data, rather they would provide the smart meters only as the data will recorded in the blockchain instead; there's also technically no need for the Transmission system operations (TSO) manager as transactions are done based on actual consumption
- however the aforementioned roles are relevant for particular reasons i.e. existing regulatory regimes
- TSOs need to predict the amount of energy for tomorrow
- in a way, consumers will have to take on the roles themselves - be their own balancing group managers, submit schedules to the TSO, apply for a license (which will probably be expensive) etc.
- overall - meeting the current regulatory requirements may mean the loss of the purported benefits of P2P Energy Trading
- records can be used to address fradulence, there maybe ways to ensure anonymity while ensuring the transparency of data
- the idea of "biographical blockchains" which can record a person's life (not dissimilar to the health records which are being captured by apps and werables; health records can also be stored in block chains!)
Transforming Social Structures
- while the idea of block chain technology promises decentralisation, accountability, transparency, consensus etc. - there are some mechanisms which cannot be automated
- e.g. our societies have "a series of interconnected systems, each with a certain degree of elasticity" when it comes to bad behaviour i.e. forgiveness
"Dapps are open-source applications which represent a contract between a network and its users and which run on a distributed register (the so-called "ledger") such as the Bitcoin or Ethereum Blockchains". (PWC, p. 7)
needed to use the Dapp, are distributed to members based on a set algorithm, used as rewards but do not represent assets/ dividends/ equity shares. e.g. Bitcoin is a Dapp, and bitcoins are Dapp tokens, Ethereum uses Ethers
DAO (Decentralized Autonomous Organisation)
A complex type of DApp which is similar to a company but not a legal entity, it "was created as a self-governing body operating on democratic principles that is not influenced by outside forces" (PWC, p 38). E.g. the bitcoin system can also be considered a DAO.
Public Block Chains
People's identity are anonymous, e.g. Bitcoin and Ethereum
Private Block Chains
People are known and identified. They are easier to manager and often cheaper. Banks and payment service providers use this.
Self-executing programs which are stored on a block chain; they will allow parties to exchange value (which can be anything) based on terms that are agreed-upon. They are not to be confused with legal contracts.
different from a traditional grid in that the microgrid is connected to the traditional grid but is also autonomous and can disconnect. It may also be lower cost and more environmentally friendly.
P2P Energy Trading
Trading of energy between two people, without an intermediary e.g. a company.
Renewable Energy Credits
The non-energy attributes of the renewable energy produced.
A digital currency which is traded on a online ledger with strong cryptography and hence high security.
Additional Research on Blockchain + Renewable Energy
Conventional way of producing and consuming renewable energy
- net metering policies (e.g. if person produces more energy than they use
- they may then sell it to the public utility as Renewable Energy Credits (RECs); the excess energy may also be sent back to the public utility, and they can cut it off their next month’s bill; similar to what it is like in Hong Kong
- How is a private blockchain different from current mechanisms for transactions?