Blockchain, also known as distributed ledger technology (DLT) or distributed data storage, can allow very small business deals to be fully automated, with the potential for dramatically reducing transaction costs. The parties are identified, their transactions recorded, and the contracts fully standardised using algorithms developed along similar lines to those used in trading the Bitcoin virtual currency.
The Bitcoin-type network is sometimes described as a distributed peer-to-peer (P2P) network with anonymous players. But private blockchains can also be set up, involving only selected business partners.
While it is still early days for this technology, things are moving fast in the digital world, and it will be vital for the wind sector to stay abreast of developments. Blockchain technology has the potential to radically change the business processes and models of the energy industry, claims independent energy-trading consultancy Energy Brainpool. German energy and water federation BDEW describes blockchain's potential as "an exciting future theme", which is being discussed in several of the federation's project groups.
First steps
A number of blockchain energy projects are already underway. German utility RWE has been working with a company called Slock.it since the beginning of the year on an electromobility-and-sharing platform based on the technology.
A micro community energy market platform, dubbed the TransActive Grid, has been run by the Brooklyn Microgrid in New York since April. The TransActive Grid - a joint venture between LO3 Energy and ConcenSys - is described by its founders as a combination of software and hardware that enables members to buy and sell energy from each other securely and automatically, using smart contracts and the blockchain.
The smart, self-enforcing contracts "can provide an auditable, non-repudiable and cryptographically secure history of automated transaction," states the joint venture, adding that the current prototype uses the Ethereum blockchain.
Blockchain technology could become mainstream in electricity trading within the next five years, believes Philipp-Dennis Niederhagen, head of origination at Germany energy company Trianel.
The idea of direct generation-consumer interaction (prosumer) is becoming popular in Germany. However, if wind generation is gradually centralised into the portfolios of a few large energy players, then the tried-and-tested, if relatively expensive and unwieldy, electricity trading system with its separate back-office clearing of trades may persist for longer.
Marketing their own power simply, cheaply and virtually in real time via a private or public blockchain pool could help small wind-power operators, such as citizen's wind farms and energy co-operatives, flourish.
Until now, Germany's small, independent renewable-energy generators have had to sign up with so-called aggregators, such as Statkraft, Trianel/Gesy, Next Kraftwerke, and utilities such as RWE or EnBW, which then market their electricity in the day-ahead spot market. But the Renewable Energy Act (EEG) 2017 now allows them to trade on their own behalf.
"In future, if smaller amounts of electricity from individual or groups of wind farms are to be traded, delivered and paid for in near-real time, at the same time guaranteeing security of supply, this can be made possible with the use of blockchain," says Michael Merz, managing director of software company Ponton.
So will citizens' wind farms or smaller wind-project owners be able to market their electricity directly to consumers instead of becoming part of large aggregation portfolios?
"If we draw an analogy to Bitcoin, the answer can only be a clear yes," says Niederhagen. "Money, in this particular case a virtual currency, can already be exchanged without banks. The likelihood is high, and I can clearly imagine that it will come."
P2P electricity trading
Technically, electricity can already be traded using blockchain technology. Ponton has now completed a prototype application for a P2P electricity trading tool. The prototype is a proactive development by the company to give the look and feel of P2P trading and attract market participants, says Merz.
"The P2P approach is very lightweight, and far less cost-intensive than running an energy trading and risk-management system, plus the cost of energy exchange admission charges as well as trade and settlement fees.
It should therefore be attractive for small trading organisations, like wind farms outside Germany," he says. Testing is not limited to Germany, Merz stresses. If there is demand from a local group of microtraders who jointly decide on a test run, this could be beneficial for both sides, he says.
Whether such trading can now actually happen depends, among other things, on the standardisation of market rules and processes as they apply to the energy regulator rather than the technology itself, particularly on the rules and payment for electricity transmission-network usage at local, regional and cross-border levels.
Embedded in the current electricity supply system, and looked at from the outside, "a microgrid would then probably be treated like an individual consumer", suggests Merz.
In the future, blockchain technology could do away with today's unwieldy electricity exchange (Epex Spot) plus clearing office, says Niederhagen. "However, it is still to be seen whether society accepts and prefers a distributed ledger ecosystem over a trusted entity, such as the state, or state-owned municipal utilities, or private companies."
Electricity trading has many layers of activity, including balancing pools to match supply with demand, procedures for balancing the system and for deciding who pays what when traders fail to stick to their supply schedules, as well as systems for billing, checking and clearing payments.
"But in the future, generators in smaller communities will be able to optimise electricity supply in their own area," says Erwin Smole, a consultant at Gridsingularity, a company developing blockchain technology and smart contracts. "There will be much more electricity storage, micro-grid managers, and a big potential for smaller companies," he says.
"Opportunties with blockchain are fantastic. The wind farm can either deliver to the consumer real time, when the light switch goes on, so to speak, or straight into storage.
You can activate generation at the same time as demand occurs, which means when consumption is activated, electricity is supplied. You don't need capacity behind this as back-up because everything is automatically in balance," says Smole.
Smole predicts a "horror scenario" for the current conventional energy sector when 100% of customers are in supplier-customer blockchains, requiring only a single company to operate the transmission grid.
The European Union has been working towards the creation of a single internal energy market with growing cross-border connections since 1998. But interconnectors can take up to 15 years to get permitted, and another five years to build. "Blockchain and its potential for local and regional energy-supply solutions is showing that old business models are no longer necessarily the best or most suitable to solve transmission problems," says Smole.
Readily available
Others have seen the writing on the wall, too. Deloitte, part of Deloitte Touche Tohmatsu, a conglomerate of independent firms that provide financial advisory and risk management services to select clients, issued a short paper, Blockchain applications in energy trading, in June.
The technologies will do more than make the current markets more efficient "by making all activity added to the blockchain readily available to the seller, buyer, bank and other parties", it said. "They have the potential to radically disrupt and open up the energy markets in ways people have not yet considered.
"Intermediaries, such as brokers, exchanges, price-reporting agencies and clearing houses' entire business models could be disrupted by widespread adoption of blockchain-based applications," it said.
While most emphasis is currently on electricity trading, the wind sector can profit from blockchain in other areas. Technical and economic due diligence for wind farms could be substantially speeded up and simplified using a blockchain application by which data is certified as part of the gathering process.
The need for external data verification and certification for quarterly financial reports or when a wind project is to be sold would be eliminated, said Smole.
Certainly blockchain ideas are coming thick and fast. Consultants Ernst & Young, in its assessment Blockchain reaction: tech companies plan for critical mass, advises companies to "achieve readiness early. Ask not, what is my blockchain strategy? Ask instead, how will my business operate and make money in a blockchain-enabled world."
NEXT GENERATION DATABASE — DEFINING BLOCKCHAIN TECHNOLOGY
The UK government's chief scientific adviser's office described blockchain technology in a January 2016 document, Distributed ledger technology: beyond blockchain.
"A distributed ledger is essentially an asset database that can be shared across a network of multiple sites, geographies or institutions.
"All participants within a network can have their own identical copy of the ledger. Any changes to the ledger are reflected in all copies in minutes, or in some cases, seconds. The assets can be financial, legal, physical or electronic.
"The security and accuracy of the assets stored in the ledger are maintained cryptographically through the use of 'keys' and signatures to control who can do what within the shared ledger.
"Entries can also be updated by one, some or all of the participants, according to rules agreed by the network. Underlying this technology is the 'blockchain', which was invented to create the peer-to-peer digital cash Bitcoin in 2008."
