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Will blockchain lead to a smarter energy grid?

Contributed by: EEIG

An interconnected energy system of the future requires decentralised, democratic and resilient electricity trading. Ever more companies are wishing for blockchain technology to become a core feature of the European electricity market.
Will blockchain lead to a smarter energy grid?
Blockchain technology enables secure trading without a centralised intermediary like an exchange. This makes it attractive not only for cryptocurrency, where it was applied first to bypass banks, but also for large decentralised energy systems with a high share of renewable energy. In other words, it's attractive for the European energy market of the future based on “prosumers” – consumers who produce electricity using their own generators.

Experts assert that several important trends exist in the European electricity market that make blockchain a desirable choice. Firstly, there is a shift from a futures market – where consumers buy electricity for future use, in a bid to mitigate the risk of price increase – to a spot market – where electricity is bought to be delivered the next day at the latest.

The shift happens as a reaction to sinking electricity prices, driven by low-cost renewable energy: end users aren't afraid of price rises and want to benefit from increasingly cheaper electricity. Since blockchain processes transactions nearly in real time, it can become a blueprint for spot electricity trading.

Next, transaction volumes on the power market are decreasing. The share of the so-called “15-minute contracts” – containing as little as 0.1 MW of electricity to be delivered during a particular 15 minutes on the day or the next – is rising. Such small transactions are better suited to the intermittent power generation from renewables. In these conditions blockchain performs better than traditional energy exchanges. Its transaction costs are lower with the absence of payment to traders and various service providers.

At the same time, integrating energy systems of European countries means a novel approach to electricity trading to enable transnational commerce at lowest cost, without local intermediaries. And, the cryptocurrency market has proven that blockchain is able to create global trading networks.

Another important tendency is the development of residential renewable generation with small installed capacity, which is a challenge to integrate into the traditional wholesale electricity market. The latter was created to operate with a finite number of bulk power producers, whereas blockchain can handle a vast number of participants.

Christoph Burger, a senior lecturer at the international business school ESMT Berlin, stresses that “the major trends in energy transformation are decentralisation and digitalisation. And blockchain is an ambassador of both.”

In this context, the latest achievements in blockchain enable smart contracts that can become a basis of the automated energy trading of the future. Basically, these are programs executed automatically under certain conditions. It means that a smart meter can be programmed to buy energy when it costs X euros, and a renewable generator can be set to sell electricity on the grid for Y euros. When X=Y, the smart contract is executed, and the electricity is sold from the renewable generator to the consumer.

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