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Topics

Digital Energy Trade with Blockchain: Purchase Power Directly from Your Neighbor

The blockchain electrifies the electricity industry: It drastically reduces commercial transaction costs. This makes it possible to market even the smallest amounts of electricity. This could enable blockchain to become a key technology for smart grids and sector coupling.

The energy transition needs communication. Between the individual stakeholders and interest groups – as well as in technical terms: To get a grip on the increasing decentralization and fluctuation of power generation, the individual components of the energy system must be linked to each other in smart grids across sectors. This is the prerequisite for the interactions that are necessary between producers and consumers; between equipment, platforms, and systems; between battery storage units and heat pumps, eVehicles, and CHPs. However, how can the countless transactions be efficiently controlled, documented, and calculated in such closely-knit, yet finely divided energy system?

Blockchain – Potentials for Energy Supply:

Direct transactions between energy producers and consumers can lower electricity prices.
The blockchain is organized over an association of decentralized, independent computers. This increases data security.
In a decentralized market, trade in the smallest amounts of energy becomes more and more relevant.

Blockchain Sets the Cornerstone for Direct Transaction

In commercial transactions of all types, a mediator generally participates, who brings the buyer and seller together, assumes legal responsibilities, and deals with payments. This is commonly the supplier in the energy sector. However, their services come at a price – they can generate high transaction costs. Therefore, many experts in the energy sector are placing their hopes in a technology that has long been considered a plaything for nerds: blockchains. Originally developed as the technical foundation for the digital currency, bitcoin, blockchains allow businesses to act without the involvement of a third party.

Sinking Electricity Prices for Consumers?

How does this work? The blockchain stores the data resulting from a transaction multiple times. This takes place on decentralized, independent computers, whose processing power is provided for participants in the blockchain – private individuals, initiatives, or corporations. This hardware structure can comprise hundreds or even thousands of computers. If a new data set is generated, then all of the computers update the blockchain so that each of them holds all transaction data at all times. If anyone wanted to manipulate the data, they would have to hack into numerous computers. This makes the technology extremely secure. In addition, the blockchain could significantly reduce commercial expenses, as intermediaries are eliminated. ‘Could’, because first the currently high computing costs for validating data must be reduced. It is, ultimately, not very efficient if each individual computer has to check every single transaction. However, experts are currently working on methods that should perform this many times faster and much cheaper.

A Decentralized Databank for the Decentralized Energy Market

Compared with conventional, centrally organized systems, blockchains guarantee a significantly higher level of data security. “The blockchain establishes trust between commercial partners,” explains Tobias Federico, CEO for the consulting firm, Energy Brainpool. At the same time, they entail – at least potentially – only minimal transaction costs. “This makes them very interesting for an energy market that is becoming less centralized,” states Federico. Ultimately, the energy market of the future is not going to be dominated by today’s large power plants, which trade in gigawatts or megawatts, but instead by those that produce kilowatts, or even mere watts. “Small, decentralized units produce and consume very small amounts of electricity. The transactional system established for wholesale simply does not function here. In contrast, blockchains would be a very efficient solution for these tasks,” explains Federico.