How the Future will trade energy!
When you decide what technology is right for your business or home and you install it, on top of many incentives you can start to trade the excess energy you produce. This might be because you might not utilise all the energy you produce. Sharing it through a SMART grid or the national grid allows you to make make money and save money. How you do this though is going to involve trading. One pioneering digitally based trading method is known as ‘Blockchain’.
What is Blockchain technology?
Why is this useful to trading energy?
As people adopt some of the 6 technologies taught on our Micro-Renewable Energy course for Beginners, such as small scale solar, wind or hydro power, with battery storage technology, and the national grid switches from gas and oil powered power stations, to wind, wave and solar power, the electricity supply can become intermittent and inflexible. Since electrical supply and demand need to be matched, what is required is demand-side flexibility.
Renewable assets like solar PV and wind are often connected nowadays to the local grid, feeding it when energy is available, with their buildings being supplied when it fails to meet the demand. This presents both an opportunity to increase grid efficiency and reduce transmission losses – as the largest losses occur over large distance transmission lines! (Only about 0.05% actually reaches the customer mainly due to transmission losses when supplied over the national grid.) This gives us the ability to seek new, localised pricing models for energy supplies.
As artificial intelligence (AI) – which despite its name is more like flexible statistical analysis – combined with home or business energy management systems (HEMS) the internet of things (IoT) and other devices, allow greater visibility and control than ever before. This means we require co-ordination, interpretation and data security.
There is clearly a desire for a more active role by many businesses and consumers in the face or rising prices. These proactive consumers (often labelled ‘prosumers’) who seek to generate their own electricity from personal or shared community assets, or purchase directly through peer-to-peer (P2P) transactions are changing the way energy is bought and sold. Production is becoming a true free market. (Some liken it to democracy, though that is a misunderstanding of the word in my opinion!)
Types of Blockchains
Blockchains can be categorized as
- Public and Permissionless – like bitcoin, the original. You don’t need permission to join
- Private and Permissioned – limited to designated members transactions which are private, with permission from an owner or manager to join the network. Often used by private consortia to manage industry value chain opportunities.
- Hybrid blockchain – this is a side chain, which allows different types of blockchain (public and private) to communicate, enabling transactions between participants across the blockchain networks
Has Blockchain Technology been applied successfully to other sectors?
These have been applied to commodity trading. A global commodity trader performed a pilot working with 2 banks which applied blockchain technology to credit processes for crude cargo transactions. Another trader developed a platform to facilitate trading US crude oil. Wien Energy, BP and ENI have used blockchain technology for portfolio reconciliation processes. A group of 20 European energy companies joined a trial project to execute the wholesale power and natural gas transactions on a blockchain enabled platform. The savings in block chain technology make trading efficient and seamless.
Why is this more efficient?
Energy is essentially a commodity like bake beans (both give you energy). A multitude of processes within each participant company has to be carried out. Each party must verify adn reconcile transaction many times from initial trade to settlement of the transaction. This means liaising with other organisations such as exchanges, logistics partners, banks, brokers, price reporters and of course the dreaded regulators. The life cycle of energy and commodity transition is a web of complexity. On top of all this they have to maintain their own internal manual processes, systems and controls to maintain an accurate record of all transactions. Accountants just love it. It’s their bread and butter.
Blockchain in a nutshell streamlines the process, shares it with all participants, thus reducing overheads, labour costs, manual records, and even semi-automated processes! This in turn reduces capital costs via faster, transparent settlements, as one doesn’t have to rely on multiple systems. The efficiency savings of blockchain could be in the 30% to 60% level.
There are additional benefits: internal processes such as confirmation, trade reconciliation, chaing of custody, documentation, and a whole range of similar procedures and processes can be further causes of savings.
The technology also enables the expansion of trading to new digital assets, such
as the planned Royal Mint Gold product through the CME Group and the Royal Mint Group.
Before adopting Blockchains
It’s clear that the more participants the greater the security. You need therefore to build lots of partnerships and trust. It is critical to have a tamper proof record of transactions. If your records can ben edited or deleted you have a problem! The data must be highly accurate and not open to duplication. This means the system should prevent double counting. The blockchain must also be as transparent to all involved as possible.
For Mini-SMART micro-grids that have solar panels connected up to various homes, perhaps also linked to a few wind turbines and hydro power, this technology is what is actually behind it working seaminglessly. This is going to definitely be the future.
However, Block chain technology is probaby going to become the normal method of trading energy on a larger macro-scale. Insiders certain suggest this is the future. In our Bigger Picture: the Probable Future of Energy Course, I suggested that computers that trade energy futures may one day predict the end of viable and economically obtainable oil at a rate that we require it to meet demand 15 years before it happens. This would have enormous consequences. Now add Block Chain trading to this scenario! Now we need to worry! It’s unlikely that by 2035 we’re going to be ready to substitute for oil entirely. By then if we haven’t started building up new replacement technologies such as synthetic fuels for vehicles along with electric vehicles being adopted en masse, we may have more to worry about.
Bibilography & References
EY – see http://www.ey.com
LO3 – Boston project – https://lo3energy.com/
Price-Waterhouse Coopers (pwc)