The applications of Blockchain, which enables secure peer-to-peer transactions, is becoming increasingly popular in the energy sector – recently the Dutch TSO, TenneT, announced the launch of two grid management pilot projects that will utilise the technology
Blockchain, the technology that stands behind the success of the infamous cryptocurrency Bitcoin, is considered to be one of the most potentially disruptive technologies for the established way of doing business in almost all industrial sectors. Since its conception in 2008, the technology has enabled millions of transactions through peer-to-peer sharing, bypassing institutions such as banks, regulators, and utilities.
The technology and its applications for the energy sector quickly became a hot topic, since its adoption is likely to radically transform the industry, the actors, and the way energy is generated and transmitted. Recently, the Dutch TSO, TenneT, announced its plans to implement a Blockchain platform in two pilot projects for electricity grid management in the Netherlands and Germany. Additionally, other actors are testing some of the multiple applications of the technology in the energy industry. However, there are still some significant obstacles before the large-scale adoption of Blockchain in the energy sector.
What is Blockchain?
The technology has numerous applications, which are not restricted merely to the sphere of currency and financing operations. Blockchain can be described as a distributed ledger for recording data in a verifiable and permanent way, which enables secure peer-to-peer transactions. As the name suggests, each block is interconnected to the previous block, forming a cryptographic secure chain. Blockchain solutions are therefore distributed computed system, which combine IT, cryptography, and principles for governance for secure transactions by sidestepping the need for a third-party institution between the transacting entities.
The Blockchain sequence keeps track of all transactions in the interconnected blocks of information, which cannot be retroactively modified. This creates certainty and guarantees a high level of security for the performed transactions, since any variation or interference in the chain would be detected. Block validation relies on the so-called consensus algorithms, the main purpose of which is to ensure that the peers of the shared ledger have the same copies by enforcing the integrity and validity of the transactions within the block.
TenneT and Blockchain
The Dutch TSO, TenneT, announced that it will adopt Blockchain for two electricity grid management projects in collaboration with Vandebron, sonnen Group, and IBM. The two projects will enable their developers to test and implement Blockchain technology to manage the Dutch and German grids. Since RES generation is growing in both the Netherlands and Germany, TenneT foresees that in the next years “conventional energy sources will not be able to fully meet the demand for electricity” and the electricity grid could become more volatile.
According to TenneT, Blockchain “is the next step in enabling decentralised flexible energy sources to play a role in the management of the electricity grid”. Thus, for the two projects, the transmission operator will explore the potential of IBM’s “permissioned Blockchain network” in the integration of flexible capacity by electric vehicles (EVs) and home batteries into the electricity grid.
The first project in the Netherlands will be done in collaboration with Vandebron, a Dutch RES supplier and innovator. Since TenneT is responsible for the balance of the HV grid and the security of supply, additional electricity always needs to be supplied on demand for balance. The RES supplier Vandebron, in turn, will collaborate with its customers who own EVs to make available the capacity of their car batteries to the TSO for grid balancing purposes. The project and its transactions will be supported by IBM’s Blockchain, which, according to the TSO, will “enable each car to participate by recording their availability and their action in response to signals from TenneT”.
The second pilot project, for the German grid, will be launched by the German branch of TenneT in collaboration with sonnen eServices, part of sonnen Group, a German RES supplier, industry leader (in which GE recently took a significant shareholding), and home energy storage provider. The two companies aim to connect more than 6.000 households equipped with PV and storage batteries. According to TenneT, this would create “a network of residential solar batteries [that will be used] to help reduce the imposition of limitations on wind energy at times of insufficient transport capacity”, since energy produced in the North-German wind farms cannot presently be efficiently transported to the country’s Southern industrial zones. This project, like its Dutch counterpart, will be enabled via IBM’s Blockchain and will give the TSO the ability to oversee the available pool of flexibility and to activate it whenever needed. The Blockchain will then record the contributions of each battery and energy transaction.
What are the implications for the energy sector?
According to the Dutch TSO, the Blockchain technology “is suited to connecting multiple parties and large numbers of distributed computed nodes and enabling them to undertake joint action in a scalable, transparent and trusted network”. This would enable TenneT to gradually move towards a direct contact with the consumer who would become a future producer – a prosumer. This circumvention of the traditional utility market, currently dominated by a few large players, has the potential to radically transform the established way of generating and transmitting energy.
Moreover, by utilising Blockchain technology, consumers are stimulated to increase their energy production and make it available for balancing the market. This has the potential to connect small energy prosumers by creating a distributed interconnected system, based on peer-to-peer transactions, which would be independent of the centralised energy providers.
Additionally, TenneT states that the innovative technology will help “in the digital process of verifying and documenting the performance values of distributed flexible energy devices”. If proven empirically through the pilot projects, this has the potential to strengthen TenneT’s ability to oversee the system and to manage the grid more efficiently.
Furthermore, Blockchain will facilitate smaller transactions and will make them profitable by enabling direct bilateral relations in a verifiable and transparent manner. Such transactions, like those of small-scale batteries and electric cars that will be tested by TenneT and its partners, are expected to increase in number for the future.
The Blockchain technology has the potential to radically change the existing way in which energy and utility markets function. Nevertheless, given the great potential that such technology holds, there are still significant difficulties ahead of its spreading and implementation on a larger scale in the energy sector. Such difficulties include the current regulatory frameworks, which will need to be adjusted, as well as some other intricacies of a distributed payment system, like contract settlement and clarification of the responsibilities and liabilities of the involved parties in the transactions. Regardless, there is definitely value in the energy sector adopting the Blockchain technology, as it may give us a glimpse of the potential “prosumer” energy market in the near future.