Where does blockchain come from?
This is not the first article on Blockchain and rest assured that it will not be the last one you read. The Block Chain is the basis of the crypto-currencies technology. Virtual and intangible currencies that have come to change the rules.
This technology has created a “credible” and valuable currency, which does not depend on centralized entities (central banks) for the validation of their transactions. It is a secure and real-time method for transferring value. It ensures consensus regardless of the origin of those who use it. It is what we call a paradigm shift that will condition the way in which we understand financial services.
However, what does this have to do with energy? Considering that power operators do basically manage flows of data (economic, consumption, etc.), we can intuit that this market as we know it can undergo a major change and of great repercussion.
In fact, there are already projects in progress in different parts of the world (based on blockchain and energy), Grid Singularity, Nasdaq, L03, Australian Sun Exchange… that are the proof of this fact. Precisely an important component of all these projects (if not the most important) is the Smart Grid part, ie how to bypass the system operator or, alternatively, to guarantee enough reliable forecasts to allow the system operator the proper control of the grid.
The decentralization of a service such as the power one is already a challenge. Let’s consider that the electricity systems were born from the Generation-Transport-Distribution-Consumption flow under the supervision of Market and System Operators that certify their operation. Only now it begins to face the great challenges of Distributed Energy Resources (DER).
The emergence of smart meters, more efficient storage systems and renewable generation at the domestic level is a major change. The consumer empowers and suddenly becomes a “prosumer” (producer / consumer) capable of putting in crisis the existing business models.
Technological advances are putting in difficulty the ability to adapt regulations to the new reality and often the main barriers to the development of the new model are indeed regulatory barriers.
But what impact is it having in this sector?
We could define them in three levels:
The first is a conceptual change. We no longer speak in terms of the balance between generation and consumption. It talks about Transactive Energy (TE) and redefines the needs of all those involved. It is based on a set of approaches that use real-time network information and economic signals to coordinate systems and devices in the distributed generation system. Lots of information in real time to create new needs. Blockchain is a further facilitator for this model as the current Operators are not able to manage the huge number of participating actors.
The second impact would be the compliance of a more secure and resilient network. Breaking the centralized architecture by expanding the generation through the network, is one of the most intriguing aspects. The potential of distributed generation, which uses the block chain as technology, can help mitigate and prevent network imbalance. Providing flexibility, reliability and efficiency.
Finally, it will encourage interest in investing in IoT (internet of Things). There is no one platform that can bind and connect the thousands of network devices to the millions of demand devices (and they are increasing day by day). Blockchain can be the technology that allows IoT to generate consensus efficiently, reliably and securely.
How is the process being developed?
With massive entry of renewables, storage, Electrical Vehicles and smart meters, together with blockchain technology will allow consumers to connect directly to the Grid in a participatory manner.
The access to the internet of billions of devices is breaking the physical borders of markets, increasing the influence of adjacent markets, multinationals, academic institutions, companies and governments, who are seeing the barriers of entry.
Renewables already compete without subsidies against traditional generation and storage costs are becoming cheaper. This raises the possibility of managing the demand, allowing the final customer to consume in off-peak hours and supply in peak hours. All this will lead to the development of micro markets in which prosumers will play a leading role.
All this sets a new stage for participation and decision-making. Configuring new prices and energy transactions between micro grids. The participation of the client in the market will allow to give direct signals of what they want (green energy, cooperative economy, etc.)
What effect does it have on the current value chain?
Unidirectional flows are made bidirectional and the number of counterparts are multiplied.
Customers without solar or storage power will be able to decide where to buy their energy; Of the wholesale market or of a “prosumer”. The “prosumer” will try to maximize its energy management taking advantage of the market prices to buy or to sell. It means that there will be many more participants in the market as we know it. Customers’ options will increase greatly, but most will want to automate decisions so that platforms and market places will be the key for utilities.
Utilities will become service providers. Offering access points to the electricity market (TE platforms) for consumers to make their decisions. They will also offer hardware to be “prosumers”.
The distributors should develop advanced tools for the management of distributed energy resources (DER).
The traditional generation should redefine its market position as distributed generation will displace it and consumers will change.
Obviously, there are elements that will fall into a monopoly: power transport will remain a monopoly. However, a TE platform provider could also act as the market operator. The wholesale market will be much more dynamic, volatile and complex, and will create new opportunities for traders. The negotiation of buying / selling will take up the level of domestic consumer (peer to peer trading). The energy market will be based on real-time location.
However, all this greater interlocution will increase volatility and the entry of new fundamentals in the configuration of prices. In this new market, we will have to evaluate now non-existent variables such as:
- Different Spot prices throughout the geographical area.
- Peer-to-peer Spot prices.
- Real-time weather data and impact.
- Expectations of photovoltaic generation and its performance.
- Distributed generation data.
- Storage levels and expectations.
- Demand data in real time.
- Situation of the electric vehicle fleet and its needs.
- Change in the needs of the final consumer.
Everything indicates that the complexity will increase, but at the same time will optimize resources. What is clear is that the platforms will have great relevance in the market as we have seen in other sectors. Let’s see how the companies in the sector are moving because this is already happening and despite what is being written will catch many companies by surprise.
Alejandro de Roca | Operations Director