What is Blockchain’s Role in Transactive Energy Systems?

By Linda Barney

Blockchains are an enabling component of secure, digital crypto-currencies, such as Bitcoin and Etherium. These currencies provide a medium for value exchange using cryptography to secure the transactions and to control the creation of additional units of the currency. All transactions are stored in cryptographically-immutable distributed ledgers called blockchains while trusted executable smart contracts implement transaction logic and other business process behaviors. This combination of components helps provide the transaction transparency and tamper-resistance needed for building and maintaining trust between transacting parties.

The use of blockchains is being explored as a secure transaction method for a variety of financial transactions such as art payments, a cheap way to transfer money to people in other countries or in a variety of other ways as described in this McKenzie & Company article. But can blockchains be effectively used as a payment method for transactive energy (TE)? This question is being posed to a panel in the What is Blockchain’s Role in Transactive Energy Systems? session at the fourth annual Transactive Energy (TES2017) conference being held in Portland, OR on June 13-15.

According to David Hardin, Chief Architect at the Smart Electric Power Alliance (SEPA), “Blockchains and executable contracts represent technology tools that could help enable transactive energy by supporting flexible and secure machine to machine transactions that are well-conceived, well-designed and well-integrated into grid operations and markets.”

The realities of “peer-to-peer” transactive energy using blockchain

“These days, clean energy media and the utility industry are abuzz with talk about peer-to-peer (P2P) energy, the idea that power generation and consumption can be fully decentralized. Startups around the globe have latched upon the concept of prosumers selling their power directly to their neighbors. They promise platforms that empower customer choice, support local green energy, and sometimes even save or make the customer money in the process. Invariably, the solutions involve blockchain technology. Because of this pairing of P2P energy transactions with blockchain technology, many people equate transactive energy with blockchain P2P. However, transactive energy represents a broad set of activities that includes much more than this type of solution,” states Richard Shandross, Navigant Consulting.

Shandross indicates that a more fundamental question is whether true P2P energy transactions are even possible. Traditionally, P2P transactions occur when peers make their resources directly available to other participants without central coordination. While there are a few scenarios in which this type transaction can take place between power grid customers, most situations – including most of the blockchain TE projects in progress – will not be P2P.

Transactive energy systems as a blockchain enabler

As summarized by Joshua Wong, CEO Opus One Solutions, “In the recent past, blockchain has been vetted as a solution to managing micro grids and Distributed Energy Resources (DERs). However, due to the complexity of the distribution grid, the blockchain concept cannot simply be transferred from the financial sector to a power grid. When observing the fact that distribution charges, losses, congestions, and other physical grid limitations may lie between two trading parties, it is essential that the transaction reflects the usage and constraints of the distribution grid. While blockchain can play a role as a mechanism for a trading platform, it would require a distribution market based on a Distribution System Platform to provide accurate valuation of the DERs. In conclusion, a deployment of blockchain will have to see some sort of transactive energy elements, and blockchain will have to prove itself against other mechanisms and solutions.”

Panel discussion: Roles of blockchains and cryptocurrencies in transactive energy

The panel will discuss the application of blockchains and cryptocurrencies to transactive energy and look at the technology from technical, economic, and utility perspectives while exploring the following questions:

  • What characteristics of blockchains and smart contracts could provide value for TE systems?
  • What role could smart contracts provide in creating TE systems?
  • Devices exist today to build TE systems, so where are the best non-hardware areas for standardization?
  • Are there common challenges from existing pilot implementations that are amenable to common approaches and standards?
  • What are the main road blocks to implementing blockchain and smart contracts for retail energy markets (regulatory, business model, architecture, technology)?

Shandross indicates, “In our talk, we discuss what makes a TE implementation peer-to-peer and identify situations in which true P2P can take place, as well as those where it cannot. We will also describe the value that blockchain can offer to TE at the distribution grid level, regardless of whether the solution is P2P or not.” In addition, we describe “the reality of claims made by many of the blockchain TE developers, that their customers form a microgrid and that they can rely on that ‘microgrid’ for resiliency. We address the difficulties inherent in creating an islandable microgrid within the context of prosumer DER on a developed power grid.”