Energy markets are going through a significant transformation process with decentralisation and digitalisation being major drivers. Buzzwords like ‘energy prosumers’ and ‘blockchain’ are often mentioned in that context, but how do they potentially interact?
Energy Prosumer
The concept of energy prosumers in electricity markets is now well established and the economic advantage of being a prosumer is increasingly evident in many established markets. For electricity prosumers of almost any size a cost-competitive technology is available, e.g. PV on household level to CHP or wind installations on a commercial level. Explicit incentive programs are often not needed anymore since the specific LCOE vs. the price benchmark of an individual consumer is competitive in many markets already, i.e. grid parity is reached. Also, with the increasing competitiveness of battery/storage solutions the problem of intermittency of electricity generation can be overcome as well.
That does not mean that the prosumers will be or desire to be off-grid. Being connected to the grid will generally be the norm and with an increasing amount of prosumers the question of how general grid infrastructure costs are to be shared will be up for debate.
Additionally, the regulatory environment will need to adjust to what is technologically possible and economically sensible. Specifically, the access of distribution networks as way to connect local prosumers to create virtual networks is an interesting concept, or arguably even a pre-requisite.
Digitalisation and Blockchain
Digitalisation and the availability of a wide range of data will be an ever more common concept in energy markets. The rollout of smart meters will enable unknown data richness and new applications. This will impact prosumer models but may also open the doors for blockchain applications in decentralised energy markets. Blockchain or distributed ledger technology allows keeping track of data records in a secure and decentralised way. A potential prosumer/blockchain use case could be the creation of local energy clubs.
Use Case: Energy Clubs
An energy club may be defined as a private blockchain network, which connects prosumer members on an accounting level. At the same time, club members are also connected via the local distribution grid to form a virtual network, which interacts with members on a priority basis along with other third parties.
This facilitates two major prerequisites for such a concept to work:
- firstly, electrons can be sent between club members and
- secondly, kWh can be registered in real time for accounting purposes.
However, instead of trading energy, kWh are credited/debited in the blockchain ledger of the private blockchain network (the energy club), effectively creating a bartering network where kWh are borrowed and lent between club members. If the energy club members cannot balance their own supply/demand on a ‘club level’ then they will access the general grid in order to cover any imbalances.
Additionally, third parties act as a validator of club member activities and support energy providers in order to ensure that energy security is guaranteed (a bit like like how central banks act as a last resort lender within a monetary system). Third parties can also act as blockchain technology platform providers.
A basic assumption is that the local DNO is neutral and provides the physical basis for connecting club members. All third parties are compensated for their services provided, hence why small costs for each transaction are considered, making it different to net metering models.
The figure below is a schematic representation of such a concept.
This is just one possible use case, but many other applications can be thought of.
More additional reading from myself and other sources can be found at:
Glossary:
PV – Photovoltaic
CHP – Combined Heat and Power
LCOE – Levelised Cost of Electricity
DNO -Distribution Network Operator