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PWC Blockchain Opportunity For Energy Producers and Consumers PDF
PWC Blockchain Opportunity For Energy Producers and Consumers PDF
Blockchain – an opportunity
for energy producers and
consumers?
www.pwc.com/utilities
2 Blockchain – an opportunity for energy producers and consumers?
Table of contents
1. Blockchain: introduction, definition and development history 4
2. A look at other sectors: blockchain experience in various areas of
application, with a particular focus on improving the consumer perspective 9
2.1. Blockchain applications in different sectors 9
2.4. Smart contract applications based on private blockchains (R3 & Barclays) 13
3.3. Assessment of the current state of the art and of the prospects for blockchain
projects in the energy sector 24
Executive summary
Efficient peer-to-peer transaction Current barriers hindering the Opportunities for prosumers
platform implementation of blockchain
applications Blockchain technology strengthens the
Blockchain is a special technology for market role of individual consumers
peer-to-peer transaction platforms that In theory, blockchain systems no longer and producers. It enables prosumers,
uses decentralised storage to record all require either intermediaries or a i.e. households that not only consume
transaction data. central authority. Conflicts are to be but also produce energy, to buy and
resolved using “swarm” principles, i.e. sell energy directly, with a high degree
The first blockchain was developed based on the collective opinion of all of autonomy. The current legal and
in the financial sector to serve as the parties involved. But it is still difficult regulatory framework for consumers
basis for the cryptocurrency “Bitcoin”. today to put such models into practice. and prosumers in the energy sector is
More and more new applications have In addition, there are a number of clearly defined and provides protection
recently been emerging that add to legal and regulatory requirements that on many levels to consumers in
the technology’s core functionality – blockchain projects must also comply particular. However, in the medium
decentralised storage of transaction with. In any case, the actual technology to long term, this framework will
data – by integrating mechanisms that behind blockchains has not yet reached probably have to be adjusted to reflect
allow for the actual transactions to be maturity and is therefore still being the requirements of decentralised
effected on a decentralised basis. These developed. transaction models.
mechanisms, called “smart contracts”,
operate on the basis of individually Some level of maturity in financial Wide range of energy use cases
defined rules (e.g. specifications as to services but concepts only in energy
quantity, quality, price) that enable an and other sectors Blockchain technology shows a lot
autonomous matching of distributed of promise. Other than being used to
providers and their prospective An entire eco-system of companies has execute energy supply transactions,
customers. sprung up around Bitcoin that build on it could also provide the basis for
the virtual currency and its underlying metering, billing and clearing processes.
Lower costs, faster processes and technology. Other financial use cases Other possible areas of application are
greater flexibility of the technology are currently being in the documentation of ownership,
developed and trialled by many major the state of assets (asset management),
Blockchain technology changes the banks and start-up companies. guarantees of origin, emission
way we transact, with the underlying allowances and renewable energy
transaction model shifting away from a Other industries are only just starting certificates.
centralised structure (banks, exchanges, out on blockchain development. Some
trading platforms, energy companies) start-ups are currently entering the Blockchain technology has the potential
towards a decentralised system (end market with blockchain projects. In the to radically change energy as we know
customers, energy consumers). Third- energy sector, a small number of pilot it, by starting with individual sectors
party intermediaries, whose services projects are trialling the technology, first but ultimately transforming the
are needed today in most industries, are some of them funded by large energy entire energy market.
no longer required in such systems – at companies. In New York in April 2016,
least according to the blockchain theory for instance, decentrally generated
– given that transactions can be initiated energy was sold directly between
and carried out directly “from peer neighbours via a blockchain system for
to peer”. This can cut costs and speed the first time. The goal is to establish
up processes. As a result, the entire a fully decentralised energy system in
system becomes more flexible, as many which energy supply contracts are made
previously manual work tasks are now directly between energy producers and
carried out automatically through smart energy consumers (without involving a
contracts. third-party intermediary) and carried
out automatically.
1. Blockchain:
introduction, definition and
development history
Blockchain is a technology that enables so-called “peer-to-peer”
transactions. With this type of transaction, every participant
in a network can transact directly with every other network
participant without involving a third-party intermediary.
The blockchain innovation is that
Figure 1: How blockchains change the way we transact
transactions are no longer stored in a
central database, but distributed to all
participating computers, which store Traditional transaction model Blockchain transaction model
the data locally. The first relevant
blockchain application was Bitcoin, a Providers
so-called “cryptocurrency”. Over recent e.g. sellers, electricity
years, Bitcoin has become the basis for producers, lenders
Intermediary,
other blockchain applications, most of platform
which are currently being developed in e.g.
finance. A number of businesses and exchanges,
traders,
initiatives have recently been launched banks, energy
that apply the blockchain principle companies
Customers
to other industries, among them the e.g. buyers, energy
energy sector. Blockchain applications consumers, borrowers
are generally considered to be a very
promising technology but they are still
at an early stage of development.
• Multi-tiered transaction model • Transactions are carried out
What is blockchain? relying on a central authority directly between providers and
• Transaction data is primarily their customers
stored by the central authority • All transaction data is stored on a
The aim of this study is to analyse ( ) distributed blockchain , with all
the potential impact of blockchain relevant information being stored
identically on the computers of all
technology on the energy sector and participants
to explore what opportunities it may • Ideally, all transactions are made
on the basis of smart contracts
hold for energy customers and energy , i.e. based on predefined
consumers. Born as a niche product on individual rules concerning
the fringes of the market, blockchain quality, price, quantity etc.
• Largely automated, decentralised
has for some time now been garnering transaction model with no need
the attention of experts in various for third-party intermediaries
industries, and has increasingly been
in the spotlight of the media. Yet many
decisionmakers, e.g. in the financial
sector, are unsure how to respond to this
trend: in a survey conducted by PwC in
March 2016, 57% of respondents said
so.1
A provider and a The transaction The data block The verified block The transaction is
customer agree a is combined with is stored in the is combined with confirmed to both
transaction other transactions decentralised all other blocks parties
made during the global network in previously verified,
same period to a tamper-proof thereby creating
create a data block manner and thus a (continuously
verified growing)
blockchain
The data stored in a block is verified What is the blockchain Companies and developers may decide
using algorithms, which attach a unique development history? to build their applications on either
hash to each block. Each such hash is public or private blockchains. On a
a series of numbers and letters created Today’s blockchain applications can public blockchain, the identity of all
on the basis of the information stored in be divided into three broad categories participants remains anonymous.
the relevant data block. If any piece of based on their stage of development, Bitcoin and Ethereum are examples of
information relating to any transaction namely stages 1.0, 2.0 and 3.0. The this. In private blockchain systems, all
is subsequently changed as a result of category “Blockchain 1.0” comprises participants are known and identified
tampering or due to transmission errors, virtual (crypto)currencies such before being given access. Some
e.g. the exact amount of the transaction, as Bitcoin that can be used as an advantages of private blockchains are
the algorithm run on the changed block alternative to real currencies (e.g. that they allow for simpler governance
will no longer produce the correct hash the euro or the dollar). To this day, structures and that they can be operated
and will therefore report an error. Bitcoin continues to be the blockchain at lower cost compared to public
application best known to the general applications. Banks and payment service
All number/letter combinations are public, and becoming more so. However, providers are therefore bound to use
continuously checked for correctness despite the fact that more and more private blockchains for their existing
and the individual data blocks are users are adopting the currency, with business models, among other reasons
combined to form a chain of individual traded volumes on the rise, the absolute because this will allow them to retain
data blocks – the blockchain. Due to share of Bitcoin transactions in the some degree of control as well as
the interlinking of these number/letter international foreign exchange markets revenue potential.
combinations, the information stored on is still minimal. At present there is no
the blockchain cannot be tampered with indication that Bitcoin may ever come The next blockchain generation,
(at least this would require a great deal close to reaching the dimensions of referred to as “Blockchain 3.0”,
of effort). This continuous verification other international currencies. remains a vision for now. Blockchain 3.0
process (called “mining”) is performed is the stage where the smart contract
by the members of the blockchain, who The next stage of development is concept is developed further so as
are rewarded for this service according to enable smart contract models, to create decentralised autonomous
to the computing power they contribute. which are collectively referred to as organisational units that rely on their
“Blockchain 2.0”. A “smart contract” own laws and operate with a high
The verification process ensures that represents a digital protocol that degree of autonomy.
all members can add to the blockchain automatically executes predefined
but no subsequent revisions are processes of a transaction without
possible. This enables direct, peer-to- requiring the involvement of a third
peer transactions between persons or party (e.g. a bank). Returning to the
organisations that used to require the example given at the start of this
services of an intermediary in order chapter, it would for example be
for their transactions to be legitimately possible to create a fully automated
recorded. For example, while a bank is smart contract between an energy
currently needed as an intermediary to producer and a consumer that
effect a financial transaction between autonomously and securely regulates
two parties, the same transaction can both supply and payment. If the
be executed and documented directly customer were to fail to make payment,
between the two parties if a blockchain the smart contract would automatically
is used. arrange for the power supply to be
suspended until payment has been
received, provided the parties had
previously agreed to include such a
mechanism in their contract. This
development poses a threat to the
traditional business models of banks,
which may be in danger of being
excluded from the market segment of “Today’s blockchain
payments.
applications can be divided
into three broad categories
based on their stage of
development, namely stages
1.0, 2.0 and 3.0”
Blockchain – an opportunity for energy producers and consumers? 7
DApps are open-source applications which represent a The proof-of-work and proof-of-stake concepts
contract between a network and its users and which run on a
distributed register (the so-called “ledger”), such as the Bitcoin The purpose of the verification process is to achieve
or Ethereum blockchains. What makes this type of application consensus on the content of the distributed ledger.
special is that no single organisation controls these contracts
Consensus-based verification is a decentralised (i.e.
or holds a legal claim over them, but that all decisions (e.g.
embedded on the blockchain itself) and automated process.
on protocol adaptations) are taken by consensus between the
users on the basis of computer code.
The following two mechanisms are most commonly3 used
to establish consensus:
In order for an application to qualify as a genuine
decentralised application, both its protocol and data must
Proof of Work
be stored on a public, decentralised blockchain (to avoid a
central point of failure) and validated using a decentralised
The proof-of-work concept is the consensus mechanism
verification mechanism (e.g. “proof of work”).
most frequently used in conjunction with blockchain
technology, and relies on so-called “miners”. Each block
Properly decentralised applications ensure that a reliable
is verified through mining before its information is
record can be kept of all transactions and business deals,
stored. The data contained in each block is verified using
even in the event that key websites and interfaces go
algorithms which attach a unique hash4 to each block based
offline. Also, no one can subsequently revise or erase the
on the information stored in it. These hashes can be either
ledger.
ordinary hashes or cryptographic hashes. The complexity of
this task lies in finding a specific hash corresponding to the
DApps can be classified as follows:
block’s content. The level of complexity (difficulty) adjusts
flexibly in response to the computing power available on
• Type 1: decentralised applications that have their own
the miners’ network, so as to ensure that new blocks can
blockchain
be hashed at predefined intervals (Bitcoin: 10 minutes,
- Examples: Bitcoin, Altcoin, Litecoin Ethereum: 10 seconds). Even if only a single piece of
information relating to any transaction is subsequently
• Type 2: decentralised applications that use the changed, for example if the amount of a transaction is
blockchain of a type 1 DApp altered as a result of tampering or due to transmission
- Example: Omni Protocol (a software layer built on top errors, the algorithm applied to the block will no longer
of the Bitcoin blockchain) produce the correct hash. The hashes computed for the
- Type 2 DApps are protocols and use their own tokens same block, which was stored many times around the
decentralised network as described above, are compared
• Type 3: decentralised applications that use the so that changed blocks can be identified and declared
blockchain of a type 2 DApp invalid. The verified, correct version of a block is identified
by the majority of participating computers and added to
- Example: the SAFE Network, which uses the Omni
the other blocks previously verified, thereby extending
Protocol to issue “safecoin” tokens. 2
the blockchain. Once the block which contains the initial
transaction is added to the blockchain and this addition has
been stored by a sufficient number of network participants,
the transaction is confirmed to both parties.
Owner 1's public key Owner 2's public key Owner 3's public key • Development: tokens are generated
using a predefined mechanism
and are available for the future
development of the DApp (with
Hash Hash Hash consensus being established by proof
of stake).
Verify
Verify
Execution of transactions
Owner 0's signature Owner 1's signature Owner 2's signature
Sign
Sign
In blockchain transactions, cryptographic
proof replaces the third-party
Owner 1's private key Owner 2's private key Owner 3's private key intermediary. The chart below shows
a peer-to-peer transaction conducted
without the assistance of any third-
party intermediary. In this context, it is
important to distinguish between the
two components of a blockchain address,
namely the private key and the public
The mining process can also be used to What are tokens? key. The public key can be used to view
take decisions on changes to a DApp. the transaction history of a user but it
Decisions made in accordance with The term “token” may refer to several cannot be used to make a transaction
the proof-of-work principle are taken things: a token can be used to grant users unless the private key is also known.
on the basis of the amount of work the access to a (de-)centralised computer The private key is what is needed to
individual stakeholders have performed application, act as a key for the execution access an account and actively execute a
to verify a block. of digital transactions or represent a transaction.
currency unit (e.g. bitcoins).
Proof of stake The chart illustrates how Owner 1
DApp tokens must be generated and transfers a token to Owner 2 by
The proof-of-stake approach simplifies distributed according to a standard digitally signing a hash of the previous
the mining process where a large number algorithm or set of criteria. Tokens transaction and the public key of the
of tokens need to be verified. While constitute the basis for using an next recipient (digital signature).
under the proof-of-work principle, a application, and are also a reward for The transaction is then added to the
large group of distributed users are contributions by users. Yet tokens do blockchain. The party receiving the
continuously verifying the hashes of not represent any assets, nor do they information/payment (Owner 2) can
transactions through the mining process give rights to dividends or equity shares. verify the “chain of ownership” by
in order to update the current status of Although the value of a DApp token may verifying the signatures using the public
the blockchain assets, the proof-of-stake increase or decrease over time, it would key of Owner 1 stored on the publicly
concept requires users to repeatedly be a misconception to think of them as a accessible blockchain. What they cannot
prove ownership of their own share type of security. check is whether a previous owner had
(“stake”) in the underlying currency. already used the same token prior to the
Where the proof-of-stake method is What mechanisms are used to current transaction (“double spending”).
used, the work required to carry out Double spending can be verified either
distribute tokens?
the verification process is allocated by a central authority or, in the case of
between the individual members based There are three general mechanisms Bitcoin, through a verification process
on their stake in percent. For example, DApps (e.g. Bitcoin, Ethereum) can use carried out by a decentralised authority.
if a user owns a 10% share of the to distribute their tokens (e.g. bitcoins,
total outstanding blockchain assets, ethers): mining, fundraising and
the user will have to carry out 10% development
of the required mining activity. This
approach reduces the complexity of the • Mining: tokens are distributed as a
decentralised verification process and reward to those participants who
can thus deliver large savings on energy solve certain verification operations
and operating costs. most quickly (with consensus being
established by proof of work). Bitcoin
Reviews/recommendations
Data storage Enables authentication of ratings and reviews
Storj.io, Peemova Blockchain TRST.im, Asimov (recruitment services),
The World Table
Digital content
Network infrastructure
Storage & delivery
Ethereum, Eris, Codius, NXT, Namecoin,
BotProof, Blockcai, Ascribe, ArtPlus, Chainy.Link,
ColoredCoins, Hello Block, Counterparty,
Stampery, Blocktech (Alexandria), Bisantyum,
Mastercoin, Corona, Chromaway, BlockCypher
Blockparti, The Rudimental, BlockCDN
10 Blockchain – an opportunity for energy producers and consumers?
2.2. Blockchain Payments made using Bitcoin can be It remains to be seen whether and to
clearly and unambiguously verified, what extent the average consumer
applications serving as a
which makes system-related accounting will value the enhanced protection
basis for cryptocurrencies errors impossible. Contrary to what against tampering and the – theoretical
(Bitcoin) is often assumed, this high level of – cost savings delivered by blockchain
transparency also results in a loss of applications such as Bitcoin as a
Bitcoin was the first blockchain-based anonymity. Each step of all money meaningful and notable improvement
application and has become the most transfers made via Bitcoin is publicly on the traditional payments system.
widely known cryptocurrency. The accessible on the Internet. Though The latter normally offers free money
technology has been enabling users to the accounts, and thus the users, transfers, high security standards and
transfer bitcoins between them without participating in a transaction are a considerably higher processing rate
involving a third-party intermediary anonymous, once the login name (alias) of money transfers per second (50,000
since 2009, with Bitcoin not only being of a user is known, the user’s entire under the Visa system vs. 7 in the case
the name of the system as such but also transaction history can be found on the of Bitcoin) even today.
of its currency unit. blockchain and traced back to the user.
Users do not need profound technical In the seven years of the system’s
understanding to install and operate operation no one has ever succeeded
the system; it can be accessed relatively in subsequently altering a Bitcoin
easily even by inexperienced consumers. transaction or attacking – or at least
Moreover, access to the Bitcoin system disturbing – the network. Nevertheless,
is not restricted. Every user can log on there have been incidents in the past,
to the system and even develop new among them cases where bitcoins
applications building on the Bitcoin have been stolen through manipulated
blockchain. When registering via the exchanges.6
Bitcoin website, users choose a so-
called “wallet” (which represents their Outside the virtual environment, where
electronic purse) and a Bitcoin address. bitcoins can be used to pay in online
Bitcoin addresses are similar to email shops etc., there are growing numbers of
accounts, via which users can send restaurants, hotels or record stores that
bitcoins to other users. Whenever a accept bitcoins as a means of payment.
transaction is made, the corresponding The Swiss municipality of Zug has even
information is broadcast to the entire become the first public administration
Bitcoin blockchain via the associated to accept Bitcoin payments. Exchanging
peer-to-peer network. The wallets bitcoins for real products, however,
calculate the account balances based remains difficult. One former problem
on the tamper-proof information for consumers, which was posed by
stored on the blockchain, and can be the strongly fluctuating exchange rates
configured so as to execute only certain of the digital currency against “real”
transactions, for example only if the currencies, has in the meantime been
sender disposes of a sufficient fund largely eliminated, thanks to apps which
of bitcoins. This provides receiving offer to exchange bitcoins against euros
users with comprehensive protection at the time of making payment.
against fraud or non-payment. Still,
inexperienced users in particular
are also exposed to some risk when
using Bitcoin, for example if they
forget their access details, which
means that their stored assets will be
irretrievably lost. It is also not possible
to reverse transactions that were made
erroneously.
6 The Mycoin case, where the operators of a Hong Kong-based exchange were able to steal several million euros’ worth of bitcoins using a Ponzi scheme.
12 Blockchain – an opportunity for energy producers and consumers?
2.5. Smart contract However, not even Ethereum can a decisive factor that will determine
entirely allay the security concerns of what advantages or disadvantages the
applications based
the general public when it comes to technology will have for consumers.
on public blockchains public blockchains. In June 2016 it was Also, the individual models actually
(Ethereum) revealed that a user managed to siphon implemented in practice would not
3.6 million ethers (the original currency necessarily have to conform fully
Outside the financial services unit used on the Ethereum blockchain) to the underlying theoretical ideal:
industry and its participants’ efforts worth €50 million from the investment gradations are possible. For instance, it
to defend market shares by building fund “The DAO”. The hack exploited can be assumed that a future company
private blockchain systems, efforts an integrated smart contract, whereas operating a private blockchain in the
are underway to also develop public the underlying blockchain has operated energy sector will charge a fee for
blockchains that could be used in flawlessly to date (see chapter 6). its use in order to increase its own
combination with smart contract Although the exact circumstances of the profits. It could just as well be the case,
applications. The Ethereum project case have not been determined as yet, though, that changes in the competitive
in particular is widely seen to be a the incident can be considered a setback environment will increase competition
strong contender in this field. The for the acceptance of public blockchain between different operators to such an
cryptocurrency project developed by the applications. At the time of writing of extent that they will be forced to pass
22-year-old Russian developer Vitalik this study, “The DAO” was working to on at least part of their cost savings to
Buterin has been garnering lots of public resolve the issue. consumers.
interest since the start of this year.
A comparison between Ethereum and
Ethereum has caught the attention R3 highlights the two fundamental
of established companies such as and diverging trends that can be
Microsoft, Samsung or RWE. RWE observed for blockchain solutions with
is planning to use the Ethereum integrated smart contract functionality.
blockchain in cooperation with the Which blockchain model will come
German start-up company Slock.it to to be applied in the energy sector is
operate charging stations for electric
cars (see chapter 3). The main reason
for this initiative is that Ethereum is
considered to be capable of building a
common and automated international
payment system. This is a very positive
development for consumers, as it could
provide a nearly free alternative to the
private blockchains currently being
built in the financial sector. In addition,
Ethereum provides an opportunity to
implement smart contracts on a public
blockchain.
Public blockchain
Private blockchain
Blockchain – an opportunity for energy producers and consumers? 15
Figure 10: Overview of possible blockchain use cases in the energy sector
Applications with a focus on transactions and smart Applications with a focus on Applications with a focus on
contracts (automated execution of transactions) documentationof ownership distributed transaction records
Decentralised energy
transaction and supply Register recording ownership
Metering and billing of
system and current state of assets
electricity consumption
(asset mgmt.)
Providers
e.g. sellers, electricity
producers, lenders
Other smart
Intermediary,
platform
e.g.
A key application –which we will return Some consumers are also producers:
to throughout the course of this study so-called “prosumers” not only consume
as our basis for evaluating the potential energy but also dispose of generation
of blockchain technology in the energy capacity in the form of solar systems,
sector – is to develop a decentralised small-scale wind turbines or CHP plants.
energy transaction and supply system. Blockchain technology could enable
them to sell the energy they generate
Other use cases mostly leverage the directly to their neighbours.
blockchain’s functionality to provide
a distributed and secure record of Blockchain systems initiate and transmit
transaction data accessible to all transactions whilst recording them in a
participants (e.g. documentation of tamper-proof manner. All transactions
ownership, metering and billing of made between individual parties are
consumption). directly executed through a peer-to-
peer network. A fully decentralised
Decentralised energy transaction energy transaction and supply system
and supply system as illustrated in Figure 11 can be
considered to represent the ultimate
If the experience gained with level of energy-related blockchain
blockchains in the financial sector applications from a theoretical
are applied to the energy context, perspective.
blockchain technology appears capable
of enabling a decentralised energy
supply system. It may be possible to
radically simplify today’s multi-tiered
system, in which power producers, “Blockchain systems initiate
transmission system operators, and transmit transactions
distribution system operators and
suppliers transact on various levels, whilst recording them in a
by directly linking producers with tamper-proof manner”
consumers, provided we manage
to adjust the way the networks are
controlled so as to reflect the new
requirements.
Blockchain – an opportunity for energy producers and consumers? 17
• Blockchain technology makes it • Decentralised storage of all the first is in the verification of
possible for energy networks to transaction data on a blockchain renewable electricity and of emission
be controlled through smart would make it possible to keep allowances (emissions trading). The
contracts. Smart contracts would a distributed, secure record of ownership history of each certificate
signal to the system when to initiate all energy flows and business could be recorded exactly on the
what transactions. This would be activities. Both flows of energy and blockchain. This would provide a
based on predefined rules designed transactions, which would in part be tamper-proof and transparent way of
to ensure that all energy and storage initiated by smart contracts, could managing certificates for renewable
flows are controlled automatically be documented in a tamper-proof power and emission allowances.
so as to balance supply and demand. way if recorded on a blockchain. Another use case, which is related
For example, whenever more The combination of smart to the Internet of Things, is to set
energy is generated than needed, contracts controlling the system up a blockchain-based register
smart contracts could be used to and distributed ledgers securely that records and regulates the
ensure that this excess energy is documenting all activities would also ownership and current state (asset
delivered into storage automatically. have a direct impact on network and management) of assets such as smart
Conversely, the energy held in storage operations. meters, networks and generation
storage could be deployed for use facilities (e.g. solar systems).
whenever the generated energy • Another potential future area of
output is insufficient. In this way, application is to use blockchains • Customers could use
blockchain technology could directly for the purpose of documenting cryptocurrencies to pay for the
control network flows and storage ownership and related transactions, energy supplied.
facilities. Smart contracts could by providing secure storage of
also be used to manage balancing ownership records. The possibility
activities and virtual power plants. of storing all transaction data in a
tamper-proof and decentralised way
opens up great opportunities in the
field of energy certification. Two
applications come foremost to mind:
Supply and demand are balanced by Energy networks Secure storage e.g. emission allowances,
smart contracts (balancing market, controlled by of ownership renewable energy certificates,
microgrids, virtual power plants, storage) smart contracts records asset management
Meter
Conventional operator Conventional
Blockchain
generation
Network and
network operator
Residential
Traders user
Trading platform
Industrial
user
Other possible uses of blockchain Moreover, the blockchain’s In principle, other related applications
technology in the energy sector functioning as a distributed record outside the electricity sector are also
of transaction data can be used to possible, for example when it comes to
Besides being used to create a create a comprehensive archive of billing customers for the energy they
decentralised transaction model as all electricity billing data. Following use for heating space and water, an
outlined above, there are other areas in a smart meter rollout (which would activity which is now mostly carried
which blockchain technology could be be a prerequisite for this), blockchain out by professional providers of meter-
applied in the energy sector. technology could become a tool reading services such as Brunata,
consumers can use for meter reading ISTA or Techem. Suspected cases of
Blockchain technology could be used and billing purposes in connection with overcharging and oligopolistic control
to build a simple, blockchain-based their digital electricity meters. The key are frequently reported for this market
billing model and thereby help remove here is the added control consumers segment, where tenants in particular
one of the largest barriers currently would gain over their electricity supply have few options at their disposal to
preventing users from adopting electric contracts and consumption data. challenge the fees they are charged. In a
mobility on a large scale. Widespread blockchain-based system, tenants could
use of electric vehicles (EV) can only An important current development that select their meter readers by picking a
become a reality if EV drivers can access will fundamentally shape the framework service provider that offers a good deal
charging stations everywhere. One for the above applications is the German and using the blockchain to exchange
issue we face today is how to simplify Act on the Digitisation of the Energy their smart meter data with them in a
billing at charging stations, which may Transition (Gesetz zur Digitalisierung transparent way.
be located in public spaces where they der Energiewende), which entered its
can be used by anyone. Blockchain final reading stage in the German
technology could be one option (besides federal parliament, the Bundestag, in
other advanced payment models) on June 2016 and is expected to enter
which to base a model under which into force in 2017. The primary focus
EV drivers could park their cars, for of the act is to introduce an obligation
example to go shopping, whilst the car to install intelligent measurement
autonomously logs on to a charging equipment for the purpose of metering
station and is recharged automatically and transmitting the energy demand
(in the long run maybe even through of consumers and the energy output of
induction). Once the driver leaves producers. Aspects of electric mobility
the parking lot, the charging station are also to be a part of the concept
would automatically bill them for the underlying the act. Both charging points
electricity received, using blockchain for electric cars and their users are
technology. expressly defined as end users for the
purposes of the act. Where charging
Another area of application that points are to be fitted with intelligent
might become more important in measurement systems, the envisaged
the near future is the integration of statutory provisions for their installation
blockchain technology in the area and operation thus apply.
of smart devices. With smart devices
communicating with each other as well
as with other devices both inside and
outside of homes and businesses in the
future, a communications medium will
be needed that is capable of transmitting
and storing the related information and
transactions. Using blockchains for this
“Another area of application
purpose could be a good option. that might become more
important in the near
future is the integration of
blockchain technology in the
area of smart devices”
20 Blockchain – an opportunity for energy producers and consumers?
Bitcoin
Crypto- Solar
Ethereum Coin Ripple
currencies Coin
…
Energy International
energy
companies companies
Developers/
tech firms
Brooklyn Microgrid using a central blockchain. This set-up of the option to trade energy with one
demonstrates what a future distributed another. With this new technology,
(TransactiveGrid)
power grid managed autonomously by a the market can reach a point where a
www.brooklynmicrogrid.com
local community might look like. single person with a single solar panel
can participate in the end user market.
Implementation of the project requires This is an opportunity for prosumers
The “Brooklyn Microgrid” project is
both smart meter technology and that allows them to no longer just feed
currently being developed in the USA
blockchain software with integrated their excess energy into the grid against
by TransactiveGrid, a joint venture
smart contract functionality: smart payment of a fixed fee, but to market it
between LO3 Energy and ConsenSys.
meters are needed to record the quantity individually.
The aim of the project is to test how
of energy produced, blockchain software
blockchain technology can be used to
is needed to effect transactions between In the future, the project is planned to
effect direct neighbour-to-neighbour
the neighbours, and smart contracts are be operated by a cooperative community
sales of solar energy. The technology
needed to carry out and record these organisation, with neighbourhood
used in the project builds on the
transactions automatically and securely. residents being the shareholders of the
Ethereum blockchain.
company. These plans envision that all
The transactions made as part of the renewable generation assets would be
Since April 2016, an initial pilot project
pilot project are executed manually. For owned by the community itself, with
run in Brooklyn has been exploring
the future, it is planned that the system members deciding collectively how to
how to integrate buildings equipped
can be controlled by means of an app apply the revenue generated. This will
with distributed energy resource
that could be used to specify certain allow people to own part of a solar
systems (in this case: solar energy)
parameters, for example at what prices panel, for example in urban areas where
in a decentralised peer-to-peer power
electricity is to be purchased from the not everyone has access to a roof. To
grid. The rooftop photovoltaics systems
neighbours. All transactions are then date, more than 130 homeowners and
installed on five of the buildings
to be carried out fully automatically tenants have registered to participate
participating in the neighbourhood
according to pre-agreed rules. in the project, either as a prosumer or
project generate solar energy. All energy
as a consumer of electricity. It will still
not used by the buildings themselves is
One of the project’s goals is to create a be some time, however, until this larger
sold to five neighbouring households.
local community market for renewable group can actually join the project, as
All buildings are interconnected through
energy. In this way, it can be tested the technology must first be developed
the conventional power grid, with
whether consumers actually make use further.
transactions being managed and stored
Microgrid
Electricity
Data
Token system
(Blockchain)
5 households produce Power productionis Electricity surplus 5 households buy
energy surplus metered on a second- and demand is energy surplus
by-second basis, with calculated using (at present: manually)
information converted to fictitious tokens
blocks
In future:
Buyers and sellers to use app
allowing them to specify their
preferences (e.g. donate 10% of
electricity, sell more when prices go
up, ...)
Payment through energy
tokens → no intermediary In future: microgrid to be expanded
required
7 https://Bitcoinblog.de/2016/02/26/rwe-und-slock-it-wollen-ethereum-fuer-elektroautos-nutzen/
8 http://lo3energy.com/projects/ http://lo3energy.com/projects/
Blockchain – an opportunity for energy producers and consumers? 23
9 http://www.fintechblue.com/2016/05/blockchain-electricity/
24 Blockchain – an opportunity for energy producers and consumers?
3.3. Assessment of the databases: this is a belief shared by Considering the present state of the
most experts we have interviewed. At technology and the progress that has
current state of the art
least judging from the current state of been made since the first blockchain
and of the prospects for developments, these would be faster application was launched, it appears
blockchain projects in the and less costly to operate, with the safe to assume that solutions will be
energy sector added benefit of being largely already found to resolve currently open issues.
available. While blockchain-based data Experts believe that one particular
As of now – at June 2016 – all energy- transmission and data storage as such requirement is that people’s awareness
related blockchain applications are still can currently be provided at minimal of the opportunities provided by
in a concept or prototype stage, both in cost, the verification process leads to blockchain applications must grow in
terms of their underlying technology very high hardware and energy costs. step with the technology’s development.
as well as in terms of their possible The cumulative energy costs of some Critics assume that the technology
use cases for consumers. Nevertheless, public blockchains have been driven is developing faster than the public’s
the technical potential of blockchain to immense levels due to the many understanding of how to use it
applications is clearly apparent even decentralised transaction verification responsibly.
today: particularly decentralised energy processes that are carried out
supply relationships as well as the simultaneously. It must be mentioned, Applications and their use for
execution and recording of transactions though, that new applications have been customers
are realistic prospects, so the potential able to achieve great progress in this
for blockchain technology in the energy area. Whether users’ awareness of the
sector is promising. technology will grow will also be
The answer to the question of whether dependent on the availability of
Evaluation of the technology’s blockchain technology will be a more concrete suitable applications for
maturity as compared to suitable tool for the energy sector than consumers. At present, blockchain is a
conventional databases and solutions purely technology-driven development.
alternatives
will also depend on technological There are no suitable applications
progress. The state of the technical available for customers who wish to
Its decentralised structure for the
infrastructure, data security and the actively control and manage their
execution of transactions and the
scalability of the technology are key energy supply, nor are there automated
storage of data is seen by experts
aspects here. Implementation of a software solutions for customers who
to be the key benefit of blockchain
decentralised energy-transaction and do not want active control of their
technology. With data being stored in
supply system will require technical energy supply. The first group of end
several locations at once the information
infrastructure that includes for example customers require suitable applications
becomes more difficult to tamper with,
smart meters for all consumers. they can use without difficulty. These
whilst being available everywhere.
Data security must be guaranteed by apps must be user-friendly, easy to use
ensuring that the software is proof and effective. No such applications have
However, the majority of experts
against tampering and attacks. Also, a emerged as yet, although individual
also believe that there are alternative
framework for incidents like the case companies and start-ups are working
solutions capable of ensuring the
involving The DAO (chapter 2) must to develop solutions. Customers who
functioning of a decentralised supply
be created. The technology must be do not wish to actively manage their
system. The trend to revert to more
capable of being deployed on a large energy supply, for example because
decentralised forms of supply, e.g.
scale, with computing processes fast they do not own a smartphone or do
customer self-generation or distributed
enough to ensure that energy can be not want to spend any time on doing
generation from renewable energy
supplied and transactions executed in this, require automated software
sources, is already being promoted
real time and without any delay. In the solutions. Blockchain technology will
in Germany as it is, with the country
following chapters we will discuss these not succeed in the energy sector unless
managing its transition towards a
prerequisites and the way in which they such applications are developed and
sustainable energy system (the so-
influence the development of blockchain used on a large scale. Or rather: only a
called “energy transition”). Blockchain
applications in the energy sector. small group of consumers will be using
technology is not a necessary
requirement for the operation of such a blockchain applications within small,
decentralised model and its associated decentralised networks without this
data flows and transactions. Both affecting the majority of consumers.
transactions and data flows could just
as well be recorded in conventional
Blockchain – an opportunity for energy producers and consumers? 25
Some relevant legal principles have 4.1. European energy law law further provides that consumers are
their basis in general civil law, most to have a general right to be supplied
importantly in the provisions of the Europe has been pursuing the goal with electricity and that legal provisions
German Civil Code and the case law of establishing a competitive internal must be in place to ensure the protection
established in relation to this. This legal market in electricity and gas since 1998. of “vulnerable customers”.
framework and a series of other acts and Several directives have been adopted
regulations must be taken into account to this effect, each of which has been One characteristic feature of all
when implementing blockchain projects. transposed into domestic legislation. blockchain models is that they transfer
The law on consumer protection and The latest legislative initiative is the so- control over data back to the consumer.
data protection is comprehensive and called “Third Energy Package”. One of Blockchains and the smart contracts
must be taken into account for every the main objectives of the Third Energy implemented on the basis of them
blockchain project. Package is to separate the business of could empower consumers to manage
operating transmission networks from their own electricity supply contracts
Except where noted otherwise, our supply and generation activities, either and consumption data. Control over
following evaluation of blockchain through ownership unbundling or by this data would therefore largely reside
models from a legal (chapter 4) and establishing so-called “Independent with the consumer. With network
regulatory (chapter 5) perspective System Operators” (ISOs) or operator data (regulated business) and
considers the technology in the context “Independent Transmission Operators” supplier data (competitive activity)
of its key application, the creation of a (ITOs). being separated directly at customer
“decentralised energy-transaction and level, blockchain technology has the
supply system” (chapter 3, pages 17 et Another goal underlying the provisions potential to be an efficient measure
seq.). The focus of our analysis is on the of the Third Energy Package is to for the implementation of unbundling
electricity market. strengthen consumer rights, including requirements, which may result in
the right of consumers to switch their increased competition and more
gas or electricity supplier at no extra efficient prices for end customers.
charge within a timeframe of no more
than three weeks. In addition, the EU
has set itself the target that at least
80% of consumers are to have smart
electricity meters installed by 2020; EU
26 Blockchain – an opportunity for energy producers and consumers?
4.2. Applicable primary The provisions set out in section 41 7. information on residential customers’
of the Energy Industry Act, for rights in relation to dispute
and secondary domestic
example, can serve as a starting point resolution procedures available to
legislation for the drafting of future energy the customer in the event of a legal
supply contracts to be made via dispute, including information on
Where contracts are made using blockchain applications. Section 41 the conciliation service for consumer
blockchain applications, the civil law sets out the minimum content and complaints to be established
principles governing the conclusion of formal requirements for energy supply pursuant to section 111b including
contracts as set out in section 145 of contracts entered into with special-rate its address and website, information
the German Civil Code (Bürgerliches customers (this also includes ordinary on the supplier’s obligation to
Gesetzbuch, BGB) and the rules residential customers if they are participate in any conciliation
governing contractual liability as set out supplied by any supplier other than the proceeding and the contact details
in sections 241 et seq. of the German statutory default supplier or under any of the consumer service established
Civil Code apply. tariff not falling within the scope of the by the Federal Network Agency for
statutory rules on deemed basic supply matters pertaining to electricity and
Furthermore, there are additional or last-resort supply contracts): gas.”
legal requirements for energy-related
contracts which must also be taken “(1) Contracts for the supply of energy In addition, the specific rules for
into account. A specific area of law to residential customers other than energy bills (whether for the supply of
dealing with energy supply contracts has for the supply of energy under a basic electricity or gas) issued to end users
emerged, which has its basis in general statutory supply must be drafted in a must be complied with. The basic
civil law principles and is today largely clear and comprehensible manner. All principles are set out in sections 40
determined by EU legislation. These such contracts must at least include and 42 of the Energy Industry Act,
energy-specific provisions are set out provisions on: with details provided in the Statutory
in the German Energy Industry Act Electricity Supply Regulations and
(Energiewirtschaftsgesetz, EnWG). The 1. the contract’s term, price variations, the Statutory Gas Supply Regulations
aims of the Energy Industry Act are to termination deadlines and notice respectively. These are mandatory
provide a secure, affordable, consumer- periods as well as the customer’s requirements that must be taken into
friendly, efficient and environmentally right to rescind the contract, account when developing blockchain
friendly supply of energy to customers. projects, provided the existing statutory
Ensuring functioning competition in the 2. the supply and services to be framework is to remain unchanged.
supply of energy (electricity and gas) provided, including information on
and securing an effective, reliable and any maintenance services offered,
forward-looking energy supply system
are important objectives underlying the 3. the available methods of payment,
current legal framework. In general,
domestic energy law must promote 4. the liability of the parties and the
implementation of EU legislative damages or compensation payable
requirements (see section 1 of the on a breach of contract,
Energy Industry Act).
5. supplier switching, with the option
The purpose of all these provisions is to switch supplier to be provided at
to strike a balance between consumer no extra charge and with all supplier
protection interests on the one hand and switches to be effected in a timely
the interests of energy producers and manner,
energy suppliers on the other hand. The
basic provisions in this area, which is 6. how the customer can obtain up-
mostly governed by statute law, can be to-date information about the
found in sections 36 to 42 of the Energy applicable tariffs and maintenance
Industry Act. fees,
Blockchain – an opportunity for energy producers and consumers? 27
In addition to the Energy Industry Act, can therefore be expected to become However, a key prerequisite for
various regulations must be taken even more important than they are blockchain models that are used for
into account or adapted accordingly today. more than just virtual transactions (as
in the implementation of blockchain opposed to Bitcoin, for instance) is that
applications: • Data protection requirements the fundamental physical data (e.g.
(e.g. the provisions set out in the metered electricity consumption) can
• The German Electricity Third- German Federal Data Protection Act be provided in a tamper-proof way.
Party Access Regulations (Bundesdatenschutzgesetz, BDSG) Meter operators’ tasks of certifying,
(Stromnetzzugangsverordnung, approving and regularly inspecting
StromNZV) set out the general Meter operators are especially affected the measurement equipment used
provisions governing access to the by the introduction of blockchain would therefore be activities of utmost
public power grid. All prosumer technology. Germany, unlike other importance. It must be ensured that all
applications must comply with the European countries, has also liberalised metering data is recorded and collected
general rules for use of the public the meter operation business. The legal in accordance with the provisions
networks. principles governing this type of activity of the German Measurement and
are defined in the German Meter Verification Act (Mess- und Eichgesetz).
• The German Electricity Operation and Metering Regulations The security requirements for meters
Network Tariff Regulations (Messzugangsverordnung, MessZV). and data transmissions are bound to
(Stromnetzentgeltverordnung, increase even further where blockchain
StromNEV) provide the rules for the The regulations set out the requirements applications come into play.
tariffs network operators charge for and rules for the operation of meters
granting access to their electricity and the metering of energy. Under In the context of blockchain applications
networks to third parties, as well as the current framework, it is not relating to electric mobility, the
for setting the tariffs charged for use the party that owns a connection German Charging Station Regulations
of the electricity networks for the (the “connection customer”, i.e. the (Ladesäulenverordnung, LSV) are also
purpose of delivering electricity to landlord) but the party that uses the of relevance. These regulations were
consumers. These regulations also connection (the “connection user”, adopted under section 49(4) of the
apply to all blockchain applications i.e. the tenant) who has the right to Energy Industry Act and set out the
using public networks. choose a third-party metering service framework for the expansion of the
provider. Where a third-party meter public EV charging infrastructure
• In addition, there is a statutory operator has been appointed, the in Germany. They provide technical
obligation for certain suppliers meter operator is responsible for specifications for the connection of
to provide at least a so-called transmitting all data to the relevant electric vehicles to charging points,
“basic” electricity or gas supply to network operator in compliance with such as power output (kW) and
residential customers, the details of the applicable deadlines, with the permitted plugs. A definition of public
which are set out in the Statutory network operator then forwarding all vs. non-public charging points is also
Electricity Supply Regulations data to the relevant market participants provided. The regulations do not
(Stromgrundversorgungsverordnung, for billing purposes. Under the Meter contain any express provisions relating
StromGVV) and the Statutory Operation and Metering Regulations, to the execution of transactions, so in
Gas Supply Regulations meter operators are required to enter principle they allow for all possible use
(Gasgrundversorgungsverordnung, into a meter operator contract with the cases to be implemented. In relation to
GasGVV). These regulations place relevant network operator that describes blockchain technology, the Charging
an obligation on the largest energy the necessary process for replacing a Station Regulations are relevant insofar
supplier active in a supply area (the meter (e.g. deadlines, commissioning as prosumers operating their own solar
“statutory default supplier”) to also etc.), the requirements the meter systems may produce and supply power
supply energy to customers who do operator must meet (e.g. registration for electric cars. Other business models
not have a supply contract with any with the local calibration office) as well envisage using blockchains for the
other supplier. Where the statutory as the technical requirements for the purpose of billing charging sessions (e.g.
rules on basic supply contracts apply, measurement equipment used. Blockcharge).
the supplier must contract with the
relevant customer, i.e. the supplier It is to be expected that blockchain
has an obligation to supply energy to applications will fundamentally
the customer at defined prices. transform the market role of meter
operators, as they will no longer be
• Where contracts are formed required to perform the aforementioned
through blockchain applications, tasks of collecting and transmitting
this will require high levels data. All information will be shared
of standardisation. The rules directly between energy producers and
controlling standard terms of energy consumers.
business as set out in the German
Civil Code (sections 305 et. seq.)
28 Blockchain – an opportunity for energy producers and consumers?
4.3. Energy law and unbundling measures provided in data activities are prohibited unless
the Energy Industry Act relate to the authorised. According to this principle,
consumer protection
unbundling of accounts as well as to the collection, processing and use of
information unbundling, functional personal data is generally not permitted.
Under German law, there is no single
unbundling and legal unbundling. It is permitted only where it has a
consumer protection act governing all
Unbundling was introduced as a clear basis in law, i.e. the processing
legal matters relating to consumers.
regulatory tool in order to ensure that of personal data in a specific context is
Many individual acts contain legal
all market participants can operate permitted by law, or where the affected
provisions that serve to protect
under the same conditions. If energy person has given their consent to their
consumers, whether directly or
companies not only sold energy but data being collected, processed and
indirectly. A multitude of measures are
also operated the energy networks, it used.
currently in place for the protection
would be possible for them to transport
of consumers. Due to information
their energy through the network at Other important principles are the
asymmetry, consumers are generally
lower charges or even for free. This concepts of data avoidance and data
in an inferior position when they deal
would place their competitors at a minimisation. According to these
with producers or sellers of goods
competitive disadvantage, in that the principles, all data processing systems
and services. Statutory consumer
incumbent supplier would have superior should be designed so as to ensure
protection provisions are adopted to
knowledge about the capacity available that no or as little personal data as
redress this imbalance of power and
or about customer switches. It is the possible is used and that data should be
protect consumers, but protection is also
objective of unbundling rules to prevent anonymised or pseudonymised to the
provided through the work of consumer
discrimination, cross-subsidies and extent possible.
organisations.
other distortions of competition and
thus ensure a level playing field for From 2018, the European General Data
The aim of all consumer protection
all market participants. This is to be Protection Regulation (Regulation
efforts is to protect consumers in
achieved by weakening the monopoly (EU) 2016/679) will also apply. The aim
economic, digital and health matters.
position of vertically integrated of this regulation is to harmonise the
Economic consumer protection
enterprises – businesses operating rules for the processing of personal data
measures in the energy sector involve
across all parts of the supply chain, by private-sector businesses and public-
ensuring that markets operate fairly,
for example production, transmission, sector entities across the EU.
that suppliers provide non-harmful
products and services, that consumer trade, sales – and thereby promoting
competition. Please see chapter 5 for Overall it can be said that diverse
information is provided in a transparent
a discussion of the changes that could provisions have been adopted for the
manner and that consumer rights can be
result from the use of blockchain protection of consumers and prosumers
exercised effectively. Digital consumer
technology and the regulatory which are embedded in a European as
protection involves the protection of
challenges this would pose in the area of well as domestic legal framework. As
consumer data.
unbundling. regards the energy-related blockchain
use cases for which prototypes are
Economic consumer protection
Digital consumer protection currently being developed based on
through unbundling the current state of development of the
The Federal Data Protection Act sets technology, the protection of consumers
In the field of energy law, unbundling and prosumers can be guaranteed
is the primary tool used to increase out provisions for the handling of
personal data that is processed manually under the existing legal framework. The
competition and thereby prevent way and extent to which blockchain
excessive prices for consumers. using information or communications
systems. The provisions of the act define technology has a legal impact on
Unbundling provisions impose an consumers and prosumers should
obligation on energy companies to the rules for how to deal with individual
personal data, i.e. pieces of information continue to be reviewed and assessed as
separate their network and sales the technology progresses and new use
activities in order to ensure the that relate to the personal or factual
circumstances of a natural person, e.g. cases emerge for consumers.
neutrality of the entity operating the
network, which is also a requirement their telephone number, email address,
under the Energy Industry Act. The IP address or employee number. A key
principle underlying the act is that all
Blockchain – an opportunity for energy producers and consumers? 29
5. Regulatory challenges
posed by blockchain
applications in the energy
sector
If a decentralised transaction model were to be
implemented on the basis of blockchain technology, this
would probably transform current market roles, with
the changes to be reflected in the regulatory regime.
All energy consumers would have to manage their own
energy balances. Meter operators would no longer be
required to collect data themselves, as all transaction
data would be recorded automatically on the blockchain.
5.1. Current regulatory A key prerequisite for the regulatory • to the relevant distribution system
regime to function properly is that each operator (DSO)
framework
customer is accounted for as part of a
balancing group – by clearly assigning • to the relevant balancing group
The current regulatory unbundling
customers to balancing groups and their manager, who in turn charges the
provisions require energy companies
suppliers to the responsible balancing balancing energy (cost-generating)
to separate their network activities
group managers (which may or may not it has been allocated to the suppliers
(regulated business) from the supply
be the same entity). using its balancing group.
of energy to customers (competitive
activity). Customers have the right to
The meter operators obtain readings The above shows clearly that a simple
freely choose their electricity supplier
of the verified meter data relevant for delivery of electricity entails complex
(or gas supplier) in a liberalised
billing and transportation charging settlement processes across the
electricity market. In order to ensure
purposes and pass them on to the other entire electricity market and that the
that customers can smoothly transfer
players involved: corresponding meter readings are
between suppliers, so-called balancing
required for various purposes.
groups were introduced. This made
• to the relevant electricity supplier for
it possible for each customer to be
billing purposes In order for the market model to
assigned to a supplier in a simple way.
function properly, each customer must
• to the relevant transmission system be clearly assigned to a balancing group.
Another significant area of regulation is
operator (TSO) for clearing and Balancing group managers are required
the so-called clearing process, which is
settlement purposes. The TSO to provide security in order to ensure
run to reconcile planned consumption
collects all data for each balancing that the costs incurred in relation to
against customers’ actual consumption
group and aggregates it in order balancing energy can be recovered.
as recorded by their meters. The
to determine the balancing energy
difference between these is referred
costs to be allocated to the balancing
to as balancing energy and the costs
group.
incurred in relation to this are charged
to each electricity supplier according to
causation.
30 Blockchain – an opportunity for energy producers and consumers?
5.2. Changed market roles This would result in the following and accurately through blockchain
changes: technology (smart contracts).
under a blockchain-based
The transaction data necessary to
market model • All energy consumers would determine network tariffs would be
have to become balancing group provided to meter operators (and
One major benefit of a blockchain-based managers and to comply with thus also to network operators) by
transaction model is that all electricity the requirements of this market the blockchain. So the responsibility
delivered to the networks can be clearly role (provision of security, risk of meter operators could be limited
attributed to individual customers in management etc.). Most notably, to providing reliable and tamper-
small time units (down to time windows energy consumers would have to proof meters.
of only a few minutes). This means that submit their own demand forecasts
all electricity produced and consumed to the relevant network operator. • Distribution system operators
can be settled very precisely at variable In the electricity sector, the would also receive the information
prices. The physical electricity as such provisions set out in the “Market on transactions they require to
would continue to flow to the end user Rules for Balancing Group Invoicing charge their network costs to
directly from the closest generator. A and Settlement” (Marktregeln customers from the blockchain.
significantly improved database would für die Durchführung der
allow for network operations to be fine- Bilanzkreisabrechnung, referred to • Provided the decentralised
tuned better at both distribution and as “MaBiS”) must be complied with; transaction model is fully
transmission levels. A simplified clearing in gas, it is the administrative ruling implemented, transmission system
process would lead to less balancing on gas balancing handed down operators would no longer require
energy being charged to market by the Federal Network Agency in data for clearing purposes, as all
participants. December 2014 (the so-called “GaBi transactions would be executed in
Gas 2.0” decision). real time and settled only on the
The chart below shows the current basis of actual consumption.
market roles and what would change if • The role performed by meter
the system were based on blockchain operators would change: they
technology. would no longer have to collect
and record data themselves, as all
Blockchain technology allows for consumption and transaction data
direct contractual relationships to be would be exchanged automatically
established between energy consumers
and energy producers. Both energy
consumers and energy producers could
act as prosumers.
Figure 15: Current market roles vs. market roles in a blockchain-based system
Producer 2 Producer 2
Producer 1
Energy Energy Producer 1
consumer consumer (contractual counterparty)
Energy company, electricity (balancing group
supplier or aggregator manager)
Balancing group
(balancing group manager)
Electricity
Blockchain – an opportunity for energy producers and consumers? 31
5.3. Obstacles hindering • Who is the registered electricity So one major obstacle hindering
supplier? The party supplying the adoption of blockchain-based
the implementation of
the energy to the energy consumer transaction models is that they would
blockchain applications will, through this act, become an have to meet the current regulatory
and issues to be addressed electricity supplier. For this role, requirements. Some of the benefits
they require a licence as well that can be delivered by a decentralised
If energy is to be supplied directly as IT interfaces so as to be able system of peer-to-peer relationships
from an energy producer to an energy to provide the necessary data. would thus be lost.
consumer, followed by a financial Blockchains are not yet reflected in
transaction between the parties, and all the current market rules and market A rollout of blockchain technology
of this is to be effected on the basis of communication processes and should would have a huge impact on
blockchain technology, this raises the explicitly be taken into account. competition in the German energy
following questions: But in any case, the energy supplier market. There is a chance that small or
would have to apply for a licence, local businesses would encounter fewer
• Who performs the meter which generates significant costs (if or reduced barriers to market entry,
operator role? As the energy they have not already obtained one; which would make it harder for other
consumer (see Figure 16) would this will not be the case for most market players to prevent them from
be the party taking the electricity prosumers). participating in the market.
from the network, the energy
consumer would have to provide its • Who performs the balancing Yet, conversely, a blockchain rollout
meter readings to its distribution group manager role? Given might also reinforce anticompetitive
system operator. The customer that all energy consumers must be trends in the energy market. For
would therefore have to register assigned to a balancing group, a example, as was shown in chapter 2,
as a meter operator. An alternative blockchain model would require the one possible development is that
solution would be to retain the setting up of an individual balancing established energy companies develop
meter operator role as it is currently group for each energy consumer. private blockchains, which would
defined in section 21b of the Energy Balancing groups can generally be permit them to lock small suppliers
Industry Act. implemented down to customer out by not allowing them into the
level, but managing a balancing transaction model and thus the market.
• Who is responsible for group can present a significant
submitting schedules and financial and organisational Another obstacle to the implementation
forecasts to the transmission challenge. of blockchain applications is the current
system operator? The uncertainty regarding their legal
transmission system operators need recognition, owing to the fact that
to produce forecasts for the entire blockchain systems no longer require
market for each day, which they a central authority, at least when they
prepare on the preceding day at operate strictly in accordance with
the latest, on the basis of so-called blockchain principles. The corrective
schedules (which are submitted element in such systems is provided
to them by the balancing group by “swarm intelligence”. Today’s legal
managers). So the issue also arises of systems, in contrast, are based on a
who is to submit these schedules to clear allocation of organisational and
the TSOs. legal responsibility.
Blockchain – an opportunity for energy producers and consumers? 33
5.4. Blockchain potential • Verification & certification: “So one major obstacle
Figure 15 illustrates another
from a regulatory hindering the adoption
strength of blockchain technology
perspective – the option to clearly verify the of blockchain-based
source of electricity. Thanks to
Our initial analysis of the regulatory its synchronicity (generation transaction models is that
issues to be addressed in connection
with blockchain applications has also
and consumption) and capability they would have to meet
to provide clear and verifiable
revealed the areas where the technology records, blockchain would be the the current regulatory
can potentially deliver its benefits: first technology to make it possible requirements”
for the source of electricity to be
• Direct customer-to-customer determined. Guarantees of origin
transactions & financial could be issued with greater
settlement: Customers could take certainty. This would also make
over the supply business themselves. it easier to issue certificates for
This would facilitate community emission allowances and energy-
funding of energy assets, regional efficiency improvements, which
energy pools and regional energy would in turn simplify the complex
self-sufficiency. The new technology systems currently used.
could help implement this in a
more efficient way whilst providing • Clearing & settlement: It is not
a verifiable record. It is already only prosumers who may stand to
possible for citizens to participate benefit, but also transmission system
in energy projects today, but this operators, as using blockchains
still requires the involvement of would allow them to clearly
many other actors, such as banks attribute clearing data to individual
and energy companies. Blockchain market participants. The planned
technology would allow them to introduction of smart meters will
realise concepts such as “From your only help to allocate consumption
region - for your region” on their quantities to a balancing group and
own initiative and on their own to the electricity suppliers using that
terms. balancing group. A blockchain-based
system would make it possible for
the energy consumed to be clearly
traced back to the point where it was
generated. Overall, this would lead
to significant cost reductions, with
end users directly benefiting from a
more efficient system.
34 Blockchain – an opportunity for energy producers and consumers?
Opportunities + Risks —
• Lower transaction costs due to the cutting • Complete loss of data on loss of ID
out of intermediaries
• Currently high transaction costs for
• Falling prices as a result of greater market public blockchain systems
transparency
• Possibly lack of acceptance on the part of
• Simple option for customers to become a consumers
service/electricity provider
• No authority in the case of disputes, no
• Transactions are generally made more direct possibility of escalating conflicts
simple (documentation, contracts, payment)
• Risk of fraudulent activities at the interface
• Greater transparency thanks to between the real world and the digital
decentralised data storage blockchain world (e.g. the smart meter/
blockchain interface)
• Flexible products (tariffs) and supplier
switching • Lack of long-term experience
• Strengthening of prosumers thanks to • Technical problems with initial
independence from central authority (direct applications possible to start with
purchases/sales of energy
• Insufficient or inadequate functionality
and security risks due to lack of
standardisation
• Networks must cope with greater flexibility
6.3. Outlook on possible is translated into digital code based on to make sure that the potential benefits
a decentralised democratic process. delivered by a decentralised structure can
long-term social
The rules are digitally implemented be fully exploited.
consequences by means of smart contracts, with the
rights of all contracting parties being Blockchain applications operate on
A rollout of blockchain technology in enforced automatically. Blockchain the principle that decisions are taken
its purest form would fundamentally technology allows for a self-regulating, autonomously by technology or by the
transform the way in which our economy self-governing economic and social entire system itself. Clear rules must
operates and the way in which we system to be created which is managed be defined for smart contracts, but
transact. The aim behind blockchain is by computer programs and in which also at a higher level, so as to rule out
to create a decentralised model for the transactions are executed by self- the system being misused or taking
exchange and storage of data that is executing digital contracts. This kind unwanted decisions (e.g. by excluding
controlled by a decentralised operating of decentralisation promises to reduce certain constellations that may provide a
system. Decentralised systems cannot inefficiencies and mitigate corruption. As theoretical optimum but do not have the
be controlled by a minority or central every individual element of the network support of society).
authority and they are transparent for all processes every transaction, no single
participants as well as self-governing. element can control the database as a Blockchain: the end or the
whole. In this regard, decentralisation beginning of privacy?
Creation of an Internet of Value also contributes to improving system
security and stability. Blockchain technology has the capability
In blockchain systems, data storage to map the digital daily life of each
no longer requires central locations. One challenge presented by blockchain individual on a blockchain. This could
Blockchain technology is the next technology is how to integrate a social result in the creation of biographical
step away from a universal space of concept with no control mechanism blockchains that fully document all stages
information (which was created by the into a socio-technical system. In social of a person’s life. People are already
World Wide Web) towards a universal concepts, such control mechanisms are storing data recorded by health apps in
space where values and value-related the result of an evolutionary cultural the cloud, including information on their
interactions can be represented in a development and have brought about a heart rates, the quality of their sleep
structured way. It leads to the emergence series of interconnected systems, each and their calorie intake. In the future,
of a so-called “Internet of Value”, a kind with a certain degree of elasticity when it may be possible that blockchains are
of trusted protocol that could, amongst it comes to dealing with inappropriate or used to provide a decentralised record of
other things, provide a notarial function malicious behaviour shown by individual health data. Data privacy concerns could
for all transactions carried out on the participants. These interconnected be alleviated by allowing users to use
web, automated and transparent for systems can exclude participants various unrelated identities or aliases in
all. Other than efficiency improvements temporarily and reintegrate them once areas where their exact identity does not
and cost savings, blockchain technology their behaviour has improved, for necessarily need to be known.
thus primarily promises to ensure example through the social concept of
independence from human authority, forgiveness. Social systems based on Blockchain technology is freeing people
with decisions being taken on the basis such collective interactions are relatively to transact on their own terms. Each
of solid proof and intermediaries being stable, fair and just. Technical systems, user can send and receive payments in
cut out of the process in order to gain in contrast, are based on deterministic, a similar way to cash, but they can also
efficiency. Incorruptible transparency isolated concepts that ensure fast take part in more complex contracts.
and automation of all transactions decisions, which may have severe Multiple signatures allow a transaction
executed on the blockchain are to take consequences for individual participants. to be accepted by the network only if
security on the Internet of Value to a a certain number of a defined group
whole new level. Given that self-adapting and self- of persons agree to sign or verify the
governing systems can change any way transaction. This allows innovative
Decentralising society, creation of they like, and given that some behaviours mediation services to be developed in the
decentralised organisations run counter to a system’s goals or can future. Such services could allow a third
mean a disturbance to other systems party to approve or reject a transaction
A blockchain represents a transparent or people, the system’s behaviour must in the case of disagreement between the
digital ledger of transactions that be subject to boundaries and regulated. other parties, without having control
is hardened against tampering and How to set these norms, laws and rules, of their money. As opposed to cash and
revision. All information is stored in a enforce them and regulate the system other payment methods, each use of
decentralised network and not controlled through computer code is one of the blockchain technology always leaves
by a central authority. The blockchain most challenging tasks in this context. public proof that a transaction did take
itself does not set the rules, but rather A learning process and continuous place, which can potentially be used in
describes a predefined procedure which adjustment will be necessary in order to recourse against businesses engaged in
ensure a well-engineered concept and fraudulent practices.10
10 https://bitcoin.org/en/faq#what-about-bitcoin-and-consumer-protection
Blockchain – an opportunity for energy producers and consumers? 41
Product/service delivery
Centralised Decentralised
Centralised
Energy sales
(traditional energy
Execution of companies)
transactions,
payments
Decentralised
Energy sales
(sales only))
42 Blockchain – an opportunity for energy producers and consumers?
Appendix 1:
List of experts interviewed
In addition to evaluating all documents available to us
on blockchain models and how they could be applied in
the energy sector (studies, presentations, articles, videos),
we conducted telephone interviews with experts from
the related fields while working on this study (in June
2016). The interviews have allowed us to discuss our
findings and views with these experts and to bring their
perspectives to bear on this study.
We thank the experts listed below for their willingness to
let us draw on their expertise in producing this study.
Interview partner
Company Website
or contact
www.oneup.company
OneUp (NL) Mark Dijkman
www.bigdata.company
Thomas Klinger,
Carinthia University of Applied Sciences (Austria) www.fh-kaernten.at
Christian Madritsch
Eric Demuth,
Coinimal (Austria) www.coinimal.com
Paul Klanschek
Appendix 2:
Sources and relevant links
Below we provide a list of example links and references
to companies and websites other than those cited in this
study which we consider to be of particular relevance in
relation to the subject of this study.
Contacts
Key contacts Denmark Sweden
Per Timmermann Anna Elmfeldt
Norbert Schwieters Telephone: + 45 39 45 91 45 Telephone: +46 10 2124136
Global Power & Utilities Leader Email: per.timmermann@dk.pwc.com Email: anna.elmfeldt@se.pwc.com
Telephone: +49 211 981 2153
Email: norbert.schwieters@de.pwc.com Finland Switzerland
Mauri Hätönen Marc Schmidli
Jeroen van Hoof Telephone: + 358 9 2280 1946 Telephone: +41 58 792 15 64
Global Power & Utilities Assurance Leader Email: mauri.hatonen@fi.pwc.com Email: marc.schmidli@ch.pwc.com
Telephone: +31 88 792 14 07
Email: Jeroen.van.Hoof@nl.pwc.com France Turkey
Pascale Jean Murat Colakoglu
David Etheridge Tel: +33 1 56 57 11 59 Telephone: +90 212 326 64 34
Global Power & Utilities Advisory Leader Email: pascale.jean@fr.pwc.com Email: murat.colakoglu@tr.pwc.com
Telephone: +1 925 519 2605
Email: david.etheridge@pwc.com Germany United Kingdom
Norbert Schwieters Steven Jennings
Axel von Perfall Telephone: +49 211 981 2153 Telephone: +44 20 7212 1449
Blockchain expert Email: norbert.schwieters@de.pwc.com Email: steven.m.jennings@uk.pwc.com
Telephone: +49 30 2636 3958
Email: axel.von.perfall@de.pwc.com Greece
Vangellis Markopoulos Middle East and Africa
Telephone: +30 210 6874035
Email: vangellis.markopoulos@gr.pwc.com Middle East
Jonty Palmer
Territory contacts Telephone: +971 56 683 8192
Ireland
Ann O’Connell Email: jonty.palmer@ae.pwc.com
Asia-Pacific
Australia Telephone: +353 1 792 8512
Email: ann.oconnell@ir.pwc.com Anglophone & Lusophone Africa
Mark Coughlin John Gibbs
Telephone: +61 3 8603 0009 Telephone: +27 11 797 4461
Israel
Email: mark.coughlin@au.pwc.com Eitan Glazer Email: john.gibbs@pwc.com
Telephone: +972 3 7954 830
China
Email: eitan.glazer@il.pwc.com Francophone Africa
Lisa B Wang
Noel Albertus
Telephone: +86 10 6533 2729
Italy Telephone: +33 1 5657 8507
Email: binhong.wang@cn.pwc.com
Giovanni Poggio Email: noel.albertus@fr.pwc.com
Telephone: +39 06 570252588
India
Email: giovanni.poggio@it.pwc.com
Kameswara Rao
Telephone: +91 40 6624 6688
The Americas
Netherlands Argentina/Latin America
Email: kameswara.rao@in.pwc.com
Jeroen van Hoof Jorge Bacher
Telephone: +31 88 792 1328 Telephone: +54 11 5811 6952
Indonesia
Email: jeroen.van.hoof@nl.pwc.com Email: jorge.c.bacher@ar.pwc.com
Sacha Winzenried
Telephone: +62 21 52890968
Norway Brazil
Email: sacha.winzenried@id.pwc.com
Hildegunn Naas-Bibow Roberto Correa
Telephone: +47 9526 0118 Telephone: +55 31 3269 1525
Japan
Email: hildegunn.naas-bibow@no.pwc.com Email: roberto.correa@br.pwc.com
Yoichi Y Hazama
Telephone: +81 90 5428 7743
Poland Canada
Email: yoichi.y.hazama@jp.pwc.com
Piotr Luba Brian R. Poth
Telephone: +48227464679 Telephone: +1 416 687 8522
Korea
Email: Piotr.luba@pl.pwc.com Email: brian.r.poth@ca.pwc.com
Lee-Hoi Doh
Telephone: + 82 2 709 0246
Portugal Mexico
Email: lee-hoi.doh@kr.pwc.com
Joao Ramos Guillermo Pineda
Telephone: +351 213 599 296 Tel: +525514736289
Email: joao.ramos@pt.pwc.com Email: guillermo.pineda@mx.pwc.com
Europe
Austria
Russia United States
Michael Sponring
Tatiana Sirotinskaya Michael A. Herman
Telephone: +43 1 501 88 2935
Telephone: +7 495 967 6318 Telephone: +1 312.298.4462
Email: michael.sponring@at.pwc.com
Email: tatiana.sirotinskaya@ru.pwc.com Email: michael.a.herman@us.pwc.com
Belgium
Spain
Koen Hens
Manuel Martin Espada
Telephone: +32 2 710 7228
Telephone: +34 686 491 120
Email: koen.hens@be.pwc.com
Email: manuel.martin.espada@es.pwc.com
Central and eastern Europe
Adam Osztovits
Telephone: +36 14619585
Email: adam.osztovits@hu.pwc.com
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