Problems being targeted in this sector

Energy trading is an instrument used by asset-trading firms that employ production, demand,
and price forecasts to maximise the revenue generated by energy output. In addition to
production projections, energy traders examine price and demand patterns to identify the
optimal bidding strategy in the energy market (for solar and other sources). Firms assume all
related risks with trading an asset on the market. Risks include revenue losses caused by
under- and over-commitment to expected production.

Trading Energy encompasses crude oil, electricity, natural gas, and wind power. Speculators
may be attracted to certain commodities due to frequent sudden price changes. Numerous
industry participants offer an energy marketplace, which includes a national automated trading
network for the physical supply of power, renewables, and certificates. Energy as a Service is
a significant trend that is gaining popularity. In 2020, the global Energy as a service market
was valued at USD 59.37 billion and is expected to grow at a CAGR of 8.9% from 2021 to
2028. This initiative aims to address the following primary difficulties confronting the energy
trading sector:

● Credit risk and transactional capital requirements: Present digital systems do not
provide the systems to examine all transactions, hence raising the risk and various
techniques to hedge the same, and organisations face this difficulty to operate in a
risk-hedged environment. This raises the likelihood of fraud, errors, and incorrect
transactions.
● Regulatory requirements reporting - The REMIT (Regulation on Wholesale Energy
Market Integrity and Transparency) reporting requirements were adopted to increase
transparency. Nonetheless, the reinterpretation of information by multiple statutory
boards has always slowed reporting and posed a severe challenge to the reporting
criteria. Increasingly, regulators expect energy and resource corporations to provide
vast quantities of data that can be analysed to uncover noncompliance and other
regulatory issues. With the available technology and techniques, acquiring and
cleansing the necessary data is a significant load. There is also a substantial risk that
the data could fall into the wrong hands and be exploited, exposing crucial corporate
information and giving the organisation a competitive disadvantage.
● Availability and Reliability of Data: Since transactions occur without the network's
consensus and transactions are not accessible in a central/decentralised manner, and
it is difficult for traders to rely on the data. This also poses a problem to interoperability
between numerous organisations, as the methodology of transactions is extremely
distinct and varies significantly from one organisation to the next.
● Tracking the global supply network - In logistics, all parties need ongoing
consensus. These actors employ separate information tracking systems, which
complicates shipment optimization. The E2E process of extracting hydrocarbons,
converting them into a functional form, and supplying them to customers involves
numerous steps and numerous players, including major energy companies,
government inspectors, individual service providers, and everyone else. Currently, the
 systems and data that support these processes are sometimes very disconnected and
siloed, making it nearly impossible to comprehensively view what is occurring and
preventing businesses from optimising the process.

Justification for using Blockchain to solve the problems

Instant Settlement of Trade: Blockchain substitutes the central administrator or data storage
with a consensus mechanism to validate deals. It might be clearinghouses and brokers. The
technology generates confidence automatically. In OTC energy & commodity trading, all
parties check deal details to reduce misunderstandings or errors.

Energy Transacting: Real-time transaction recording and chronological timestamps assure

traceability, while Smart Contracts boost speed, accuracy, dependability, failure-resistance,
and cost efficiency. Blockchain-based spend monitoring can reduce frictional expenses and
transactional intermediaries. Blockchain could facilitate peer-to-peer transactions between
end users when distributed energy supplies infiltrate the grid. Localized trading networks could
reduce transmission line losses, congestion, and price volatility. Creating a "smart contract"
that validates transactions automatically. Blockchain technology overcomes the problems
while protecting LCs' security. When trigger events occur, a contract may be automatically
executed. Blockchain's efficiency and reliability as a shared trading platform could be
extended to physical and financial energy trade. The platform boosts exchange speed,
reducing backlog and costs.

Security and confidentiality: Organisations can link the legal title to the tokenized item in
the distributed ledger to trade large amounts of assets. Unifying a scattered group of peer
parties without a central authority is a challenge. Different blockchain approaches are evolving
based on security, privacy, and control. Enabling the entire platform to be one secure,
decentralised and confidential platform to trading.

Peer-to-peer trading: Peer-to-peer trading to support the power grid: Intermittent renewable
power generation is rising, and power grid management focuses on local, national, and
European system stability. Direct peer-to-peer trade aggregating to virtual power plants (VPP)
could use blockchain technology. Plant operators must prepare projections to minimise energy
exchange variations. Wind and solar power estimates are more complex than gas-fired power
plant forecasts. Inaccurate output forecasts result in imbalanced charges. Accurate estimates
boost plant operators' revenues. A central actor might install a blockchain solution
incorporating local data and optimizing grids. Local grids are aggregated to virtual platforms,
offering steady, low-cost power. This aggregation can involve numerous actors, a central
player, or just one for several distributed grids.

Global Supply Chain Tracking Efficiencies: Operations can be sped up since the
blockchain platform automatically verifies party identities, freeing participants to focus on
business without worrying about trading duplicate or incorrect/inauthentic assets. A
Blockchain platform would simplify the process by employing a Shared Ledger as a Single
Source of Truth. Such a platform offers considerably more value using blockchain, which
enables real-time speed and efficiency, tamper-proof reliability, traceability, and transparency
to allow firms to communicate sensitive, business-critical information on a shared platform. A
platform could become more vital as connected devices record real-time data and AI forecasts
and react to demand.

Regulatory reporting and compliance: Blockchain could address most of these difficulties
by allowing authorities to access clean, tamper-proof data at the source while allowing
corporations to control what information is exposed and who can access it. Using a blockchain
will help authorities, it would generate a uniform data format, which is now lacking.

Current use-case for Blockchain in Energy Trading

Peer-to-peer energy trading is one of the leading applications of blockchain in the energy
sector. Consider the schematic given below. This is what a typical blockchain led transaction
would look like

Players involved: Individuals

Assets involved: Electricity units, currency
Blockchain storage: Transaction information

In such a chain, the two parties that are involved

would enter into an agreement, ie, they would
sign a smart contract by using their digital
signature and putting aside a certain amount of
commitment pay. As is the case with any
Blockchain transaction, this goes to the chain for
confirmation and consensus.
What such a chain does is that it enables
consensus-driven energy price agreements, which typically would not exceed the initial bond
amount. It leads to complete transparency in the process and eliminates the need for any third
party price-setter.
Such a chain also has the provision for making a side chain (as in the case of Ethereum).

Such a system could easily be monetised by charging a fee to the participants involved in the
transaction.

While this is a representation of a simple electricity consumption between two individuals, a

corporation level energy consumption and trade can also be designed in a similar fashion.

Blockchain initiatives so far in Energy Trading

Gridexchange Pilot project - Canada (Hyperledger)

Launched in 2021 by Natural resources canada, sunverge, savage data and FLO, it was a
software platform based on blockchain technology that allows distributed energy resources
(DERs) such as solar PV, battery energy storage systems (BESS), and electric vehicles (EVs)
to engage in an energy marketplace. The three-month pilot programme began with 21 Ontario
households. Each sustainable energy transaction was logged under this scheme, and
customers were reimbursed with cash and 'GxRewards' that were redeemed at local stores
and restaurants.

P2P Solar trading - India (Etheruem Based)

In collaboration with the India Smart Grid Forum (ISGF), Tata Power DDL and Power Ledger,
the first P2P solar energy trading pilot project in Delhi in 2021. Power Ledger offered its uGrid
platform for the project, which included 150 sites with a total capacity of 2MW of solar PV.
Prosumers will gain in a dynamic price environment from P2P energy trading by selling excess
energy to other residential and commercial consumers. The blockchain-enabled records of
energy transactions maintained by Power Ledger will provide near-real-time settlement and
total transparency throughout the process.

Renewable Energy Certificate marketplace - United States (Etheruem Based)

Power Ledger launched a global REC marketplace in collaboration with a renewable energy
registry, Midwest Renewable Energy Tracking System (M-RETS), and Clearway Energy
Group (a renewable energy provider). TraceX, a digital marketplace for the trading and
settlement of environmental commodities developed by Power Ledger, will help lower the
expenses associated with purchasing and selling RECs within M-RETS while also introducing
transparency.

Future outlook: What do we think is next for Blockchain

energy initiatives?
When it comes to energy trading, the need of the hour is a system that can enable countries
to be involved in energy transactions, not just at individual and organisation levels. While
Blockchain brings decentralisation and consensus-based pricing, there are concerns
regarding privacy of transaction and authority, especially when governments are involved.
Let’s take a look at the general trend for Blockchain and its scope. Currently, in the energy
segment, Blockchain is in its inflection stage. There are start-ups leading the work, but an
overall market-wide adoption is absent.

Figure: Blockchain adoption with time

Incorporating blockchain into energy trading will allow for more efficient, real-time tracking of
location and condition, while enabling equitable contract terms
Considering how governments are now working in sectors like healthcare and banking to
appropriately device regulations, a similar approach can be applied to the energy sector as
well. Data security is improving and limited access is possible across various platforms.
Ultimately, blockchain technology would be a great way to standardise energy rates and
penalise heavily polluting industries.

References -
1. https://www.grandviewresearch.com/industry-analysis/energy-as-a-service-market
2. https://www.sciencedirect.com/topics/engineering/energy-trading
3. https://www.pwc.com/gx/en/industries/assets/blockchain-technology-in-energy.pdf
4. https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/energy-
resources/deloitte-uk-blockchain-applications-in-energy-trading.pdf
5. https://www2.deloitte.com/us/en/pages/energy-and-resources/articles/blockchain-
use-cases-energy-resources-industry-disruptor.html
6. https://www.ponton.de/downloads/mm/Potential-of-the-Blockchain-Technology-in-
Energy-Trading_Merz_2016.en.pdf
7. https://blockchain.ieee.org/verticals/transactive-energy/topics/how-blockchain-is-
being-used-in-energy-
trading#:~:text=This%20has%20the%20potential%20to,and%20deliver%20payments
%20within%20minutes.
8. https://www.gridwiseac.org/pdfs/meeting_minutes/20200318_alectra_tiwari_blockcha
in.pdf
9. https://www.ceew.in/cef/masterclass/explains/the-role-of-blockchain-technology-in-
the-power-sector
10. https://mediacenter.ibm.com/media/Alectra+UtilitiesA+Transforming+the+energy+utili
ty+industry+through+innovation+and+Blockchain/0_pfw2brvd
11. Blockchain-enabled Peer-to-Peer energy trading, Computers and Electrical
Engineering 94 (2021) 107299, P Wongthongtham et al
12. https://www.pwc.com/gx/en/industries/assets/blockchain-technology-in-energy.pdf
13. https://www.wipro.com/oil-and-gas/blockchain-creating-the-next-generation-energy-
trading-platform/