Blockchain in Energy - Explanations and Applications
Blog

SmartestEnergy’s parent company, Marubeni has recently partnered with US technology firm LO3 Energy in order to develop blockchain solutions applicable to the energy market. In this blog, Michael Watts, Strategic Sales Manager for Industrial and Commercial Supply, explores what blockchain solutions are all about, as well as their relevance in the UK energy market both today and in the future.

What is blockchain?

The term ‘blockchain’ is used so often at the moment, that it’s become a buzzword in the media, as well as at industry events. So, what is blockchain and how can it be useful?

Blockchain is, in essence, a digital version of a ledger. The ledger records actions, for example a transaction between a buyer and seller, by encrypting the data associated with the action. This may already be a familiar concept to some due to the rising interest in cryptocurrencies, such as Bitcoin, which work in a similar way.

Each action is recorded not only with a timestamp, but also with a specific link to the previous recorded transaction. The ledger is therefore secure, because any change to data encrypted at any link in the chain, will cause changes throughout the chain, making it patently obvious if the records have been altered.

How can this technology be applied to energy?

On a basic level, blockchain can improve trading through its security features. However, the application of the technology can move far beyond this in the energy sector.

In a world in which more and more independent power producers exist, and purchasing deals between suppliers increase in both quantity and frequency, blockchain offers a unique opportunity to prove the source of each megawatt hour of power.

By adding a unique identifier into power transactions, each transaction (or link in the chain) can be proved to be from a renewable source for example, or even from a specific generator.

Given the ever-increasing interest businesses have in knowing the origin of products in their supply chain, blockchain offers a way for them to prove their renewable credentials, or even verify purchases made under a Corporate Power Purchase Agreement.

The Trial

Bearing all this in mind, Marubeni’s trial has tasked LO3 with creating a virtual marketplace in which Marubeni’s Japanese power plants on one side of the market, are matched with consumers on the other. Energy transactions are then simulated, based on the price at which each party is prepared to buy or sell power at.

In the long-term, Marubeni hope that this trial could help prove that the automation of energy purchasing in a renewable marketplace could be possible – heralding the world of smart contracts, which will help to reduce costs.

Its worth noting that blockchain has already been used in the UK and has the potential to gain wider traction. In September 2018, a Capacity Market obligation was traded using the technology for the first time. It seems a matter of when, not if, we see further transactions recorded in this way.

The reason the technology isn’t widely available now is because blockchain remains in its technological infancy. Trades can still take as long as ten minutes to complete, meaning that efficiency gains can’t yet be realised. However, once the process is able to be completed more quickly, automatic purchasing decisions can be made, potentially, in real-time.

 

About the author

Michael joined SmartestEnergy in 2017 and is a key member of the I&C Supply team. He is primarily responsible for identifying and developing strategic sales opportunities and promoting SmartestEnergy’s products to I&C users. Before joining SmartestEnergy Michael held a similar role with ENGIE Energy Solutions. His career in the industry has also included positions with Haven Power, Shell Gas Direct and Gaz de France. Michael has an MA Business Economics from Wilfrid Laurier University, Toronto and a BA Economics from the University of Essex.

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