What makes Blockchain an Effective Energy Trading Platform?

What makes Blockchain an Effective Energy Trading Platform?

Energy CIO Insights | Friday, October 09, 2020

Energy trading is a complex process and using legacy systems makes it more challenging with the evolving energy sector. Blockchain can simplify the energy trading process.

FREMONT, CA:  Electric cars are the future of transportation. Large countries such as India are planning to electrify all vehicles by 2032, while China wants 20 percent of its 35 million vehicle sales to be electric cars by 2025. The UK and Scotland have pledged to ban the sales of new petrol and diesel vehicles by 2040 and 2032 respectively. This indicates that people will not use cars fuel injected cars, but will be plugging into power outlets at places such as at home, shopping malls, in office, parking lots, curbsides, and more. Looking at the big picture, the market, as well as the energy suppliers, will change. At the same time, energy markets will be transformed. Energy providers will use a variety of power generation methods leading to complex contracts and pricing methods. The current meter driven markets will struggle to support such complexities. Experts predict that blockchain will be an effective medium to manage the coming complexities in the energy business.

Energy is a precious commodity that is traded using a deep network of suppliers, exchanges, brokers, producers, pricing index agencies, network operators, auctioneers, microgrid operators, and aggregators. The centralized IT systems used to measure and record the transactions are neither friendly nor transparent. Blockchain will disrupt the entire scenario as many energy markets are dysfunctional, distorted by subsidized technologies, and defined low liquidity and high volatility. Due to a variety of renewable and non-renewable sources of energy and new business models, user communities and generators are becoming generators. The energy industry has recognized the role blockchain can play to manage the complexities eliminate inefficiencies.  

European utility giants have begun testing the blockchain technology that enables peer-to-peer trading without third-party interference. Other energy providers are using blockchain to manage consumer electricity platforms and networks. Blockchain eliminates brokers, exchanges, and clearinghouses as the traders can send orders anonymously using blockchain to a decentralized order book which is accessible by other traders. Conventionally, energy traders use Energy Trading and Risk Management (ETRM) tools, which generally result in settling the trade manually with communication, reconciliation, and discrepancies managed by emails, letters, or fax. With blockchain, trade contracts can be placed on the ledger and made accessible to all counterparts. The significant change will occur when the contracts are placed on the blockchain providing flexibility and transparency.

Energy markets have become highly unpredictable, volatile, and elaborate. The predominance of wind generation proves the complexity and uncertainty. Government subsidies protect wind farms from full exposure to market risk. This is making the wind energy market bigger than the market forces would allow it to grow.  In a completely different scenario, the electric vehicle will be charged from various places such as supermarkets or one's house in the future. The network supplier will control the user’s net consumption. Using blockchain within the terms of the supply agreement, the production/consumption volumes, and the associated price paid/charged will be controlled. The consumers will get what was promised at the price point it was guaranteed. Blockchain will also reduce costs and process friction by eliminating brokers and clearinghouses. Thus, with blockchain, the energy sector will have next-generation trading.

See Also: Top Blockchain Solution Companies

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