Energy trading: Blockchain is here to stay? (Part 2)


For this second blog (see part one here) on the use of blockchain for the energy trading industry, I asked four Blockchain experts, how they see trading over blockchain develop in the coming years.

Cristina Ludena, Legal counsel, EFETnet, Ewald Hesse (CEO, Grid singularity), Michael Merz (Managing director, Ponton) and Jo-Jo Hubbard (COO, Electron) share their views.
If you missed Part 1 of this article, in which we discussed how Blockchain will erase the need for exchanges and brokers and how regulation will catch up with the rapid developments, click here!

Trading is just the beginning!

Blockchain has ignited curiosity in the energy (trading) industry, and has been called ‘the future of trading services infrastructure’. More and more utilities are starting to hop aboard the blockchain bandwagon. But – how will trading over blockchain develop?

“Consortium Blockchains are likely to be seen in the energy industry first. A consortium blockchain is a blockchain where the consensus process is controlled by a pre-selected set of nodes. This helps to simplify early governance and authority arrangements”, Jo-Jo Hubbard, COO, Electron, says. “But a lot of work is going into how to eventually open these up to wider participation.”

Michael Merz, Managing Director, Ponton, adds: “Trading is just the beginning. As Enerchain (Ponton’s peer-to-peer trading project) has assembled over 70% of the market volume, we are forming groups that design further post-deal steps of the trading process like settlement and regulatory reporting. Trade execution over the blockchain will probably expand most in future products such as flexibility, i.e., in the sphere of DSOs who set up local marketplaces in their lower and medium grid levels. Transaction values are here possibly below 10 Euro such that the volume reduction will require a low-cost infrastructure. At the same time, reliability needs to remain high for critical infrastructures such as the grids operated by DSOs. And here blockchain technology kicks in again as it perfectly combines the requirements “low-cost” and “high availability”.

But also on the spot market transaction volumes diminish: 100 kW is the smallest tradable unit today on EPEX Spot. At a price of 24 EUR/MWh, a 15-min delivery of one MW would cost just 60 cents. If such transactions increase, the need for a fully digitized trading process increases as well.”

Due to the establishment of local markets, the energy trading industry will diminish in the coming years according to Ewald Hesse, CEO, Grid singularity. He adds that “the differentiation of macro traders and micro traders will start to appear in the energy sector.”

Just a tool?

Many argue that blockchain has been over-hyped too much. Has the hype of blockchain as the big disrupter, exceeded the reality? Eventually, blockchain is just a tool. According to Jo-Jo Hubbard, “the impetus to decentralise transaction platforms is not driven by “Blockchain” the technology, but by the decentralisation of generation itself and the sheer number of new assets and new participants coming into the system. Once adopted, Blockchain transaction platforms create new ecosystems of services around them and this will open up the industry.”

Hubbard says Blockchain is enabling collaboration like we have never seen before in the energy industry. Consortium after consortium is being announced at a time in which the energy industry is evolving drastically and the industry is having to collectively redefine its value proposition. Blockchain in its essence is a set of rules that enable peers in a network to cooperatively evolve state for a shared purpose.

While blockchain technology may be over-hyped, it might provide the basis for new applications that can be viewed as disrupters of various stages in the energy supply chain.
Cristina Ludena, Legal counsel, EFETnet, summarises: “Trading over blockchain will continue to progress both from a technology and real deployment front, first with applications where blockchain is best suited for such as nano-transactions or energy trading settlement. As blockchain applications become a reality this will help to speed up awareness, regulatory needed adaptation and more general deployment where blockchain offers advantages compared to current technology. Blockchain will also receive synergies as the internet of things or artificial intelligence evolve as all these technology developments are all intertwined. Blockchain is not going away.”

(Patrick Bauduin, Content Director, EUW)