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SNV Story No. 4: Blockchain – multitalent for more efficient energy markets on the road to decarbonization?
An insight into the work of the expert Alexandre Juncker, Lead Distributed Ledger Technologies (DLT) at Alpiq
The Swiss Association for Standardization (SNV) is supporting the development of a new international standard of distributed ledger technology (DLT) in the energy market. It is the first blockchain initiative for power generation and trading. Switzerland is at the forefront of this development, and SNV expert Alexandre Juncker is one of the driving forces behind the standard. The SNV asked him to give a short introduction to blockchain.
Image caption: Alexandre Juncker has been a DLT expert for four years.
The great shift, triggered by decentralized energy production
The emergence of intermittent energy sources, so-called renewables, is shaping the future of the energy market. It is hard to imagine a world with an energy production network that relies only on solar, wind and hydro power, because suitable decarbonized alternatives such as nuclear power will still need to be part of the grid, to provide a baseload at night and when the wind is not blowing until storage becomes cost-competitive.
Nevertheless, decentralization of energy production has already started and continues to transform the grid. It will have an impact on market participants involved in power generation and will include more small-scale installations than before. A segment of business models will develop for production aggregation, so that individual solar panel installations can be pooled and managed as virtual power plants. The transmission grid business model is also likely to be heavily affected, as reliability in the grid must be ensured when energy is produced and consumed locally.
Blockchain in a nutshell
DLTs such as blockchain organize a number of peer-to-peer network participants so that they can agree on events happening within the network. DLTs are implemented using software that connects these peers and runs a consensus algorithm with other nodes. The interactions and validations rely on cryptographic proofs.
As a result, the transactions and information which are registered on the ledger are secure, tamper-proof and immutable. Two parties that do not know or trust each other can trade with each other without the need for a third party.
A revolutionary value chain in the energy market
DLTs create an entire environment for the execution of transactions and processing information. As such, they are able to run software programs on it, which can interface with business participants and support the entire value chain of power generation and trading. Without the need for a third party, settlements between market participants can be automated as well, a core functionality of DLTs that promises to simplify the back office.
DLTs can be understood as a mere replication of the existing processes on a distributed platform. You could even say that, ultimately, we are just creating an accounting system.
High degree of transparency and traceability
Beyond the gains in business efficiency, blockchain systems will further transform the energy industry. Their transparency and traceability promise to enhance the sector dramatically. In particular, energy will become traceable throughout its life cycle. Technically, this means that the ledger records which asset produced how much electrical energy and who consumed it from the grid at any given point in time. As soon as every participant can tell systematically who pays for what, payments from consumers will flow much more directly to those producers that are preferred by the population. This market efficiency is certainly desirable and is the way blockchain will help transform the energy sector.
The player in the background rather than the striker
How will blockchain change the daily life of SMEs in the future? As little as possible, we can assume. Typically, a trader should always be concerned with choosing the right price and moment at which to buy or sell electricity, regardless of the kind of infrastructure used to record and settle the trade. Of course, departments in some companies will be transformed to work with the new platform, while others will disappear altogether.
The introduction of DLT is about adapting business processes to the new infrastructure. Along the way, we should take the opportunity to rationalize wherever possible and include traceability, but that is it. Ultimately, blockchain should be more of a backbone, buried deep in the stack of information systems, and something the user should barely notice.
Image caption: The SNV serves as a governance platform that brings together all market participants in the energy industry.
Blockchain will boost carbon-free electricity
Regardless of how consensus is reached on blockchain, using it to support businesses and their interfaces aims to make markets more efficient, thereby favouring carbon-free electricity production or, at the very least, providing the tools to make it happen. And it goes without saying that energy-intensive proof-of-work systems such as that used in Bitcoin are not an option as a consensus mechanism – industry blockchain must rely on energy-saving alternatives.
Get everyone together and find some common ground
A DLT platform is a protocol with universal ambition. All players who try to push their solution have the ambition to onboard all market participants. Supported by the SNV as a governance platform, we aim to get all market participants in the energy industry together and define a common infrastructure and system that can be accepted by everyone.
If we do not create a common system, we end up with a multitude of protocols running on their narrow segment of the value chain, not engineered to support the other use cases, and hardly able to communicate with the neighbouring segments. If that happens, we will have fallen short of delivering on the promises of blockchain.
Blockchain explained very easily
The following video «Blockchain for Kids» by the company Lisk uses storytelling and creativity so that even children can understand the advantages of blockchain. Find out how blockchain works in its simplest form with a little story about a boy named Jacob.