Blockchain: bringing cooperation to the energy market



David Donnerer

Publication date

May 29, 2018

Think of an ant hill. Imagine hundreds, thousands of little self-organised insects moving in all directions, some of them handing tiny pieces of leaves over to their companion. Everything goes fast, nothing gets lost. Ants are driven by cooperation, not competition. I know, blockchain is far more complex than that, but isn’t it also about transactions, cooperation and trust? And as much as ants, this disruptive technology is about balancing an entire, often urban, ecosystem.

What makes the blockchain so fascinating and revolutionary for our energy system? 
Blockchain emerges at a moment when more and more new players enter the energy market, from renewable companies to cities and citizens. We see the unstoppable remunicipalisation wave with which energy supply is being returned to public hands in a number of European cities. And we observe the broad success of the community energy movement. This raises new challenges about how to manage (and who) the energy production and distribution. Blockchain, even though still in its infancy, could be an instrument that makes it possible to bring energy governance back to the local.

“Blockchain is actually not one, but many technologies. It is a big technology family”, said Sören Högel from the municipal utility Stadtwerke Wuppertal on a panel during Energy Cities’ Annual Conference in Rennes. And not only does it allow for a transparent traceability of data, but by multiplying storage points, there is also less risk of data losses. You will know where the energy comes from, where it is consumed and keep track of payments. It is the large number of participants who build this chain and play a verification and validation role. Pilot projects experimenting with blockchain are meant to make the buying and selling of energy much easier. There is no other intermediary than the blockchain technology itself.

Bringing energy governance back to the local in a small village

Sandro Schopfer from the renowned Swiss university ETH Zurich’s Bits to Energy Lab is one of the pioneers who aims at reshaping the energy market through an innovative blockchain model for local energy governance. Schopfer, a researcher in information management that worked 5 years in the energy industry, is leading ETH Zurich’s involvement in the Power-ID pilot project in the village of Walenstadt (5,000 inhabitants) in the St. Gallen canton. Financed by the Swiss Federal Energy Agency and involving an energy service cooperative, the objective of Power-ID is to create a small local peer-to-peer energy marketplace of 20 prosumers and 20 consumers using blockchain technology.

The decentralised network conceived by Power-ID focuses on solar energy and storage (batteries) and aims to cover at least half of Walenstadt’s energy needs. Connecting local players helps reduce the system’s costs for all and encourages local renewable energy production and consumption. While ETH Zurich and the energy service cooperative have not decided yet whether they want to use a public or private blockchain for this pilot project, all stakeholders have agreed to use the Ethereum blockchain for processing payments.

The blockchain in Power-ID will fulfil three functions: ensuring payments between the players involved, serving as a matchmaker and fairly allocating network costs, taking fluctuations in energy demand and supply into account. Network costs will be flexible and will depend on the degree of self-sufficiency achieved at a given time – when e.g. a lot of local energy has been produced (because it is a sunny day), the participants will only pay for their own network costs. However, if energy from other (local) networks has to be used, participants will also have to pay for using these external sources.

What is the innovation behind the Power-ID pilot project?

  • Peer-to-peer transactions across a small decentralised network; the value generated (the energy produced and used) remains in the local area.
  • Network costs are transparent thanks to the blockchain.
  • The energy service cooperative is involved in the project but actually does not play an intermediary role, thus allowing prosumers and consumers to make their own decisions.
  • Instead of paying a premium price for locally produced energy, the Power-ID pilot project aims to reduce the cost of local energy and enhance its value, thus making it more attractive to citizens.
  • In this pilot project, the cost of the network is determined in a bottom-up way instead of being imposed top-down by the large network operators, thereby redefining local energy governance in a more democratic manner.

Back to our ant hill. Look at how these ants are also able to fertilize the surrounding soil and contribute to the dispersal of seeds. Of course, we don’t want the ant world to become digital. But if the various blockchain experiments currently under way, like in the Swiss village of Walenstadt, could become ant-like seed-sowers, wouldn’t that be wonderful? Spreading seeds for a new, sustainable and solid energy system benefitting to all.

Photo credit: user rawpixel on Unsplash