Lumenaza

Why blockchain isn't the energy industry's silver bullet

03 May 2021 / Technologie

Blockchain has become a buzzword in recent years, with the underlying technology cited as a promising concept in many fields. For some, blockchain technology is also seen as a beacon of hope for the energy industry. At first glance, this is an interesting approach. However, on closer inspection, it is clear that blockchain alone will not be enough to shape the electricity market of the future. Instead, we need a comprehensive community solution capable of managing the complex transactions of all energy market participants.

 

Blockchain has become a buzzword in recent years, with the underlying technology cited as a promising concept in many fields. For some, blockchain technology is also seen as a beacon of hope for the energy industry. At first glance, this is an interesting approach. However, on closer inspection, it is clear that blockchain alone will not be enough to shape the electricity market of the future. Instead, we need a comprehensive community solution capable of managing the complex transactions of all energy market participants.

Blockchain's proposition for the energy market

Blockchain is a peer-to-peer (P2P) technology that allows a secure exchange of transactions without the need for an intermediary institution such as a bank or regulatory body. The best-known application of blockchain is the Bitcoin currency. In this context, the technology is used to secure and map P2P transactions that would normally go through a bank. By eliminating intermediaries, blockchain technology can deregulate and democratize transactions and even make them cheaper.

The same technology could be used to distribute control over power supply. This would enable everyone to contribute to the electricity market, not just organizations and corporations.  

The requirements of the energy market

Central goals of the energy transition include a decentralized energy supply, the maximum integration of renewables and transparency regarding the origin of green energy. Consumers want to know where their electricity comes from and prefer to obtain it locally.

Unlike the financial market, the energy sector is based on a natural monopoly-energy. It must be actively managed to ensure constant grid stability, which requires the exchange and management of extensive information about the use of the grid. We are talking about data volumes of several petabytes per year.

 

The limits of blockchain technology

Data volume and scalability

Blockchain technology is too slow, too expensive and not scalable enough to process enormous amounts of data. To manage such a blockchain, every single transaction would have to be loaded and processed. Replicating the transactions on a number of decentralized nodes or computers would lead to an exponential growth in data and an immense coordination effort. Using blockchain to process metering data and map the entire electricity market process would be beyond the scope of the technology. It would also require a comparatively high power consumption, which conflicts with building a sustainable energy system.

Regulation of the electricity market

Regulation of the electricity market is essential to ensure grid stability. The availability of electricity for all people at all times is an invaluable asset that secures our way of life. Even if it were technically possible to map the necessary regulatory requirements using a blockchain, the political process required for this would be technically complex and lengthy due to the number of stakeholders involved. This problem was recently evident in the amendment of the German Renewable Energy Sources Act. Although comparatively simpler issues were being dealt with, the current draft is still not satisfactory despite the long development time.

Reliable power supply

Blockchain can be used to represent a partial aspect of the electricity market. For example, it can securely and digitally conclude a contract between producers or suppliers and consumers. 

However, in addition to producers and consumers, other stakeholders such as grid operators, metering service providers and energy providers are also part of the electricity market and must be involved in any transaction. For a reliable power supply, a mere P2P connection between producer and consumer is therefore not sufficient. A third party is needed to coordinate the processes. A sole P2P exchange is also conceptually difficult. For example, if a consumer only had a blockchain contract with the operator of a solar plant, they would not be able to receive electricity from the latter at night. Blockchain is not a sufficient technology to ensure a reliable power supply for all parties.

A comprehensive community solution that can manage all energy market transactions

Instead of a blockchain, a community power "pond" with several producers of varying sizes, including small producers, can be used to supply consumers with energy day and night. The supply load can then, for example, be distributed to a community of producers with a balanced portfolio of solar, biogas and wind energy plants, offering constant security of supply.

Regulations

Another factor that goes against the use of blockchain is that an electricity producer must comply with numerous complex regulations, for example vis-à-vis the grid operator. A private individual doesn't usually have the necessary expertise or time to provide this. Specialized service providers such as Lumenaza take this off consumers' hands, while blockchain does not. While blockchain is certainly a possible building block of a digitized electricity landscape, it is not a sole, comprehensive solution.

Automated, scalable data processing

Lumenaza offers automated processing of large and complex data sets in real-time. Using a microservices-based architecture, the metering data required in the energy market can be mapped and scaled to the volumes of data needed for the distributed energy market, today. Lumenaza's energy platform can map the market roles required for this, enabling green energy to be sourced from trusted producers. For this purpose, Lumenaza forms energy communities, within which producers feed their electricity generated from renewables into the community electricity "pond" and purchase residual electricity from the same place. The origin of the green energy is transparent at all times.

Would you like to learn more about bundling your products with energy services and electricity tariffs and building prosumer communities? Feel free to contact us! 

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Any questions?
We would love to talk to you.
Jan Bohnerth  
+49 30 346 558 200

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