Blockchain Transactive Energy is Not Just About Peer-to-Peer Energy Trading
Written by James Kempf and Tamara Hughes
Peer-to-peer (P2P) energy trading is a prominent use case for blockchain for transactive energy (BCTE) and the results of several high-profile BCTE P2P pilots from the mid-2010s have been widely published. Despite regulations in many regions of the world allowing P2P energy trading, the BCTE pilots have not resulted in wide-spread deployment. And in North America, the prevailing regulatory regime prohibits P2P energy trading. The 2018 GridWise Architecture Council document outlining recommendations for research, development, and deployment on transactive energy provides no recommendations for BCTE applications . However, there are use cases beyond P2P energy trading that can benefit from the decentralized trust and security properties that BCTE technology provides. In this article, we briefly describe two nonpeer-to-peer use cases and highlight progress on advancements that mitigate arguments against using blockchain for transactive energy. The selected use cases are outcomes of discussions in the BCTE Task Force which was a subgroup of the IEEE 2418.5 Blockchain Energy standardization group.
Non Peer-to-Peer Use Cases
While the BCTE Task Force outlined 6 nonpeer-to-peer use cases, we focus here on two which were submitted by the IEEE Future Directions BCTE Initiative in response to the California Public Utilities Commission (CPUC) request for comments on their DER 2.0 Vision and Action Plan : allowing behind the meter Distributed Energy Resources (BTM DERs) to participate in both retail and wholesale market programs through DER aggregators, and setting up a local market in the distribution grid for reactive power.
The CPUC is currently reviewing Rule 21 on DERs to accommodate FERC Order 2222 which requires state regulatory agencies establish rules for DER aggregators to participate in wholesale markets. Rule 21 originally forbade BTM DERs from participating in both wholesale and retail market programs due to challenges attributing production. Blockchain technology provides an excellent solution to this “double counting” problem and is used by digital asset applications to ensure that a digital asset like cryptocurrency is transferred once and only once. The same technology can enable a DER aggregator to ensure that energy from a BTM DER or load reduction from a demand response (DR) call is attributed to either the retail or the wholesale market, but not both. A blockchain must encompass both the utility and the DER aggregators and could optionally include BTM DERs even if the DERs use the secure IEEE 2030.5 protocol  for communication with aggregators.
Deterioration in power quality on the distribution grid has been an ongoing problem for many years, but current regulations in California only require reactive power control for large industrial customers. A recent study by Pecan Street  showed that reactive power deteriorates during daylight hours in distribution grids with large residential solar deployments because solar inverters only generate active power and utilities only supply a constant amount of reactive power. Although newer inverters are capable of supplying reactive power, the problem is that DER owners have no incentive to do so because they are only compensated for active power. Consequently, deterioration in the power factor due to lack of incentives to generate reactive power could limit the amount of BTM DER deployments in the future. By setting up an auction market for reactive power on the distribution grid anchored in a blockchain, DER owners could be compensated for the generating reactive power and utilities could be ensured of acceptable power quality.
Objections to Using Blockchain for Transactive Energy
In 2019, the Atlantic Council’s Global Energy Center published an analysis of blockchain’s suitability as a platform for transactive energy and identified six costs or constraints : efficiency, scalability, (lack of) reversibility, privacy, certainty, and governance. A combination of technology evolution, greater understanding of how blockchain technology works in a business ecosystem, and the development of workable governance organizations for blockchain in particular verticals has improved the suitability of blockchain technology for energy systems.
Early blockchain systems suffer scalability and transaction performance limitations. Subsequent learnings of blockchain practitioners architecting blockchain systems for efficiency have led to promising improvements in blockchain performance and scalability. For example, most blockchain applications today use off-chain solutions for storing large amounts of data radically increasing transaction throughput and reducing transaction time. Alternate consensus algorithms and Layer 2 solutions further improve performance where newer designs such as Ethereum 2.0 anticipate transaction rates of 100,000 transactions/second .
Blockchains strike a balance between privacy and transparency. Public/permissionless blockchains allow anyone to participate; transaction records are public, but on-chain details are encrypted. Permissioned/private blockchains provide privacy protections by requiring authentication for participants to read and write transaction records and allow only specific, authorized parties to run validator nodes. Because of their stringent authentication and authorization requirements, permissioned/private blockchains are well-suited for use by highly-regulated investor owned and municipal utilities.
Blockchains’ lack of reversibility can be addressed by submitting a transaction that reverses erroneous transaction. Such reversals occur periodically in cryptocurrency applications. Both transactions will be visible allowing regulatory authorities to examine what happened if there is any dispute.
Three costs of certainty were identified: the reliance on rational economic behavior by consensus protocols; the length of time for settlement finality; and the lack of a legal framework encompassing blockchain settlement. Permissioned/private blockchains managed by consortiums offer advantages for ensuring rational economic behavior by participants. Organizations must meet specific criteria to join thus allowing the consortium to filter out organizations that could disrupt the proceedings. Authentication and authorization requirements aid in identification of participants attempting to disrupt operation. Settlement finality of a transaction is a function of a blockchain’s efficiency and scalability. For operational use cases such as a supply chain, settlement is significantly faster than traditional methods for tracking, verifying, and invoicing. Because of increasing adoption of blockchain technology, legal mechanisms are being developed to include blockchain settlement, for example  and .
Governance structures are evolving as blockchain applications are more widely deployed in different business ecosystems, for example .
These two use cases are near-term, nonpeer-to-peer BCTE use cases. Longer term, additional BCTE-based solutions could address difficult problems such as grid resilience, public safety power shutoffs, and other challenges of the evolving 21st century grid.
This article is the result of done in the IEEE 2418.5 BCTE Task Force on nonpeer-to-peer use cases for BCTE. The authors would like to thank members of the task force for contributing to the discussion, and especially Farrokh Rahimi, OATI, Kevin Cameron, HEMBUS, Glenn Skutt, Fermata Energy, James Orenstein, Trinity River Community Solar Systems, and Umit Cali, Norwegian University of Science and Technology for contributing text to the use case document.
- GridWise Architecture Council, “Transactive Energy Systems Research, Development and Deployment Roadmap”. [Online]: https://www.gridwiseac.org/pdfs/pnnl_26778_te_roadmap_dec_2018.pdf (Accessed 2021-06-08).
- B. Hertz-Shargel, D. Livingston, “Assessing Blockchain’s Future in Transactive Energy”. [Online]: https://atlanticcouncil.org/wp-content/uploads/2019/09/BLOCKCHAIN-0919-WEB.pdf (Accessed 2021-07-20)
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- Tradelens, “Digitizing Global Supply Chains”. [Online]: https://www.tradelens.com/ (Accessed 2021-10-02).
- CPUC, “Distributed Energy Resource (DER) Action Plan”. [Online]: https://www.cpuc.ca.gov/about-cpuc/divisions/energy-division/der-action-plan (Accessed 2021-10-02).
- IEEE, “IEEE 2030.5-2018 - IEEE Standard for Smart Energy Profile Application Protocol”. [Online]: https://standards.ieee.org/standard/2030_5-2018.html (Accessed 2021-10-03).
- Pecan Street, “Course Correction – Residential Power Factor”. [Online]: https://www.pecanstreet.org/power-factor/ (Accessed 2021-10-03).
This article edited by Jorge Martinez