Democratizing the Transactive Energy Ecosystem Through Blockchains
Written by Soham Ghosh and Raj Sekhar Dutta
Industries in the energy sector have seen a genuine impetus to bridge to a democratized transactive energy ecosystem, with blockchain’s growing maturity. Under such an ecosystem, IoT devices will interact securely, fulfill transactions, and execute commands thereby bringing new capabilities to the existing financial and physical framework of the networked power systems. With these self-executing automated smart contracts will come better transparency in energy transactions. However, the challenge is to adopt a standardized market bidding process that is secure and energy-efficient. In this article, we have highlighted how existing blockchain consensus protocols could be made more energy-efficient and secure. Going forward, the most important long-term focus for electric utilities and users would be to bridge to a democratized blockchain-based transactive energy ecosystem where networked microgrids and regular independent systems operators participate equally in real-time transactions. However, the starting point would most likely begin at the distribution level with networked microgrids. The blockchain transactive ecosystem of the future will be governed through codes, standardization, peer-to-peer connectivity, and collaboration without the need for intermediaries or agents. In terms of standardization, ‘IEEE P2418.5 - Standard for Blockchain in Energy’ which is currently under development will serve as one of the prominent guidelines for blockchain’s scalability, performance, and security.
Blockchain is a cryptology-based software implementation that offers a financial platform for entities to buy and sell commodities including energy. Unlike a traditional banking system, the biggest strength of blockchain lies in the fact that it allows security in numbers; enabling a group of mistrusted parties to form a network where they can securely transact and with confidence, without needing to rely upon or trusting a central institution. This strength in number can be particularly advantageous in helping blockchain technology find a useful place specifically at the distribution power level for networked or interconnected microgrids.
With today’s smart grid powered by IoT devices and advanced meters, homeowners can be empowered to create bids for their rooftop solar and other distributed energy resources via networked microgrids while other homeowners may create bids to charge their electric vehicles, all while relaying on blockchain-based smart contracts to verify and execute the transactions. Alternatively, based on their own assessment, these buyers and sellers can fulfill their transactions depending on the current market price under a blockchain-based transactive energy ecosystem.
A Closer Look at the Consensus Protocols
The consensus methods by which networked blockchain nodes agree upon adding a new transaction block rely upon economic incentives i.e., something either has to be consumed or reserved off before a new block of information (energy transaction) can be added to the chain. In this regard, two consensus mechanism has emerged that has witnessed wide-scale adaptation: proof-of-work (PoW) and proof-of-stake (PoS); however, both have their limitations.
While PoW requires solving a hashing puzzle for the correct solution and is thus computationally energy-intensive, PoS suffers from the nothing-at-stake vulnerability problem, which exists whenever there is an accidental or malicious fork in the blockchain. The best of both these consensus algorithms can be taken to create a hybrid consensus model. In such a hybrid model, as proposed in , system nodes with lower locational marginal prices (energy-efficient nodes) may act as qualified hashing nodes under the PoW consensus and complementarily, system nodes with a higher locational marginal price may act as forging/verifying nodes under the PoS consensus. Given no node can have a high and low price simultaneously, systematic gaming through collusion could be prevented, thereby enhancing the user’s confidence in the system.
Potential Use Case Through a Decentralized Networked Microgrid
Within a decentralized framework, potential use cases of blockchain as a transactive energy platform is likely to proliferate first at a distribution power level for networked or interconnected microgrid before witnessing wider adaptation at utility and system operator levels and hence warrant some discussion.
Networked microgrids with distributed digital and power networks can be made more reliable and economically sensible, especially in places when larger power grids are difficult to expand or are susceptible to wildfire-induced outages or climate change-induced blackouts. In these cases, network microgrids running a blockchain-based transactive energy platform can generate a certain number of tokens, say 20,000 coins as part of their initial coin offering (similar to an initial public offering). With some tokens being reserved for network enhancement and research, the other chunk can be traded in the primary and secondary cryptocurrency exchange market for the networked microgrid users, very similar to how a stock market works. These tokens can be used as currencies by the users of the networked microgrid.
The networked microgrid economy can be made to sustain and expand with new tokens being generated as rewards every time a qualified mining node successfully solves the hashing problem and with new microgrid users joining the network. As summarized using the illustration, different microgrid users from parts of the network can put in bids for energy usage and trading, while relying on the decentralized network to track and verify each successful transaction via smart contracts.
With blockchain’s transactive energy ecosystem gaining traction, rooftop solar and distributed energy resources will see widescale usage in networked microgrids with a slim backbone transmission lines. Concurrently, consensus algorithms will continue to evolve with research funding made available by utilities and universities to create more energy-efficient, lightweight, and secured algorithms. Existing consensus mechanisms can be combined as hybrid models, which if tested and deployed correctly could prove conducive for large-scale adaptation of blockchains technology under a transactive energy platform.
- S. Ghosh and R. S. Dutta, "A Hybrid Blockchain Consensus Algorithm Using Local Marginal Pricing for Energy Applications," in 2021 IEEE International IoT, Electronics and Mechatronics Conference (IEMTRONICS), Toronto, Canada, 2021.
This article edited by Merdad Boloorchi
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