What do blockchain technologies bring to the energy market?

The emergence of renewable energy sources is shaping the future of the energy market. It is hard to imagine that energy generation in the future will be based solely on solar, wind and hydro power. Until their storage becomes cost-effective, suitable decarbonised alternatives such as nuclear power will have to supply the base load at night as part of the electricity grid and when there is no wind.

Nevertheless, the decentralisation of energy production has already begun and continues to transform the grid. It will have an impact on the market participants involved in power generation, for example, there will be more small installations than before. As a result, a new segment of energy production business models is emerging because individual solar panel installations can be aggregated and managed as virtual power plants. Similarly, the transmission grid business model is likely to be greatly affected as energy is increasingly produced and used locally.

Blockchain in a nutshell

Distributed ledger technologies (DLTs), such as blockchain, organize a number of peer-to-peer network participants so that they can communicate about events that occur within the network. DLTs are implemented with software that connects these peers and runs a consensus algorithm with other nodes. The interactions and validations are based on cryptographic proofs.

Therefore, the transactions and information registered in the blockchain are certainly not tamperable and immutable. "Two parties that

Two parties who neither know each other a priori nor trust each other can act with each other without the need for a third party.

Groundbreaking value chain in the energy market

DLTs create an entire environment for executing transactions and processing information. They are capable of running software programs on top of them that 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 also be automated, a core function of DLTs that promises to simplify administration.

DLTs can be seen as a mere copy of the existing processes on a decentralized platform. Ultimately, only a stringent billing system is created and used.

High degree of transparency and traceability

Beyond increasing business efficiency, blockchain systems will further transform the energy industry. Their transparency and traceability promise to significantly improve the sector. In particular, energy will be traceable throughout its lifecycle. Technically, this means that the ledger will record which facility produced how much electrical energy at a given time and who consumed it from the grid. Once it will be possible for each participant to systematically say who pays for what, consumer payments will flow more directly to those producers who are also preferred by the population. This market efficiency is desirable, and it is the way blockchain will help transform the energy sector.

The player in the background and not the striker

How will blockchain change the everyday life of SMEs in the future? It is safe to assume that the changes will remain as minimal as possible. Typically, a trader should always be careful to choose the right price and time to buy or sell electricity, regardless of the type of infrastructure used to document and settle the trade. Of course, some departments of companies working with the new platform will change or even disappear altogether.

The introduction of DLT is fundamentally about converting business processes to the new infrastructure. Along the way, we should take the opportunity to streamline wherever possible and include traceability, nothing more. Rather, the blockchain should be a backbone that lies deep within information systems that users see little of.

Blockchain promotes carbon-free power supply

Regardless of how consensus is reached on blockchain, it will be used to support companies and their interfaces to make markets more efficient and thereby encourage, or at least provide the tools for, zero-carbon power generation. It goes without saying that an energy-intensive proof of work like Bitcoin is out of the question as a consensus mechanism - industry blockchain must rely on energy-saving alternatives.

Get everyone around the table and define the common approach A DLT platform is a protocol with universal aspirations. All players attempting to drive its solution have the ambition to bring all market participants on board. With the support of the Swiss Standards Association (SNV) as a governance platform, the aim is to bring all market participants in the energy industry to the same table in order to define a common infrastructure and a common system that can be accepted by all.

If we don't create a common system, we would end up with a multitude of protocols that only run on a narrow segment of the value chain, but are not designed to support the rest of the use cases and can barely talk to the neighboring segments. In this case, we would have failed to really exploit the promising potential of blockchain.