According To Report Blockchain Not A Fit In Transactive Energy
Blockchain, a distributed database technology that provides a network of parties to transact with each other securely, has been recognized as a game-changing discovery in the power sector for its potential to host transactive energy markets and boost decentralization.
In one much-touted application, for instance, commercial and residential actors could adopt blockchain to avoid existing electricity markets and electric utilities, and immediately buy and sell energy with each other and other entities through a digital platform.
IBM experts recorded in October, the technology may offer transparency, intelligence, and automation to existing systems associates they said could help “alleviate the huge capital investments that would be required to re-architect the physical grid.”
Although according to a September 2019 report from ‘American think-tank Atlantic Council,’ blockchain isn’t currently apt to host any of the fundamental functions of a real-time transactive energy market, including for energy data transmission, trades, financial bids, price formation, settlement, and grid service provision to the utility.
“While blockchain has several other inherent energy-relevant applications for which it may be a far more relevant and valuable tool, this does not currently continue to working as the key platform for transactive energy markets,” concludes, “Assessing Blockchain’s Future in Transactive Energy.”
The report originates from an analysis of the technology’s costs and profits upon a particular power sector requires in a real-time transactive energy market.
“Rather than design a straw man view of first-iteration blockchain systems that would surely be easy to critique, the analysis takes account of progress in blockchain consensus, governance models, on- and off-chain scaling, privacy enhancements, and other extant and prospective innovations,” said its authors, ‘Ben Hertz-Shargel,’ an executive at ‘EnergyHub,’ a distributed energy resource (DER) management platform for utilities, and ‘David Livingston,’ deputy director for climate and advanced energy at the ‘Atlantic Council’s Global Energy Center.’
The concept is intriguing for the power sector, which like so many other industries from media, disease control, and fishing, has attempted to leverage its “energy eBay” potential to reimagine and transform the way a conventional business is done.
Today, various utilities and energy firms, startups, are traversing blockchain ventures with applications that extend from green attribute certificate tracking- financial settlement for grid services.
Nevertheless, enterprises are still in the nascent stages. As a July 2019 published survey administered by the ‘Electric Power Research Institute’ implies, most businesses in the U.S. are in the pilot stages or the research phase, while European services are a year or so ahead.
Public utility commissions in ‘Arizona’ and ‘Nevada,’ for instance, have started dockets to examine blockchain-related issues, and the ‘Department of Energy’s’ November 2019-issued grid modernization blueprint prioritizes the development of cross-sector guidance and standards for novel blockchain-based concepts.
But criticism has also conducted the industry’s “breathless proclamations” about blockchain, the report notes. Among notable concerns are that blockchain demands vast amounts of computation and, therefore, energy use “to guard against impropriety in the network,” as well as over the volatility of cryptocurrencies.
“As second-generation blockchains have started to move away from ‘proof of work,’ more nuanced criticism has aimed at blockchain’s suitability for broader applications, questioning its scalability, potential lack of data privacy, cost-effectiveness, and cybersecurity,” the report records.
Complicating the issue is that the industry requires a technical understanding of blockchain’s limitations. “Common patterns are cases that, as a DLT, blockchain makes it quicker or simpler for distributed resources to submit transactions to the network than traditional centralized platforms, or that blockchain relates to the distributed control often proposed for smart grids,” it says.
“Blockchains today can support an order of magnitude fewer transactions than other modern platforms, and their distributed ledger control has little relation or contribution to the kind of intelligent grid and energy market management needed for transactive energy. Blockchain, though offering several significant benefits, is not a panacea.”
The report’s conclusions emerge from what the authors call a “fundamental tradeoff,” which is an evaluation of blockchain’s disintermediation of a central authority in the context of six “costs”: efficiency, certainty, scalability, privacy, reversibility, and governance.
When analyzed as a transactive energy tool, the costs of blockchain are “steep,” it says.
One reason is, “The duplication of data hosting and processing across every node in the blockchain network dramatically limits both capital efficiency and scalability to real-world data and transaction volumes.” To agree upon the shared transaction ledger, participants should depend upon economic incentives, but that professes perils to settlement finality as well as security of the network.
“Perhaps most perplexing, blockchain faces the conflicting obligations of keeping mission-critical electrical and financial data confidential, while making it visible to its line of validator servers, which operate outside of a corporate firewall.
Moving this confidential data off-chain would eradicate the issue, but significantly decrease blockchain’s role in primary transactive market functions.” And so far, cryptographic techniques that could address these significant issues like zero-knowledge proofs, secure hardware enclaves, and multi-party computation, —”are in an early stage of R&D,” and they present barriers, including that they have not been yet attempted in energy-related applications.
Nevertheless, the report offers various policy suggestions that could inspire and focus on the development of transactive energy platforms, blockchain-based or not, and help invert the six costs. These include direct financial incentives, like agency funding and prize-based awards, as well as indirect incentives that simplify the regulatory and commercial landscape for these platforms.
Also advised are the development of working groups and regulatory proceedings to examine the value of transactive energy in light of state-specific policy objectives, like distribution infrastructure deferral, renewable portfolio standards, grid resilience, and retail market animation.
“In total, this report observes that blockchain should neither be excluded completely nor be viewed as a comprehensively disruptive technology or cure for all energy challenges,” the authors wrote.
Even if it is not apt for real-time transactive energy market applications, it shows better viability for applications that need less common transactions and non-confidential data, like energy assets onboarding and renewable energy credit tracking.
It means that presently, blockchain will ‘likely continue to evolve as a frequently useful tool for specific applications, building upon legacy systems to bring enhancements to the function of energy markets as they become frequently distributed and transactive in the years to come,’ the authors foretold.