Vision for Blockchain Led Transformation to Empower Customers with “Flexi-Grid”
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- Sep 21, 2019 12:35 am GMT
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Using Blockchain led technology, is entirely a new concept and quite complex considering the existing distribution and retail scenarios in a de-regulated market where means of electric production are less centralized. Under the DER’s (Distribution Energy Resources) reforms program, ‘Flexi-Grid’ via Blockchain technology has a capability to hold ‘Duck Curve’ situations of the grid as well as the vision to leverage the strength of independently owned and controlled DER’s to further engage the end customers for generating potential new revenue streams. This paper aims to portray the effectiveness of blockchain technology as an effective transformation tool for improvement of process payments for electricity in real-time and also briefly discuss the roadmap for achievement of ‘Smart Contract’ with vision of securely store cryptocurrencies.
Customers engagement and grid (power system) flexibility continues to be among the top concerns of utilities worldwide. The focus of reforms has been targeted at the distribution and retail sector due to the cost of DERS’s (distribution energy resources) like solar panels, energy storage batteries, wind turbines, etc. has decreased rapidly. This will lead customers to adopt buying the renewal resources by storing energy for the electrical grid or other users.
The concurrence of both requirements has created an arising of flexi-grid, where the grid to transform itself into platform-as-a-service to serve the consumers as well as provide seamless interconnections to various DER’s while ramping up/down very fast to ensure the frequency and voltage remains in balanced state; and the means of electricity production which are more decentralized.
Decentralized energy production enables the adoption of more renewable energy with certain challenges in grid side like ‘how to manage and control the administration as well as technical control of grid’. These challenges can be significantly overcome by using blockchain technology.
Blockchain technology utilizes grid-based energy transmission using Internet-of-Things (IoT) devices through securely store cryptocurrencies and process payments for electricity in real-time. This will be the future of the energy sector, as it offers more cost-efficient, less administrative, and environmentally friendly (create smart contracts) for energy providers and their customer base.
Blockchain Technology in Utilities
The world is changing fast with adopting new technologies. In the utility industry, the changes happening are enormously and have significant potential to create a better working world. Key business drivers for utility business transformation typically include cost optimization, always-on system, deliver stakeholder values, customer’s choice of tariffs, succeed in competitive markets and carve out new revenue streams.
Blockchain technology has come up with quite promising in recent time. Blockchain is more powerful than its predecessor ‘smart grid infrastructure’ operations. It has the potential to deliver the much needed autonomous on the grid operations guided by rules and policies with interesting elements create into the concepts such as to provide decentralized platforms specially in case of renewables or DER’s; Peer-to-peer transactions which includes trust among unknown peers; Validations, verification & recording of timestamp during transactions, immutable ledger; Smart contracts with eSignature etc.
Through blockchain technology, pushes market messages to the end- users who can retain control of their energy (or assets) and make smart decisions. This provides a seamless payments system leveraging cryptocurrencies (or tokens) to further create an energy ecosystem in the market by integrating blockchain and artificial intelligence. There are certain ways to create efficient price options using a smart contract which integrate through IoT (Internet-of-Things) devices using intuitive user interface for end-customers.
A schematic for blockchain technology in utilities is shown in the figure below where energy retailer operates and manages an application (or software) platform which supports the blockchain-based technology:
Figure1: Blockchain-based Intelligent electricity usage
Here, smart agent (at customer premise) is a computing device which supports (hosts) the blockchain based software application.
It may, however, be mentioned that blockchain-based software’s manages intelligent usage of electricity by coding the optimize (or efficient) price options for customers using smart contract.
Blockchain has various operational steps to complete the process which is also called as ‘Proof of Work’. These include –
1) Validation of transactions
Description - During initiation of energy trading (payment transactions) between Peer-to-Peer or Customer-to-Business, system validates & verify sender’s / receiver’s accounts, account address, digital signatures, content of the transaction, timestamp, account balances etc.
2) Assemble all the transactions for a block
Description – System selects the set of historical (or earlier) transactions made by same customer for the use of electricity.
3) Broadcasting valid transactions and blocks
Description – System executes & finalizes the transaction (between Peer-to-Peer or Customer-to-Business through cryptocurrency) to get a new state and others (resources) to view and verify the details.
4) Compete to create a block
Description – System forms a new block (or data set as per smart contract / agreement process) for the customer and writes all the current transaction details of energy trading between Peer-to-Peer or Customer-to-Business. This is similar to create a receipt after the successful payment.
5) Agreement on next block creation
Description –System finalizes the new block records (or data set) as per smart contract or agreement to maintain the current transaction details into it.
6) Chaining blocks
Description – System successfully links the current transaction details with historical transactions (for same account) to maintain audit and history of payments records in system.
To secure the integrity of transactions, blockchain technology has secure & unique account address, digital signing, verification of transaction i.e. state transactions are computed, hashed and verified.
To protect the customer data (or blocks) following are the main technologies used in blockchain technology –
a) Hashing Technology – which is used for the formation of chain link.
b) Cryptography Technology - which uses various algorithms to create private and public keys.
Above information leverages smart contracts and blockchain technology in utilities to secure chain using protocols, validate transactions & data, verify the resources, executing & confirming transactions seamlessly among peer-to-peer.
SmartPay, Makes More Savings for Customers
In the current scenario, retailers buy electricity from wholesale markets and charge the customers for different services which include administration, service, marketing, maintenance, complex risk assessment algorithms/compliance, etc. other than actual electricity usage. Typically, in any billing the percentage range between 40-50% is the actual electric usage charges is used to pay by the customer and other charges are an administrative burden for customers.
Blockchain technology helps to cut down the intermediate administrative cost of energy delivery and saves customer money through smart contracts. It accomplished by automation of the payment process & optimizing usage patterns to supply patterns which enable efficient use of electricity.
Leverages of ‘Flexi-Grid’ Solution
Increasing the local hosted DERS’s (like solar panels) empowering customers to become electricity producers and moving rapidly towards grid’s decentralization. Flexi-Grids has come up quite promising in recent time which is more powerful than Smart-Grid. It has the potential to deliver the much needed ‘flexibility’ on the grid to support undesirable flat load demand or even the negative load growth by ensuring the costs (network operations, retail assets, etc.) are optimized.
Flex-Grid can support the customers having solar PV’s, the generated power is significantly more efficient to send to neighbor’s home rather than sourcing it back to the grid which might be 100 or 200 miles away.
Blockchain technology enables peer-to-peer network which includes trust among unknown peers as well as supports for seamless transfer of energy from one home to another home. This way it offers a much more efficient energy solution to customers.
Moving Towards Digital Cryptocurrencies
Retailers need to maintain all the credit or debit history in legacy utility which determines whether the customer defaults on payments or having any arrears in his/her account.
Traditionally different payment processes charges ‘service’ fees of 1.5-3% (like credit card/debit card processing fees). The collection processes charges and administrator charges are applicable if the customer fails to pay on time. To maintain such billing & settlement history (remain a huge manual process) and initiate collection processes of each customer requires a complex and lengthy process, effort and resource by any energy retailer (or supplier).
Blockchain has the power to avoid all such burdens from both sides. It uses digital cryptocurrencies where the customer is owner/or in-charge of their assets at all time and those assets are easily exchangeable/or transferable for other assets. Blockchain enables customers to make payments using any standard (or valid) ‘cryptocurrency’ as ‘token’ assets. Cryptocurrencies avoid multiple transactions of funds through accounts; any delays in transaction process; save time and cost as the network is always ‘ON’ or real-time. This makes customers secure their funds and authorize their transactions which prevent interruptions in services.
Choice of Tariffs
Traditionally, per unit consumption charges are flat (or fix) for residential customers. As a result, they have less awareness about when and how to make the use the efficient electricity. Even the customers who owned solar panels have less decision awareness about when to use and fed back their energy to the grid.
Blockchain enables customers to choose the ‘choice of tariff’. This gives customer’s access to the wholesale energy markets for further experiencing the market-driven price fluctuations. Customers make smart decisions about their energy consumption and create a commercial mechanism to sell out their energy either to grid or trade energy locally during peak hours to get maximum cash rebates (or compensated appropriately).
Challenges to Blockchain Adoption
Blockchain technology is entirely a new concept and requires more awareness of utilities. Concerns require to be highlight in the right forum. Highlighting some challenges (but are not limited ones) which impacts the delay in the adoption of blockchain technology in utilities are –
- Trouble to adopt digital currencies since their outset is price volatility.
- Cryptocurrencies and underlying decentralized protocols are not approved/or agreed by many countries or by well-known institutions.
- Sometimes, two chains might be incompatible due to either release of software patches and new versions of operating software’s. This leads to less robustness and reliable of blockchain framework.
- Delay in payment transactions which require global channels (or ledger) be updated since all the customers must wait for the next ledger update, this process takes good time in any blockchain framework (or decentralized protocol).
- Smart Contract (or legal agreement) is a core component of a blockchain protocol and an in-efficient algorithm will ruin the integrity as well as scalability on the blockchain.
Future Roadmap of Blockchain in utilities
Blockchain technology has flexibility in terms of functionalities to perform utility operations (like real-time payments, reliability of the electrical grid, etc.) through automation.
Well managed software patches and new releases will help to build credibility in blockchain by providing approaches to manage unexpected faults and planned improvements.
Blockchain technology will help customers to notify once it reaches some lower threshold with their deposits. Real-time payments coupled with the deposits will prevent the bad debt for the customer.
Blockchain technology will enable customers to make smarter decisions about their energy usage. This will lower costs, while also increasing the efficiency, robustness, and reliability of the electrical grid as a whole. Retailers need to think and evolve into new technology with an increase of business values as well as benefit of customers.
The stable token will require to support by well-known institutions or countries through proper policies and regulations. This will leverage the energy ecosystem by using cryptocurrency and utilizing smart contracts in the future.
With the help of advanced analytics use cases and tools, require more proof of concept (PoC) for blockchain led technology to be done with utilities. This can be predicted the “Impact of business and customers” on the ground level to get more confidence and realization for the use of technology. We are working in deregulated market specifically with US and UK based utilities to perform PoC’s (Proof of Concept’s) with their team on blockchain based use cases implementation to create business values / outcomes and key benefits for their end-users.