Technology

Is Blockchain-Based Energy Trading Just a Pipe Dream?

Blockchain-based P2P energy trading is said to revolutionize energy markets. However, despite its many advantages, blockchain technology has serious scalability and performance issues. These will have to be sorted before blockchain-based P2P trading could become possible on a large scale.

In November, we reported that the Australian firm Power Ledger has partnered with local institutions in Bangkok to launch a peer-to-peer renewable energy trading platform.

Last week, Power Ledger launched a similar project in the Australian coastal city of Fremantle. The city’s residents can now trade solar power on Power Ledger’s blockchain-based P2P platform.

Forty households will participate in the trial. They produce energy via their own rooftop solar panels and sell it to end users via a blockchain-enabled trading system.

P2P energy trading could drive renewable energy development

The idea behind P2P energy trading is simple. Those who produce energy can sell it directly to the end user, without having to store it, diminish it or export it to the power grid.

Traditionally, the most substantial portion of the global energy supply comes from large energy plants, such as nuclear power plants or coal power plants. The corporations who run these plants have maintained a monopoly over power systems and satisfied much of the demand.

On the contrary, the generation of renewable energies happens in a much more decentralized manner. Households can, for example, install rooftop solar panels or run their own wind turbines.

But how can they get the energy to the end user without having to go via one of the larger energy providers? Here is where P2P trading comes in.

Blockchain technology could benefit P2P energy trading in many ways

A P2P energy trading system could enable small-scale energy providers to trade energy more effectively. Producers can set their own prices. Thus, supply and demand can be matched more effectively, and the free market pricing mechanism that has partly been destroyed by the pseudo-monopoly of energy companies could be restored.

Blockchain technology could hereby play a vital role.

Firstly, energy trading requires the exchange of huge amounts of data and transactions. Blockchain-based smart contracts could provide the necessary standardization to make this possible.

Secondly, trustless trading could eliminate the need for third-party brokers. This would significantly lower the costs of renewable energy.

Thirdly, greater transparency and security will reduce the risk of fraud or misconduct by grid participants. This could motivate more sellers and buyers to join the grid.

Critics say blockchain technology is not ripe to support energy trading

The concept of blockchain-based P2P energy trading seems to be the most promising attempt ever to create an efficient decentralized market for renewable energy. But there are also critical voices questioning the capabilities of blockchain technology.

Stephen Woodhouse from the UK-based firm Pöyry says, “blockchain is neither particularly cost-effective nor easy to scale to support massive transaction levels.

And he is right; at least for now.

In case of P2P energy trading, a blockchain would have to process transactions of just a few kilowatts in less than 15 minutes. These transactions would only be worth a few cents. As blockchain trading is still expensive, it might not be worth to process such small transactions.

Furthermore, blockchains have scalability issues. Last year the Ethereum blockchain was drastically slowed down due to the popularity of the Ethereum-based game CryptoKitties, which had caused the number of transactions to increase.

In December 2017, when Bitcoin was soaring, transactions were delayed up to 16 hours. For now, the Bitcoin network can only process seven transactions per second. That’s not enough for large-scale P2P energy trading, says Woodhouse.

Solutions are in the making…

The skepticism is justified. Before we can trade energy P2P on a large scale via a blockchain-based platform, major scalability issues will have to be addressed.

The blockchain community is already working on it. Sharding, for example, which means each node stores only part of the data instead of the entire information, could be one way to scale blockchain networks.

The cost issue is being discussed as well. Some blockchain proponents say in the long run, the cost per transaction could go down to as low as 1 cent. We shall see.

Let’s be realistic. The technology is still in its infancy, and it’s probably too early to celebrate the P2P energy revolution. But considering the enormous positive changes it could bring to the way how we produce, trade and consume energy, it’s a vision worth working for.

Lukas Hofer

Lukas J. Hofer is a business writer and has years of experience in financial services and international business. He has a proven track record working with leading international companies and currently works as independent business consultant in Asia.

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