Blockchain – Cabot Institute for the Environment blog

Digital future of renewable energy

Posted on October 16, 2018April 13, 2023 by janet.crompton

As part of Green Great Britain Week, supported by BEIS, we are posting a series of blogs throughout the week highlighting what work is going on at the University of Bristol’s Cabot Institute for the Environment to help provide up to date climate science, technology and solutions for government and industry. We will also be highlighting some of the big sustainability actions happening across the University and local community in order to do our part to mitigate the negative effects of global warming. Today our blog will look at ‘Technologies of the future: clean growth and innovation’.

1. Background

Today over 94% of the energy market in the UK is dominated by the Major Power Producers (MPP) who generate electricity and feed it to households and businesses over the grid [1].

Historically, to cut down on the fuel transportation costs, the major generation plants had to be located close to the fuel sources, i.e., where coal and oil were mined. The generated electricity would then be transmitted through power lines and distribution stations down to the households and businesses who would use the electricity up.

This structure of the industry was based on several constraints:

Electricity generation locations are constrained by the location of fossil sources (as it is cheaper and easier to transmit the generated electricity than to move fuel around);
Electricity generation requires large investments into large plants (due to economies of scale of the generation technology);
Electricity end users are only interested in consumption, and do not want to know much else about electricity itself.

Yet, technological advances as well as the societal understanding of the implications of the fossil fuel use have dramatically changed the framework within which the energy system operates:

Renewable generation technologies (such as solar panels, wind turbines, small hydro turbines) are now widely available for individual household and small community use.
As (most) renewable generation resources (e.g., solar or wind) are available where consumers are, it is technologically possible and economically affordable to generate and consume electricity locally, without centralised generation and transmission;
End users are increasingly interested in the environmental and social impact of the generated electricity, not only in consumption.

All the above, combined with the governmental subsidies for renewables installations (e.g., feed-in-tariffs) have led to a recent growth of micro-generation in the UK (i.e., individuals or organisations with small-scale energy generation, such as domestic wind or solar PV units). Such micro-generators consume their own generated energy and sell any excess back to the grid. Such generation offers the potential for a distributed model of energy generation and consumption that is not reliant on MPPs.

Challenge

Though presently, there is a successful renewables-based ecosystem in the UK, it has been largely driven by governmental subsidies. However, these subsides are now set to be withdrawn. As of March 2019 no new installations will be eligible to feed-in-tariffs. Will this result in fall of the renewables sector, as already experienced by solar PV sector in Spain [2] when their solar PV subsidies were removed? Or can UK micro-generators find another way of ensuring viability of renewable installations?

Opportunities

Research at the University of Bristol suggests that a subsidy-free localised renewables-based energy sector is not only possible but is also the best solution to the energy security and affordability dilemma. Our proposed model for the new, modernised UK energy sector is based around localised, but globally interconnected peer-to-peer energy markets underpinned by digital technology. This is illustrated in Figure 1 below:

Figure 1: Peninsula peer-to-peer energy market (from [6])

2. Peer-to-Peer energy market underpinned by digital platform

In a peer-to-peer energy market any two individuals/households can directly buy from and sell to each other, without intermediating third parties. These households can be both prosumers (i.e., producing and consuming own renewables-based electricity, as well as selling the excess to others), on simply consumers (if they have not own generation). Yet, unlike most microgrids, this is not an islanded model – which would require complete internal balance of supply and demand – but rather a “peninsula”. Where the locality experiences shortage or excess generation, the demand/supply are imbalance is resolved through trade with the other localities or the grid at large. The key advantages here are in providing avenues for:

Additional income streams to households with microgeneration – where the feed in tariff is no longer pays for the extra generation, the peers who use the energy do. Moreover, the price of the locally generated/consumed energy is more competitive than that of the grid supply as it does not need to pay the same full transmission, distribution, and utilities services charges. (Though I must underline that, as each locality remains interconnected with the gird, the energy costs will still include grid connection and maintenance changes. This is because the intermittency of the renewables generation must be insured against, and grid provides such an insurance and balancing services.)
Increasing value proposition of microgeneration and energy storage – the microgenerators are not only getting return to their generation investment, but are also supporting local communities’ energy needs, contributing to the decarbonisation and energy security efforts.
Increased control over source of supply – consumers are now able to express their preferences on energy purchase: do they wish to buy solar or wind, from the closest geographically located producer or from the cheapest supplier; do producers wish to donate their excess generation to the local school or to their extended family members, or to sell it to the highest bidder? All these options become viable when peers directly buy and sell from each other.

Such an energy system, however, cannot exist without a reliable and trusted digital platform which will both remove the 3rd party intermediation, and advertise the sale and purchase orders between the trading parties, undertake the users’ preferences-based matching of these orders, ensure security of the transitions, transparency of the trades, and accountability of the transaction participants.

To operate in such market:

the consumers and prosumers would join the platform and publish their preferences (e.g., sell to the highest bidder, or buy solar energy only, etc.);
the participants will they use their smart meter data to periodically (e.g., for every 15 min or half an hour) publish their sale and purchase orders on a digital platform;
for each trading period (e.g., 15 min.) the platform will match best fitting sale and purchase orders, and settle transaction accounts.

Note, (as illustrated in Fig 2) while in the current intermediated market the utilities act as the contracting parties between the prosumers, consumers and the energy market (see Fig. 2.a), in this peer-to-peer market each prosumer/consumer is the immediate contracting party itself (see Fig. 2.b).

Figure 2: Energy Market Dis-intermediation (from [6])

To realise these demanding requirements, we advocate use of distributed ledger technology for the energy trading platform [3, 4, 7]. Distributed ledgers (which incorporate blockchain and block-free technologies) are decentralised, distributed databases in which all transactions are immutably recorded. In other words, these are databases which are not controlled by any single company or individual, but are run and maintained by their participating membership. Data in these ledgers is redundantly stored in many locations, and cryptographically secured. As a result, once recorded, the data in the ledger cannot be changed and falsified [1].

The details on how to engineer this platform in such a way that engenders trust and participation is a topic of the HoSEM research project [5] and will be detailed in another blog post. For now, let’s assume that this platform is in successful operation. What are the implication of it on the UK energy market?

3. Implications on energy market

Move to a peer-to-peer energy trading over a distributed ledger will lead to several major changes in the UK’s energy system, to name a few:

First and foremost, it changes the structure of the energy system itself – from centralised fossil-based generation to decentralised, distributed, local renewables–based generation and consumption set up;
The digital technology-based market disintermediation (see section 2) deprecates the role of a trusted 3rd party (utilities in this case), reducing both the cost of transactions (i.e., energy) to the end users and allowing for the best possible preferences match to each participant. Now the suppliers are switched every trading period (e.g., every 15 min.), without any effort or cost to the market participants.
This structure also radically changes the role of the energy user – from the passive consumer to an active prosumer. The end user now matters, as every unit of produced and consumed energy is different. It is different because it is produced in the users’ local area, or is originated from solar/wined/gas sources, or is bought from a friend… Then the price of each energy unit is also different and that difference is decided on basis of the participants preferences.

Clearly, many issues remain to be resolved before this shift to a digitally enabled peer to peer market becomes a reality. These include issues of regulation and licensing (presently households are not allowed to act as suppliers in the UK), grid safety (e.g., current frequency assurance), geographical and population density (e.g., rural areas have more renewable per-person than cities), fairness and pricing (more affluent individuals can afford more generation installations), to name a few. Yet, it is encouraging to see that technologically and economically this future can be here already today.

Footnote

[1] Theoretically it is possible, but practically it is improbable, as record falsification is designed to be prohibitively costly [3].

References

[1] Dep. of Energy and Climate Change Updated energy and emissions projections 2015 Tech. Rep., URL: https://www.gov.uk/government/publications/updated-energy-and-emissions-projections-2015

[2] The rise and fall of solar energy in Spain, URL: http://www.abacoadvisers.com/spain-explained/life-in-spain/news/rise-and-fall-solar-energy-in-spain

[3] R. Chitchyan, J. Murkin, Review of Blockchain Technology and its Expectations: Case of the Energy Sector, URL: https://arxiv.org/abs/1803.03567

[4] J. Murkin, R. Chitchyan, D. Ferguson, Goal-Based Automation of Peer-to-Peer Electricity Trading, URL: https://link.springer.com/chapter/10.1007/978-3-319-65687-8_13

[5] Household-Supplier Energy Market, URL: https://gtr.ukri.org/projects?ref=EP%2FP031838%2F1

[6] Used from J. Murkin, R. Chitchyan, D. Ferguson, Towards peer-to-peer electricity trading in the UK, Presented at All Energy 2018, URL: https://reedexpo.app.box.com/s/plwhcfaqp6pnhxc8mcjznh7jtkevg9h1/file/292636529562

[7] J.Murkin, Automation of peer-to-peer electricity trading, blog post at https://www.edfenergy.com/about/energy-innovation/innovation-blog/research-development-peer-to-peer-trading

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This blog is written by Cabot Institute member Ruzanna Chitchyan from the University of Bristol Faculty of Engineering and has been reposted from Refactoring Energy Systems blog.

Ruzanna Chitchyan

Read other blogs in this Green Great Britain Week series:
1. Just the tip of the iceberg: Climate research at the Bristol Glaciology Centre
2. Monitoring greenhouse gas emissions: Now more important than ever?
3. Digital future of renewable energy
4. The new carbon economy – transforming waste into a resource
5. Systems thinking: 5 ways to be a more sustainable university
6. Local students + local communities = action on the local environment

Regulatory defection in electricity markets

Posted on May 22, 2018April 5, 2023 by janet.crompton

Graphic by Sarah Harman. Taken from energy.gov.

Electricity systems are undergoing rapid transformation. An increasing share of previously passive consumers is defecting energy demand and supply from the public electricity network (grid) as active ‘prosumers’ while technological and business model innovation is enabling demand-side resources to provide reliable and cost competitive alternatives to supply capacity.

Yet, centralised supply-focused market structures dominated by legacy infrastructures, technologies and supply chains associated with path-dependencies and technological lock-ins continue to dominate. Regulation has been designed around these existing supply-focused markets and structures rather than networks of the future capable of integrating and facilitating smart, flexible systems. Current systems and their regulatory frameworks are struggling to engage and integrate a range of technological, economic and social innovations promising consumer-oriented solutions to environmental problems.

In the UK, the Office for Gas and Electricity Markets (Ofgem) regulates the electricity and gas markets to protect the interest of existing and future consumers. Ofgem acknowledges that ‘moving from a largely centralised, carbon-intensive model to one which will be increasingly carbon-constrained, smart, flexible and decentralised is creating challenges which can only be addressed by innovation’.

In practice, the rapid diffusion of emerging digital technologies such as smart grids, smart meters and the internet of things is disrupting market structures and business models. Progress in automated and machine learning is producing exponentially growing amounts of data which facilitates the deep learning required for more accurate time series predictions. At the same time, distributed ledger technologies such as blockchain provide combined digital accounting and measuring, reporting and verification infrastructures as well as a means of developing and executing smart contracts.

Regulators such as Ofgem are confronted with the need to ‘keep the lights on’ while balancing their primary focus of regulating centralised electricity supply and trading markets with engaging with disruptive innovations. This is reflected in Ofgem’s monolithic, centralised structure, despite its commitment to facilitating smart systems, flexibility and non-traditional business models.

The question is, how can the regulator square grid code written for large-scale generators and wholesale traders with an increasing understanding of and desire to facilitate smart, flexible systems?

Disruptive technologies and business model innovation

In practice, smart, flexible systems imply the bidirectional flow of information which relies on a combination of on storage, demand-side responses, interconnection and energy efficiency increasingly facilitated by emerging digital and distributed ledger technologies. It is evident that existing legal frameworks will need to change to accommodate emerging digital and distributed ledger technologies, but regulators need to proceed with caution and change is inevitably a slow process that needs to take a very wide range of statutory and non-statutory requirements into account. Up to that point, however, the regulators’ discretionary and exempting power can and should be applied (with caution).

In Europe, Ofgem is at the forefront alongside the Dutch regulator (Authority for Consumers and Markets – ACM) in providing ‘regulatory sandboxes’ for microgrids and peer-to-peer trading which facilitates buying and selling electricity locally. These sandboxes facilitate experimentation and innovation without companies incurring or being subject to established regulatory requirements.

Despite Ofgem’s commitment to providing space for experimentation and innovation, missing market rules and high entry barriers encourage innovators to seek alternatives through regulatory defection. Two reports by the Rocky Mountain Institute, one on load defection and one on grid defection sensitised research and policy communities to economic aspects of electricity market defection. Regulatory defection is another aspect of the same issue but it deals with the broader opportunity (and concern) of economic activity shifting beyond particular regulatory spaces and boundaries. Arguments have been put forward that the trend of government withdrawing from energy policy rewards regulatory defection in electricity markets.

Concrete examples of regulatory defection in the electricity market include engaging in behind the meter generation, private wire supply and microgrids. Behind the meter generation is facilitated by a rapid fall in electricity storage costs. Batteries are now available for home installation with promises of 60% savings on electricity bills if appropriately scaled to match on-roof solar PV generation. Behind the meter generation also includes anything else that can be done to limit engagement with the grid, including energy efficiency improvements and reducing demand.

Private wire supply and microgrids require the installation of dedicated physical electricity transmission infrastructure. Private wire enables generators to sell electricity to neighbouring premises without transmitting electricity through the grid. Microgrids take private wires a step further to include a private network across multiple sites and end consumers. These arrangements are complex and require considerable skills and capacity to engage with appropriate network design, infrastructure, installation costs, land and planning requirements and operation and maintenance.

Despite this complexity, regulatory defection is underway through behind the meter generation, private wire supply and microgrid development. For example, Easton Energy Group in Bristol is at the forefront of developing a community microgrid combining solar PV generation with battery storage and dedicated transmission infrastructure as part of their TWOs project.

Energy Service Company (ESCO) business models facilitate defection by shifting the emphasis on the delivery of energy services. Rather than delivering energy in the form of grid electricity or fuel, ESCOs deliver final energy services such as lighting, ventilation or refrigeration. By shifting profitability towards the efficient provision of these services at low energy and environmental costs, ESCOs shift economic activity beyond the scope of electricity market regulation.

Combined, behind the meter generation, private wire supply and microgrids on the one hand, and ESCO business models on the other, require a rethink of how electricity is regulated. Fairness and equity need to be prioritised to ensure that the costs of running the existing infrastructure (which will still be necessary no matter how rapidly distributed systems evolve) will not be borne by fewer and less fortunate consumers that lack the capacity to defect. Therefore, new regulatory approaches are required to ensure that clean energy will be available to all at affordable costs.

Embracing disruption

One way of engaging with change is by embracing the innovations that threaten to usurp the current system. The Chilean regulator, Commisión Nacional de Energía (CNE), considers Blockchain an essential element of fair and sustainable energy markets. Its web portal Energía Abierta, the 1st open data website in South America, uses Blockchain as a digital notary. It allows CNE to certify that information provided on the web portal has not been altered and modified while also leaving an immutable record of its existence.

To this end, CNE issues ‘certificates of trust’ to give greater credibility to the portal. The aim of the portal is to increase levels of trust among stakeholders and the general public that have access to and consume the portal’s data. Another aim is that by using blockchain, greater trust in the citizen-government relationship can be created through more open and transparent governance. Ultimately, CNE expects blockchain to increase traceability, accountability, transparency and trust.

Chile has taken the lead in using blockchain as part of its regulatory framework and other countries should learn from this experience, especially if blockchain is to fulfil its potential in reducing transaction costs and managing complexity. Combining distributed ledger technologies such as blockchain with emerging digital technologies such as smart grids, smart meters and the internet of things can provide a new platform for electricity market regulation with data embodied in electricity at its core rather than electricity by itself.

The problem with regulation, however, is that it is based on experience from the past. Regulating emerging technologies and facilitating beneficial outcomes while limiting potential negative ones requires a fine balance and technological agnosticism. In this context it is necessary to bear in mind that it is not Ofgem’s sole responsibility to alter regulation. The Department for Business, Energy and Industrial Strategy (BEIS), District Network Operators, the National Grid and combined industry code panels governed by the Competition and Markets Authority and determined by the Secretary of State also have a role to play.

Regulatory defection in electricity markets will continue progressing in the absence of new market structures. Maybe it is time to rethink electricity market regulation in this space along the lines of platform regulation?

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This blog has been written by Cabot Institute member Dr Colin Nolden, Vice Chancellor’s Fellow researching in Sustainable City Business Models (University of Bristol Law School).

Colin Nolden

From meatless meat to trustless trust – can Blockchain change the way that we work together to create knowledge in smart cities?

Posted on April 25, 2018April 4, 2023 by janet.crompton

Smart Cities apply technology, connectivity and data to the urban experience, but they could easily become Fake Cities. Their factories still produce things – but they are staffed by robots. Their cars still take you where you want to go – but they are driven by autonomous systems. You can hold their digital products in your hands – but only via a smart phone.

In the worst case, Smart Cities trade down authentic human experiences for something artificial, virtual and ersatz. But can the Smart City ever trade-up and improve on the original?Take food as an example. Scientists are perfecting cultured cells to grow synthetic meat in laboratories. Far from producing an unpalatable substitute, the result is said to be nutritious and tasty. As the world’s population grows rapidly, meatless meat is seen as a carbon and resource efficient alternative that could represent “the future of food”.

In their recent report partners in the UnLoCK consortium considered whether Blockchain and Distributed Ledger Technologies could similarly transform another basic human need – by creating “trustless trust.”

But might this be needed?

The argument goes that Smart Cities join-up multiple systems, more than have ever been connected before. The scale and complexity of the resulting ecosystem means that not all participants can expect to have pre-existing relationships with each other. In this context, it is difficult to know who or what to trust.

The blockchain is seen as a way for Information to be securely shared between peers. The important point is that rather than investing trust in one privileged partner, such as a bank, the focus moves to collectively creating a trusted system; one where peers collectively own and update the Distributed Ledger as a single version of the truth.

The UnLoCK consortium partners identify numerous areas where they would like to experiment with the application of this technology, from understanding the environmental provenance of goods and services within supply chains associated with new local approaches to house building, to systems that afford ‘smart citizens’ greater ownership and control of their personal data.

The consortium partners are planning further discussions to explore how to move from theory towards a working prototype. For more details of the UnLoCK consortium contact, Lisa Kehoe Lisa.kehoe@bristol.ac.uk and Stephen Hilton stephen.hilton@bristol.ac.uk

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This blog was written by Stephen Hilton, Director of Bristol Futures Global, and a University of Bristol Cabot Institute Fellow.

This blog was reposted with kind permission from PolicyBristol. View the original blog post.