By: Joe Forbes

[Originally published on]

The gig economy is all about sharing, right? Share your house, share your car, share your garden tools (really), but how about sharing (or trading) the electricity generated by your rooftop solar system. Easy, build an app, and they will come (along with multi-billion dollar company valuations to boot). Yes, we all had the AirBNB idea before they did. Electricity is a different beast for two reasons: (1) physics and (2) markets. It is going to take way more than a snazzy app to make peer-to-peer (P2P) energy trading a reality in the near future.

Au contraire, say blockchain enthusiasts, who insist that P2P energy trading is on our technological doorstep. This is just one of the purported 200 use cases that blockchain may have in the energy sector. Call me a fan as I see blockchain technology as a great enabler of the new distributed grid. But call me a skeptic because the onramp for blockchain in the energy sector will not be smooth or immediate. The area of financial settlements, the nuts-and-bolts of energy payments, is where the P2P energy trading vision will live or die.


  1. Traditional energy settlements are a Model T trying to race a Tesla

Traditional energy settlements work like many markets, with an “ask” and a corresponding “bid”. Market operators predict the need for generation resources and grid reliability services (also called ancillary services) and solicit bids (the “ask”) to meet forecasted demand. Market participants that own generation capacity “bid” for the right to sell their resources into the market.

Billions of dollars flow for power payments annually using this simple matchmaking approach, often transacting using sophisticated new technologies called databases and fax machines. Though electricity is a real-time, use-it-or-lose-it type of commodity, these markets function at their zippiest on a daily basis, but are often on a scale of weeks to months.

Not to disparage our current system, this is the way things were designed to work for the old “dumb” grid. In case you haven’t heard, we are transitioning to a sexy, new “smart” grid.

The current market systems are built on older database and software platforms to facilitate this matchmaking process. Sounds easy enough. The bid process is heavily reliant upon data that is not published until awards are made. Translation: there is no transparency in the market. More importantly, there is no way for distributed energy resources (DERs) — solar, energy storage, EVs, small generators — to participate in these markets due to the fact that the existing market platforms cannot measure, verify, clear, reconcile, and settle them. In other words, there is no way to get paid if you are a DER owner because the market platforms do not have the right bifocals to bring them into focus.

A play-by-play of the settlement process will help illustrate this data quagmire. On the supply side (think: power generation), data is collected from winning market participants in near real-time to prove that they are fulfilling their end of the bargain and delivering power to the grid accordingly. On the demand side (think: energy consumption), market participants receive their meter data (I repeat, “their data”) from utilities, whose responsibility is to deliver the power over the wires through “smart meters” which are really not that smart. While the generation resources (supply side) are providing near real-time data to the grid operators, smart meters (demand side) typically report power consumption in increments of 15 minutes and only after the fact, often with a delay of hours.

The two different sets of data are not synchronized or correlated until the raw measurements can be reconciled in a byzantine set of rules and interpolations that require 30–90 days (sometimes longer) to be settled among the supply side and the demand side. You are correct if you think this sounds slow and outdated.


2. Getting beyond the rhetorical appeal of blockchain as the solution to energy settlements

Blockchain appears to be the knight in white shining armor for energy financial settlements. Blockchain is, at its core, a distributed ledger system wherein a transaction between two counterparties is completely transparent and immutable. Given the challenges in energy data transparency and reconciliation (correcting data errors and inaccuracies), this would appear to be a godsend.

Now, imagine your rooftop solar system is blockchain-enabled. That would mean that it verifies its performance by publishing meter data to the blockchain. On the demand side, power consumption is registered on the blockchain per customer. Matching generation and demand would seem to be a simple task. However, there are real and even potentially intractable issues that need to be solved for blockchain to realize this seemingly simple task.

Hitching a free ride on the public blockchain is not a thing:

Maybe you were under the illusion that blockchain is a free, open technology. While public blockchain source code is often open, the use of public blockchains for transactional purposes is not free by any stretch. This is how cryptocurrencies such as Ether derive their value. If there is demand for a public blockchain, you can charge for its use, and pay miners to contribute their processing power to run it. Every transaction which is published on a transparent public blockchain has a transactional cost for utilizing the network. With meter data being published at 15 minute intervals, the cost for reporting this prodigious quantity of data on a public blockchain quickly escalates and becomes a serious impediment to scaling for transactional purposes.

Reconciliation: Where old school technology can do some of the dirty work better than blockchain:

Smart digital contracts are a core use for blockchain, and this is no different in the energy sector. However, the process of power procurement, at the wholesale or retail level, is ill-suited for administration via blockchain. Technically this can be accomplished via blockchain, but the pain and cost may not be worth it. It is asking blockchain to do something that it was never intended to do. Rather, old school database technology (well, actually of the slicker high-performance variety) was expressly designed to efficiently manage this very type of data mayhem.

The utilities have “your” energy data, and they won’t give it up easily:

News flash. Your Amazon shopping data is not yours. Your Google search data is not yours. But your energy consumption data is yours. Few realize this because utilities, who collect and manage the data, are wary of giving you access to it. Who knows what would ensue?! This struggle is why many energy + blockchain companies going down the settlement platform rabbithole are trying to avert the data battle with utilities by installing their own proprietary metering. This is a half measure, at best, and I have witnessed first hand the challenge of building software platforms that are dependent on data acquisition from proprietary hardware.

“Smart meters” might be clever, but they sure aren’t as reliable as advertised:

Smart meters suffer from unfairly elevated expectations. Hey, smart is good, smart is modern. But they are not without their shortcomings. For one, smart meters are notorious for data gaps and missed readings. Existing settlement systems address these inaccuracies through industry accepted interpolation algorithms. Translation: they go back and fill in the gaps with educated guesses. This may prove problematic for blockchain-based solutions as the integrity and immutability of data put on the blockchain is one of the key benefits. In this case, it is a critical weakness in the acquisition, verification, and reconciliation of meter data.

Blockchain is greased lightning, but not yet real-time:

“Real-time” gets bandied around a lot in our digital world. But we should be precise. Real-time is not just fast, it is now. There are exceedingly few real-time financial settlement platforms functioning in the world. The only one that you know of is VisaNet. Blockchain has yet to truly achieve real-time transactional speeds. Typical blockchain networks produce new blocks (containing transactional information) in increments of 15 seconds, as is done on the Ethereum Network, or even longer. Again, this creates a mismatch between blockchain capabilities and power market needs. As one example, generators, both large and small, participating in ancillary services markets require near synchronous communications of no more than six seconds for grid stability and reliability operations. Blockchain is greased lightning compared to some transactional platforms (I am looking at you stock market), but they aren’t the speed of light.

Payments in cryptocurrencies are a gimmick for most market participants:

Market liquidity is not a problem for the most established cryptocurrencies — Bitcoin, Ether, etc. The irony for all of those down-with-the-fiat-currency crypto-enthusiasts is that all of these markets settle in dollars. This presents a tricky problem in cryptocurrency conversion. If you have followed the crypto markets at all, you know there is great price volatility to say the least. So, when counterparties agree to settle in a specific cryptocurrency, there are a lot of market timing and hedging strategies that one would need to think through. All of this possible is a peer-to-peer digital contract, but not so much at a market level.


3. A slightly darker shade of rose-tinted glasses as we gaze into the future of energy + blockchain

Can we all imbibe some hangover cure to get over the blockchain buzz? It is entirely forgivable to get all up in a tither about blockchain in the archaic energy financial settlements space. But it is not the singular solution to all the challenges inherent to serving the transactional needs of the digital and distributed grid. Rather, the solution resides in creating a real-time architecture designed to measure, verify, clear, reconcilie, and settle transactions across the spectrum of generation and grid resources. Importantly, this platform must also be highly transactional in order to allow distributed assets to participate with the market. While capable of utilizing the benefits of blockchain, this platform must be capable of integrating with the existing market platforms that are functioning today.

There is no doubt that blockchain is a powerful technology that will have a seat at the table for advanced energy settlements. But there will need to be other technologies at the table, too. Blockchain adoption, despite the claims of its avid (rabid) proponents, will be in fits and starts, as the contours of its capabilities come into sharper relief. The most promising applications in the short to intermediate terms will look a lot like what is happening in the financial sector: the facilitation of bilateral transactions between counterparties. All the while, the energy markets will jig and jag their way to adopting rules and structures to better take advantage of transactive grid future that blockchain technology helps us achieve.

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