Blockchain Based Energy Trading: Regulatory Changes Proposed and Needed to Facilitate Blockchain in the GB Energy Market
Aditi Tulpule, ELEXON
Blockchain is one the most exciting new technologies to be developed in recent years, and in the energy sector it could revolutionise the way we produce, and buy electricity and gas.
Imagine a scenario where residents in a block of flats can trade electricity generated by solar panels between themselves, with the trades being tracked by Blockchain. It is the sort of development that could play a big part in the transformation and decarbonisation of the sector.
ELEXON manages the Balancing and Settlement Code (BSC), which ensures that payments for imbalances in wholesale electricity supply and demand are settled accurately. We therefore play a key role in the energy market. ELEXON is supporting the development of nationwide electricity ‘flexibility platforms’ to enable a more flexible trading market where existing grid capacity could be turned up or down on demand to ensure that the grid is always balanced. This would ensure a more locally balanced system reducing the need for National Grid Electricity System Operator to take more balancing actions at a more central level (as is currently the case).
A flexibility platform using Blockchain technology could enable peer to peer trading enabling local balancing by providing an immutable record of smaller transactions at a fraction of the cost. However, it is important to remember that Blockchain is a technology alternative and not a governance one. Governance measures will still be needed to ensure that records generated in Blockchain transactions are used in an appropriate way. Clear procedures will be necessary to ensure that responsibility for negative outcomes can be accurately established. In a world where data is becoming a new currency, Blockchain must also ensure that sensitive information is protected.
The current regulatory framework is designed to service the needs of a unidirectional market– that is where electricity always flows from a generator to a consumer. However, the advent of subsidised embedded renewable generation has led to the creation of a new consumer type- one that is a producer as well as a consumer of electricity, a “prosumer” for short. We therefore now have a market where electricity flows bi-directionally. Added to that is the fact that most of the electricity generated by the prosumers is of an intermittent nature. The more unpredictable the supply the higher the volatility of the system price and the higher the cost of balancing actions leading to higher consumer bills.
Blockchain could potentially help to solve this energy trilemma by reducing transaction costs through optimisation of energy processes and reducing consumer bills while simultaneously improving security of supply and promoting sustainability by facilitating renewable generation and low-carbon solutions.
Although the energy industry is undergoing rapid change, radical changes in regulation will be required to ensure that technologies like Blockchain can fully function in the GB energy market. One of the key changes being, to the ‘supplier hub’ model which will allow prosumers to take more control over their electricity supply needs while co-existing with traditional suppliers without affecting the sanctity of energy trades. This needs to occur while maintaining or strengthening existing protections for energy customers, particularly vulnerable ones.
In this rapidly evolving landscape, the clear message is that regulation must anticipate future developments, and support innovation. Our paper, will delve deeper into the current policy and regulatory landscape applicable to energy trading, more specifically touch upon the changes necessary to support more flexible trading in GB. We will also identify the characteristics of Blockchain based trading and set out our view of how the electricity market could change in response and highlight the importance of digital platforms in enabling the net-zero agenda.