Blockchain for a smart energy market: Three-year research project starts

The research project “BEST – Blockchain-Based Decentralized Energy Market Design and Management Structures” began in January 2021 with a virtual kick-off meeting of the project partners. The project, funded by the Federal Ministry of Economics and Energy, will spend three years researching how blockchain technology can be used in the best possible way to trade electricity in the context of the energy transition.

In blockchain, many people think of bitcoins and crypto systems first, but the technology behind this buzzword is basically available for transactions of all kinds – including electricity trading. Transactions are grouped into blocks and provided with a unique signature, resulting in a decentralized control system that does not require authorities such as banks or brokers. “Blockchain is interesting for the energy transition because it makes it possible to trade electricity directly between generating and consuming plants,” explains Norman Pieniak, BEST project manager at the Reiner Lemoine Institute. “This peer-to-peer trading benefits the entire energy system because it can respond much more flexibly to fluctuations. Blockchain supports the decentralized approach of the energy transition and can help reduce the need for compensatory measures such as storage or grid expansion.”

Electricity trade must be adapted to the energy transition

In conventional power generation, utilities buy and sell electricity on wholesale electricity markets for every quarter of a day. If bottlenecks occur, or supply and demand become out of balance, transmission system operators are outnumbered with balancing energy – this means, for example, that power plants are powered up or down in the short term, pumped storage power plants are connected or large consumers are disconnected from the grid.

As a result of the energy transition, electricity generation is becoming increasingly decentralized and volatile – electricity generation can fluctuate greatly locally. Therefore, energy should be consumed as directly as possible in the future where it is also produced and, above all, when it is currently available. On the one hand, people need intelligent electricity meters, so-called smart meters, which measure and communicate power consumption in close intervals. On the other hand, they need local electricity markets, where surpluses and bottlenecks can be automatically compensated with each other. This would relieve the overall burden on the electricity grid. The BEST project therefore creates an electricity market bidding system (SMBS) based on a blockchain, which supports this local trade in the sense of the energy transition.

From simulation to laboratory to test operation

First, under the leadership of the Reiner Lemoine Institute, which also coordinates the BEST consortium, the requirements for the SMBS are collected, a concept is created and the software is developed on this basis. OLI Systems GmbH, fortiss GmbH and the Fraunhofer Institute FOKUS are also involved in the programming. This is followed by the prototype phase, in which the basic functions of the SMBS are first virtually tested. The SMBS is then connected to real technical equipment, consumers and producers in a laboratory environment and tested there. At the end of the development is a six-month practical operation in the supply area of the electricity provider e-regio, west of Bonn, where customers test the system under real conditions. At the same time, a knowledge transfer with the energy industry under the leadership of Energieforen Leipzig GmbH and a legal examination of the SMBS by the Weserbergland University of Applied Sciences are taking place.

“With the blockchain electricity trading system that we are developing in BEST, we are making an important contribution to digitizing and accelerating the energy transition,” says project manager Pieniak. “It is also important to us for research that the SMBS is developed as open source software – the technology behind it is fully disclosed and can be reviewed and reproduced by all interested parties.”