Blockchain is a distributed digital ledger of transactions that are simultaneously stored and updated across several computers connected in a peer-to-peer network. Blockchain consists of distributed data storage, peer-to-peer transmission, a consensus mechanism, an encrypted algorithm and smart contracts. Some characteristics of blockchain are decentralisation, openness, automatic execution of contracts, security credibility and anonymity. Amongst the various use cases for blockchain in power utilities, one recent initiative has been Tata Power Delhi Distribution Limited’s (Tata Power-DDL) pilot project on peer-to-peer trading in Delhi.
There are three types of blockchain, classified according to accessibility – public blockchain, private blockchain and consortium blockchain. Public blockchain is publicly accessible to all devices that have access to the internet. It is decentralised with no single point of control, like bitcoin. Private blockchain is confined within an organisation, restricting access and allowing only invited members to observe and undertake transactions. Since a single authority manages the network, it is more scalable and efficient, but less secure than a public blockchain. Consortium blockchain, meanwhile, is a hybrid of public and private blockchain, best suited to organisations that require both. In this set-up, more than one organisation is responsible for providing access to the pre-selected players. Since there is no single authority controlling it, it maintains a decentralised nature, and is hence considered ideal for deployment in utilities in India.
A look at potential use cases for blockchain in utilities, and in Tata Power-DDL’s pilot project…
Potential for power utilities
Peer-to-peer energy trading is blockchain’s most important and prevalent use case in the current scenario. It can also be used in trading of environmental commodities such as renewable energy certificates (RECs) and carbon credits. Through the use of a secure and immutable digital ledger, providers can validate REC transactions automatically, which means that they can avoid any double selling of energy credits, as duplicate transactions are flagged as invalid and providers can be sure of the origin of the RECs. Moreover, blockchain can be used in microgrids. In the coming years, microgrids are expected to play a vital role in reducing transmission losses and deferring expensive network upgrades in the future. Blockchain technology provides an effective way of handling these increasingly complex and decentralised transactions between users, who vary from large-scale producers and small-scale retailers to discoms and traders. Through this, households and businesses can trade directly and bypass any central authority, resulting in increased efficiency and lower costs.
Blockchain pilot in energy trading
Tata Power-DDL, in collaboration with the India Smart Grid Forum and Power Ledger, Australia, initiated a pilot project in peer-to-peer trading in November 2020, with the objective of testing the technical viability and value proposition of peer-to-peer energy trading. Currently, development of a suitable business model that will benefit all stakeholders is being undertaken. The pilot utilised Tata Power-DDL’s grid stations with solar photovoltaic (PV) and some real customers in its network to stand in as pilot prosumers, while other grid stations/office buildings along with real customers stood in as consumers. The pilot utilised simulated trading to mirror the scenarios of real trading regimes, with no financial or energy transactions.
The pilot was divided into three phases. In the first phase, from November to December 2020, configuration and deployment were completed. In the second phase, from January to September 2021, the actual pilot run was undertaken, and in the third phase, after September 2021, recommendations and submission of the final report will be made.
In the first phase, the company selected a list of prosumers and consumers to enrol in the pilot. Further, the company upgraded the meters of the participating members to net smart meters in order to capture data from the prosumer and consumer locations in real time. Subsequently, the meter data management was configured to capture the data from the new smart net meters. Tata Power-DDL formulated a blockchain advisory committee with internal as well as external experts to put in place peer-to-peer trading rules regarding buy-sell limits, wheeling charges and other related factors. The company also developed a technical architecture incorporating an SAP billing system linking the sales data blockchain ledger to the monthly billing system.
In the second phase, Tata Power-DDL stabilised the platform and removed impediments, evaluated business cases from the perspective of different stakeholders, monitored and evaluated performance, and tested different trading rules. Further, it explored the development of an integrated ecosystem of grid-connected, distributed energy resources including electric vehicle charging stations and battery energy storage systems.
In the last phase, the utility expects to submit the conclusions and feedback acquired from this project to the Ministry of Power, the Ministry of New and Renewable Energy, the Delhi Electricity Regulatory Commission and the Central Electricity Regulatory Commission, so as to pave the way for its commercial execution with regulatory approval.
Operation of the pilot
In the daytime, establishments with solar rooftop PV generated electricity, which flowed to the grid. Net smart meters using RF mesh canopy captured data concerning the net import of electricity by prosumers. This data was then transferred to the meter data management system in Tata Power-DDL, which collated the data and transmitted it to the Power Ledger.
The Power Ledger acted as the blockchain platform where prosumers and consumers interacted through bids to complete their transaction. Prosumers placed the minimum selling price that they wished to receive, while consumers placed the maximum price that they were willing to pay for that energy. The bids were matched through back-end algorithms and the electricity was then transmitted to the consumers’ location, while being recorded through a smart meter. The completion of the electricity transmission to the consumer was noted and displayed on the platform. In the end, the data from the Power Ledger regarding the consumption and sale of electricity was taken into consideration and aggregated in their monthly bills. Sixty-two consumers and 55 prosumers traded in the pilot.
Trading paradigms and pricing models
The pilot project tested three trading paradigms – fixed price model, dynamic price model and dynamic pricing with preferential trading. These three different models were tested for two to three months each to identify the one most suitable for commercial adoption.
In the fixed price model, the price per unit of electricity was already fixed by Tata Power-DDL, and all trading happened at that price. The benefit of this model is that it provides certainty to all participants. However, the fundamental issue with this pricing model concerns the determination of a viable fixed price that is commercially acceptable for both the buyer and the seller. Moreover, the price inelasticity inherent in this model makes it inflexible to changes in demand and supply dynamics.
Dynamic pricing is much more flexible as it allows prosumers and consumers to set their own price within a given window of floor (discom buyback) rate and ceiling rate. The matching mechanism in the blockchain platform will accordingly match up buyers and sellers with equivalent bids. In periods of excessive demand, prosumers will evidently auction their energy to the highest bidder, while in periods of excessive supply disproportionate to demand, consumers can quote the lowest prices possible. In case two or more entities offer the same price, the energy is split equally among them. The price can be altered in each trading interval, allowing both parties to adjust their bids continuously in accordance with changes in demand and supply. In addition, the discom sets its own floor price and ceiling price at which it will complete the buyback in case of excess supply or excess unmet demand, which generally acts as a range within which the price fluctuates.
Dynamic pricing with preferential trading is a model that resembles the dynamic pricing model in every respect, except this model allows prosumers to set a priority rule with their customers. It allows a prosumer to choose a consumer in advance and offer them a percentage of excess energy at a specific price. This ensures that the trade is compulsorily carried out before any other trading occurs.
The pilot allowed both the fixed and dynamic models in February 2021, and then experimented with dynamic pricing from March 2021 to June 2021, with the exception of May 2021, when it operated on the basis of fixed pricing. By the end of July 2021, around 165,565 units of electricity had been sold on a P2P basis, netting Rs 1.2 million for the prosumers.
The way forward
The pilot showed that blockchain trading can offer several benefits to stakeholders. It helps prosumers gain an additional stream of revenue by selling excess electricity, which would otherwise be squandered in vain. Further, it will incentivise increasing installation of rooftop solar. It helps consumers by providing them electricity at a lower cost than the discoms’ price, and promotes renewable energy. Discoms will have a new means of revenue generation for use of their network, that is, wheeling charges earned by supplying the electricity from producers to consumers through the grid, and will also be able to profit by increasing rates in off-peak hours when the demand on the platform exceeds the supply provided by prosumers.
Finally, the blockchain platform will earn a marginal commission for intermediating between prosumers and consumers, which will become substantial after the platform is scaled up to include millions of participants. The pilot project thus provided a glimpse of the advantages that various stakeholders could potentially enjoy upon the eventual introduction of blockchain trading in the commercial sphere.
Over the coming years, regulatory agencies, consumer groups, prosumers and distribution companies will undertake comprehensive deliberations to consider the introduction and expansion of a blockchain-based trading platform, informed by the positive results derived from this project. n
Based on a presentation by Shivansh Saxena, Assistant Manager, Tata Power-DDL, at a recent Power Line conference
