Distributing Energy through

Blockchain technology

K.I.S Consultancy Co. Ltd

SMART Technology

Technology is moving at a fast pace. Depending on your age and your geographic location

there have been numerous transformations that have affected our lifestyles and have

opened new markets and industries.

Advances in telecommunication infrastructure coupled with the SMART phone application

developments have personalised our digital experiences, encouraging greater engagement

with personal data.

The development of software applications tailored to enhance the delivery of our favourite

services are lending a hand to improving the quality of life, eEliminating intermediary costs;

reducing the time taken to deliver the services, and ensuring the satisfactory delivery of the

service.

SMART technology that is secure and trusted by the user is creating opportunities for

flourishing industries and revolutionising the way goods and services are delivered.

The UBER application for example is a SMART application that has revolutionised how we

arrange and transact taxi services. Prior to UBER the conventional way to get to a taxi was to

shout one down on the road or book a taxi in advance either online or via telephone from

the taxi shelter (intermediary).

UBER created a new online network of legitimate drivers and connected local passengers

searching for a lift in the region. Users simply login in as a passenger or as a driver and an

interactive map indicating the nearest connection would show up on the screen.

Passengers select their destinations on their phones, and drivers within the vicinity can

either accept or cancel their requests. Furthermore, online payments are agreed prior to the

service which eliminates haggling and short change.

Interactions are immediate and both passengers and drivers

interact with one another directly through the UBER interface.

This new experience has enabled:-

• Passenger’s to save time and money on ordering a taxi.

• Drivers massively reduce downtime.

• Enhance driver pay and efficiency of location.

• Significantly reduce intermediary costs.

SMART applications have made headway in linking products to

customers directly. Future advances in the development of secure

peer-to-peer networks and block chain technology will provide

groundwork for further uses in the financial and energy markets.

Blockchain Technology

Blockchain is similar to applications such as UBER in the metaphoric sense that it can store,

and communicate data directly between providers and consumers without any

intermediaries.

The technology at the heart of bitcoin and other virtual currencies, blockchain is an open,

distributed ledger that can record transactions between two parties efficiently and in a

verifiable and permanent way. The ledger itself can also be programmed to trigger

transactions automatically.

Blockchain technology uses peer to peer transaction platforms replicated across several

computers in a decentralised network.

Born as a niche product on the fringes of the market, blockchain has for some time been

garnering the attention of experts in various industries, and has increasingly been in the

spotlight of the media.

With blockchain, we can imagine a world in which contracts are embedded in digital code

and stored in transparent, shared databases, where they are protected from deletion,

tampering, and revision. Using blockchain, every process, every task, and every payment

would have a digital record and signature that could be identified, validated, stored, and

shared. Intermediaries like lawyers, brokers, and bankers might no longer be necessary.

Individuals, organizations, machines, and algorithms would freely transact and interact with

one another with little friction.

Latest technological developments in blockchain have added to the technology’s core

functionality – decentralised storage of transaction data.

Figure 1: How blockchains change the way we transact?

Traditional Transaction Model Blockchain Transaction Model

Blockchain transforming trust

Where a provider and a customer agree to enter into a transaction, they determine the variables of this transaction by specifying the recipient, the sender and the size of the transaction, among other details.

All communication inside the network takes advantage of cryptography to securely identify

the sender and the receiver. When a node wants to add a fact to the ledger, a consensus

forms in the network to determine where this fact should appear in the ledger; this

consensus is called a block.

New mechanisms, called “smart contracts”, operate on the basis of individually defined

rules (e.g. specifications as to quantity, quality, price) that enable an autonomous matching

of distributed providers and their prospective customers.

This is comparable to sending emails, which are also split into separate data blocks. However with block-chains, each transaction is encrypted and distributed to many individual computers (peer-to-peer), each of which stores the data locally. The members of the network automatically confirm (verify) the transactions stored on the individual computers. Figure 2 –The block-chain process

Blockchain applications in the Financial sector When it comes to the practical application of blockchain technology, by far the most progress has been achieved in the financial sector. In finance, unlike in other industries, blockchain solutions are not only used and developed by small communities but also by established players, such as international commercial banks. For the most part this can be explained by the fact that in the area of financial services, the blockchain transaction model can deliver huge cost reductions and make processes more efficient, all within a short length of time. The number of functioning blockchain applications in the financial industry is growing by the day. Figure 3 – Blockchain applications for financial markets

The technology and its various use cases

have made plenty of headway since the

first blockchain application Bitcoin was

launched in 2009. The two most

important developments in finance that

can currently be observed are the trend

to build smart contract applications on

blockchain technology and initiatives to

create private blockchains.

Nasdaq’s LINQ platform

In 2015 Nasdaq developed a cloud-based platform called LINQ, built on a private blockchain,

which stores information on current shareholdings and related changes, the prices of shares

issued in each investment round and information on available stock options.

The transaction of start-ups selling shares to investors before going public is primary

function of the new LINX platform. In the past, lawyers, accountants and consultants have

been required to execute and clear such transactions. In particular, the task of verifying the

information exchanged between buyer and seller has been a time-consuming and costly

exercise, since otherwise both parties run the risk of breaching procedural legal provisions

in the run-up to a transaction.

Figure 4 – Nasdaq LINQ blockchain application

Intermediary

Energy Provider

sdfadsProducers

Energy Consumer

Traditional energy infrastructure

The energy market is encountering both demand and supply side changes to deliver energy

to consumers more efficiently.

A number of companies are developing block-chain applications for the energy sector. In

April 2016, decentrally generated energy was sold directly from one neighbour to another

via a blockchain system for the first time.

Figure 5 – Traditional Energy Infrastructure

Blockchain technology will radically simplify today’s multi-tiered system, in which power

producers, transmission system operators, distribution system operators and suppliers

transact on various levels, by directly linking producers with consumers, intermediaries such

as banks and energy traders will play a limited role.

The blockchain applications developed are designed to connect energy providers and

consumers and will eventually pave the way for decentralised energy systems where energy

supplier’s can communicate directly with their customers and adjust to supply and demand

on a more granular level.

SMART Contracts

• Blockchain technology makes it possible for energy networks to be controlled

through smart contracts. Smart contracts would signal to the system when to

initiate what transactions. This would be based on predefined rules designed to

ensure that all energy and storage flows are controlled automatically so as to

balance supply and demand.

• For example, whenever more energy is generated than needed, smart contracts

could be used to ensure that this excess energy is delivered into storage

automatically.

• The granular defined nature of smart contracts will enable more robust and

accurately measured energy production and consumption.

• Customers could use crypto-currencies to pay for the energy supplied.

Figure 6 – Smart contracts

Energy Provider

Energy Consumer

Blockchain

Conventional Energy Market vs Decentralised Blockchain

process Blockchain models operate on platforms that enable providers transact directly with

their customers. A consequence of this is that intermediaries previously operating in the

market, among them trading platforms, traders, banks or energy companies, might no

longer be needed and their role can be reduced to a significantly smaller role. This could

lead to a significant decrease in system costs.

Figure 7 – Decentralisation of energy market using Blockchain technology

Where a provider and a customer agree to enter into a transaction, they determine

the variables of this transaction by specifying the recipient, the sender and the size of the

transaction, among other things. All information relating to an individual transaction is then

combined with the details of other transactions made during the same period to create a

new block of data.

Blockchain technology will enable power producers, transmission system operators, distribution system operators and suppliers transact with one another on various levels. Moreover, linking energy providers to consumers directly through smart contracts, intermediaries such as banks and energy traders will play a limited role.

Metering The role performed by meter

operators would change: they would no longer have to collect and record data themselves, as all consumption and transaction data would be exchanged automatically through blockchain technology- smart contracts.

The primary focus of the act is to

introduce an obligation to install intelligent measurement equipment for the purpose of metering and transmitting the energy demand of consumers and the energy output of producers. Aspects of electric mobility are also to be a part of the concept underlying the act. Both charging points for electric cars and their users are expressly defined as end users for the purposes of the act.

Market of energy billing is currently dominated by professional providers of meter reading services such Brunata, ISTA or Techem. Suspected cases of overcharging and oligopolistic control are frequently reported for this market segment, where tenants in particular have few options at their disposal to challenge the fees they are charged.

Solar and Wind Energy

Consumers will have the ability to connect to both conventional and renewable energy suppliers and select the type of power they would demand. Metering through blockchain will enable consumers connected to a local solar or wind grid to supply power back into the grid, allowing consumers to participate in the market as producers of energy as well.

For instance, consumers who operate their own solar systems could easily sell on the electricity they produce to their neighbours or feed it into the network.

A significantly improved database would allow for network operations to be fine-tuned better at both distribution and transmission levels. A simplified clearing process would lead to less balancing energy being charged to market participants.

This would improve the economic viability of solar systems and blockchain models could facilitate the realisation of community funded energy projects.

Transparency

The use of blockchain technology would ensure greater transparency for consumers as it would allow consumers to track exactly where the electricity they purchase was produced from. Direct transactions between energy providers and energy consumers would enable the parties to specify exactly the “contractual counterparty”, i.e. the wind or solar farm delivering the energy. This would make it possible to determine precisely the source of the electricity supplied, for example in terms of the percentage share of renewable energy. Every energy consumer would specify these aspects individually. Commercial and large customers who already have such data at their disposal today would be charged less for them, whilst probably having more details available on which they could base their analyses.

Accordingly, the entire transaction history stored on the blockchain (energy consumed and payments made) would also become transparent. The availability of a full transaction history and the possibility of running analyses on this basis would afford customers an unrivalled level of clarity.

Conculsion

Blockchain technology is still in its infancy at present, which means that it comes with a

range of uncertainties and risks. Outside the Bitcoin context – the most established

blockchain application to date – no long-term experience is available. However, after a

somewhat uncertain start, Bitcoin itself has proven to be a reliable and robust system.

As a new technology operating on the basis of a completely new transaction model, it is to

be expected that blockchain technology will be rejected by some energy players, among

energy consumers and in part by the general public.

A decentralised blockchain system without any superior authority might also turn out to

entail drawbacks for consumers, as currently there is no responsible entity that could

intervene in a regulatory capacity, provide simple services or revise previously executed

transactions.

However this should not deter energy suppliers, consumers and market participants from

looking forward.

Blockchain systems are fully decentralised and transactions are arranged, executed and

performed on a peer-to-peer basis. In addition to reducing transaction costs across the

system, increasing the efficiency of processes and thus delivering cost benefits for

customers, the technology can enable direct interactions between all parties involved. This

ensures that existing generation capacity is utilised optimally, whilst energy is made

available at the best price.

Additional potential benefits of blockchain in energy sector:-

• Increases speed of exchange, which minimises transacting backlog and overall costs

• Improves availability and reliability of data

• Improves auditability as records are verified in near real-time

• Can be used to convey title of physical commodity seamlessly between market

participants

Transacting in energy commodities is currently inefficient. Intermediaries and complex

processes impact the speed of exchanging critical data. Issues that blockchain enabled

applications could address include:

• Removal or reduction of frictional costs (e.g. broker fees) that make existing

transactions slower and more expensive

• Facilitates regulatory reporting requirements (i.e. EMIR, MiFID II)

• Increases efficiency by standardising data formats across multiple organisations

enabling inter-operability and ensures process integrity

• Reduces risk of fraud, error and invalid transactions

• Reduces credit risk and transacting capital requirements

K.I.S Consultancy Co. Ltd

Flat 4,

Building #53

Block 14

Mecca Street

Riyadh

Khartoum

Sudan

Tel Sudan: +249 96227 9374

Tel UK: +44 74555 37084

www.kisconsultants.net