Abstract
The article proposed a list and discussion of the aspects that should be considered before implementing Blockchain technology in the renewable energy trade. In the proposed model, electricity is generated by solar energy and uses consumption and production data, among other things, to price electricity in a double auction, in which sellers present their prices and buyers send their bids at the same time. The use of Blockchain technology allows real-time monitoring of consumption and production, and real-time trading where third parties are not needed. It also has the potential to maximize profits from the perspective of prossumidor and minimize electricity losses. Considering Finland, it is already possible to realize that customer segments are delimited in subgroups within cities and requires the involvement of the electricity company, awareness at the state level and inversion in pilot projects.
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1 Introduction
Microgenerators with renewable energy and their microgrids are presented as an option to overcome this challenge of electrification of the energy system. In order to integrate the new prosumers of renewable energy into the conventional electricity grid, it is necessary to evolve to a new stage, called smart grids. According to Ref. [1], a smart grid is defined as an electrical system that uses information, two-way communication technologies, cybernetics and intelligent software applications at various layers of the power system, from electricity generation and storage to the endpoints of consumption. These transformations are bringing new ways of seeing the energy market.
Peer-to-peer (P2P) electricity trading allows prosumers and consumers to trade electricity with each other to balance supply and demand. For example, when a user installs photovoltaic solar panels (becoming known as a prosumer), and they have an excess of electricity, they can exchange it for other consumers in exchange for a financial benefit. These new energy market transactions need to be secure, transparent and efficient.
Blockchain technology means building consensus in negotiations directly between the actors (without additional intermediaries) giving transparency and trust to the system, and it is not just for the purchase and sale of energy. It is also possible to apply Blockchain technology to the mapping of values and rights (transparency of origin and ownership), among others. Smart contracts, for example, allow the cooperation and performance accounting of autonomous systems, and mean traceability and irreversibility in the generation of renewable energy [2].
This article aims to discuss the initial phase to develop a business model for a P2P electricity trading system, taking as a case study in Finland based on the business model of Ref [3]. Thus, the objective of the work is to identify and list the necessary challenges so that Block-chain technology can be used to commercialize photovoltaic energy credits between consumer, pro-consumer and energy company.
2 Methodology
Initially, the type of Blockchain technology with the most promising results in P2P electricity trading was identified based on existing research, and then they were compared with each other and applied in this business model. The business model was built based on Ref. [3] which is divided into nine sections which are: Key Activities, Partners, Resources, Value Propositions, Customer Relationship, Cost Structure and Revenue Streams. Each section was then evaluated with a focus on previous research and results from pilot projects.
2.1 Key Activities
Key activity factors such as the use of Blockchain and photovoltaic solar energy production are the main topics to be considered.
Use of Blockchain.
For a local energy market, a Blockchain allows the use of smart contracts and data sharing. With a Block-chain, every transaction can be seen from the ledger, and everything is transparent. This helps bring more confidence to the system from the user's point of view [9, 10].
Blockchain can be of two types: public or private. A private Blockchain allows the use of a system in which the verification of any transaction takes place by a private operator, and does not keep the system open to everyone, as is the case with a public Blockchain. Since the purpose of Blockchain, in this context, is to serve users in a certain geographic area and ensure security and transparency, a private Blockchain is a more suitable option [4].
In a P2P electricity trading system, transparency is crucial for the consumer to see how much electricity is available to buy and for a prosumer to see the demand. A smart meter makes it possible to visualize data in real time. In the case of the Brooklyn Microgrid, consumption and generation data are transferred from the participants’ Transactive Grid smart meters to their Blockchain accounts [5].
Production of Photovoltaic Energy.
Finland’s climate and geographical location were considered in the challenges. Although Finland is located in the North and solar radiation is relatively low compared to countries in the South, achieving a surplus in a residential household with solar photovoltaics is possible even during certain hours of October with sufficient installed capacity of photovoltaic panels.
2.2 Partners
The main activities, the use of Blockchain and energy trading include the strong involvement of prosumers and consumers, which makes them the main participants. Prosumers handle renewable energy generation and consumers play an important role in creating demand. The third partner is the network company. The supply drops to zero at certain hours, for example, during those hours when solar radiation is very low [6]. This leads to the situation where both consumers and prosumers must buy their electricity from an external source, which in this case is the electric company.
2.3 Resources
Key Resources are the tools and materials needed to implement the main activities of the business model. For this procedure, everything from electrical energy production to distribution must be considered, in addition to researching the most optimal technology. To go into detail, the necessary resources are the hardware such as smart meters, the software, the distribution network and the system participants [7].
2.4 Cost Structure
As the model aims to offer greener electricity at a lower price. Costs such as initial investment, transaction costs on Blockchain and electricity transmission costs must be considered.
Cost of Photovoltaic Generation System.
In the simulation of the LAMP project in Germany by [5] 25% of the participants were prosumers and the photovoltaic panels were all 5kWp, as a result it was noted that the P2P system did not lower the electricity price as much as expected. In order to lower the price of electricity further, and to have a more successful P2P power project, the local production of photovoltaic energy must be higher.
Blockchain Transaction Costs.
Since the most important activity of the P2P power system is trading, most of the costs come from it. The entire system runs on Blockchain, which consumes energy, portrayed as “gas” for Ethereum, which forms a significant portion of the costs. For comparison, PayPal transactions are twice as expensive compared to Ethereum transactions [8]. Gas consumption depends on the number of market participants, the trading mechanism and the trading interval.
Ref. [4] simulated gas consumption for an Ethereum within a local energy market with different trading structures and number of participants. Whether trading is live or next day influences gas usage and therefore costs. Next day trading is more gas efficient due to the lesser amount of information required compared to live trading. In real-time trading, trading ranges are an important factor driving gas usage. 15-min trading intervals are suggested to reduce trading costs compared to using a 5-min trading interval.
Electricity Grid and Distribution Costs.
One factor in the costs that a traditional centralized system faces is the cost that the loss of electricity with long transmission lines causes. With a decentralized system, these costs are reduced, as electricity is generally transported within the local system and the negotiation algorithm favors shorter transmission lines [11]. The simplest way to take care of transmission costs would be to include them in smart contracts so that transmission is paid immediately with the transaction payment.
2.5 Revenue Streams
This model's revenue streams were identified by comparing Blockchain algorithms to each other and recognizing algorithms for trading and managing load and generation that result in higher profits and less wasted electricity. In the search for the most optimal trading mechanism, factors such as gas consumption, trading intervals and electricity cost were evaluated. The trading mechanism was then chosen based on the evaluation. The need for a Blockchain algorithm for load and generation management was recognized by identifying the challenges of high demand and supply peaks in a P2P electricity system. The structure of the dual auction framework. In addition to being fully automated and having a market-clearing price that connects supply and demand, it is also cost-effective, which is naturally important for consumers. A double auction mechanism is also secure, and the level of decentralization is the highest.
2.6 Value Propositions
The process of finding value propositions focused heavily on developing a Business Model that meets the future requirements of CO2 emissions in energy production. An added value that the P2P system offers is the price reduction. The electricity price of the P2P system is lower than the retail price of the main network [12]. One value that is added to prosumers is the profit from trading energy for peers. Since profits stay in the community instead of going to a centralized system, community approval is higher. The P2P system adds sustainability beyond just creating financial value to its users.
2.7 Customers
Previous pilot projects of P2P power grids were carefully examined to identify the required customer segments. The results of these projects also helped to identify the Relationship with the Customer that this model creates. Prosumers can then be divided into different segments by form of residential construction. Apartment buildings can become prosumers by installing photovoltaic panels on their roofs. In this way, the initial investment can be divided by the number of apartments. Detached houses are one of the main customer segments of the P2P system. They can be prosumer simply by installing photovoltaic panels on their roofs and easily generate surplus electricity even without having an installed capacity of 19.1kWp, as shown by [6].
3 Conclusions
This research aimed to develop a business model for a P2P electricity trading model in Finland. As there is no prior research for this area covering P2P electricity trading in Finland, this research article brought together existing research on electricity trading using Blockchain technology.
Challenges of decentralized energy systems and the need for more renewable energy were identified, and the demand for a business model for a decentralized energy system was recognized. Based on promising results with Blockchain technology and distributed energy systems, it was noted that a business model for P2P electricity trading is required.
Blockchain algorithms are crucial to the functioning of this system. Systems aim to be fully automated where algorithms are important. They are needed to calculate the price, to execute trades and to control generation and load. It was also found that using a Block-chain algorithm to control generation and manage load is suggested. Due to climate variation and peaks in electricity consumption, such an algorithm is necessary. Load and generation management has been found to increase both prosumer and consumer profits by reducing wasted energy.
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Acknowledgment
The authors would like to thank FAPEMIG - Fundação de Amparo à Pesquisa do Estado de Minas Gerais, CNPq - National Council for Scientific and Technological Development, and CAPES - Coordination for the Improvement of Higher Education Personnel for financial support in this research.
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Veikka, S., Renó, A.A., Khosravi, A., Pabon, J.J.G. (2023). Initial Considerations for a P2P Trading Model for Electricity Generated from Photovoltaic Solar Energy Based on Blockchain Technology. In: Vizán Idoipe, A., García Prada, J.C. (eds) Proceedings of the XV Ibero-American Congress of Mechanical Engineering. IACME 2022. Springer, Cham. https://doi.org/10.1007/978-3-031-38563-6_33
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