Blockchain trading platforms seek their niche

Germany's Ponton is rolling out its blockchain infrastructure for innovative new flexibility markets.
Published: Fri 09 Aug 2019

An attempt to use a blockchain energy market in Europe has showed that the wholesale power trading community is not quite ready to switch from Trayport and other established platforms, but the technology is being rolled out to new markets further downstream.

German software company Ponton’s blockchain-based decentralized marketplace Enerchain initially attracted a wide group of energy market participants and it went live in May, but it is dormant as it has not yet been able to overcome the same hurdle that has tripped up previous attempts to disrupt the trading sector status quo: how to attract liquidity away from established venues. This is not a reflection of any shortcomings with the technology, more another example of how high the barrier to entry is for any new platform unless it has support from voice brokers who – despite the emergence of exchanges like the Intercontinental Exchange – are still the gatekeepers to liquidity.

A NEW niche

Blockchain-based systems may have a more successful journey in new, niche markets which because of much smaller lot sizes will only work with low transaction fees and where cost-savings are a primary driver. The Enerchain technology is now being used as the building block for a flexibility marketplace for an alliance of companies and organisations called NEW 4.0, which is one of the five large-scale projects being supported by the German Ministry for Economic Affairs and Energy (BMWi) in the Smart Energy Showcases – Digital Agenda for the Energy Transition (SINTEG) funding programme.

Sixty project partners with a total budget of more than €40 million including TSO TenneT, DSOs Schleswig Holstein Netz and Stromnetz Hamburg, generators such as ARGE, large industrial consumers such as ArcelorMittal, Aurubis and Trimet and traders, municipal utilities and electricity suppliers are involved in the project in Hamburg. The region has a high proportion of wind generation, and therefore high levels of congestion and the DSO often has to curtail output if wind speeds are too high. The project is intended to show how the region of 4.5 million inhabitants can be supplied with 100% renewable energy by the end of 2035.

The resulting marketplace will give an interesting insight into the social value of grid congestion management. A consumer such as copper manufacturer Aurubis might bid in an offer to increase its power consumption for a certain price, lower than the current market price. A generator expecting surplus power would offer to produce at a certain price, creating a bid/ask spread. The DSO or TSO can intervene and bridge the spread in order to alleviate constraints. A demonstration transaction took place in June and the project is gathering participants to go live later in the year. 


For participants in the NEW 4.0 project who take part in the flexibility market, grid fees are eliminated and the renewable energy surcharge (“EEG Umlage”) is reduced by 60%. This means a reduction of the electricity costs for flexibility trading by up to 12 cents. This price reduction thus offsets the “early mover disadvantage” of the project participants because, facing the required innovations on the project, there are still some technical and organizational hurdles that must be overcome by electricity generators and energy consumers.

Enerchain uses the Tendermint infrastructure not the more common Ethereum system, as it reduces the block time to one second which facilitates trading, and it allows more flexibility with distributed software development. However, costs are higher for the software developer as certain administrative functions must be performed separately.

“Using blockchain for the execution of trades disintermediates the man in the middle (broker/exchange). In this sense, blockchain helps to reduce the cost of trading. In other industrial sectors than energy, market participants would not even trust a third party, so decentralisation is the only option if a market infrastructure is wanted to increase price transparency,” says Michael Merz, founder and managing director of Ponton.


Another project using the Enerchain technology supported by BMWi is called ETIBLOGG (Energy Trading vIa Blockchain-Technology in the LOcal Green Grid), which will allow trading in 15-minute intervals in local communities between prosumers and their neighbours. A blockchain device will sit next to the participant’s smart meter and will make a decision to buy power on behalf of the consumer if the local price is below an upper cap. On the other side, prosumers may sell their power either at a lower cap to the supplier or at a higher price directly to the consumer. The local market price for peer-to-peer trading depends on factors such as time, week day, weather forecast, consumption/production forecast etc. As a participant in ETIBLOGG, the German DSO GETEC Energie assumes the role of the residual load provider who buys excess production of electricity from the prosumers and sells it to the consumers. Batteries could also be incorporated to smooth the load at higher levels.

This will allow for the self-optimisation of the local grid, says Merz. Project participants aim to locate an ideal local community for a field trial, which should be identified by November, and the project is due to run until March 2021.

Community trading projects face some challenges, for example restrictions on data sharing put in place by the EU GDPR legislation, or how to prove the business case. In order to attract participants only extremely low transaction fees could be charged, which means that many participants and transactions are required to make a platform viable. But there are many projects of this type in Germany alone, such as Enyway, OEEX, Lutricity, Wuppertal, and others globally such as LO3 Energy, Power Ledger, Suncontract and Voltex, which are moving towards commercialisation, with other internal prototypes being developed privately. Prosumers may be more inclined to participate in these kind of markets from next year in Germany, when renewable energy subsides will begin to be phased out.

Very few of these projects actually concentrate on implementing a decentralised marketplace, Merz says. “In most cases, blockchain is used as a joint data store for meter readings. I expect many more months in this space until the initial phase of experimentation is overcome and productive use has started."


Enerchain's trading robot

Related Webinar