Engineering Decentralised Energy Markets

Written by Dirk van den Biggelar, co-founder of Energy Bazaar, this is an introduction on decentralization of the grid for developing countries.
Published: Mon 11 Jun 2018
A blog entry by Rhythima Shinde

Contributed by:

Rhythima Shinde
Energy Bazaar

Rhythima Shinde's Blog

With the rise of distributed energy resources, smart meters, electric vehicles and smart-grids, the future is now.

Smart cities are slowly becoming a thing of the present. The first steps are already taken. Think of shared electric scooters, solar rooftops and smart household managing.

These developments are in line with the current shift in paradigm of distributed systems and decentralisation; with this, a decentralised bottom-up approach rather than a top-down is much preferred, as this article will explain.

What problems are triggering this change of paradigm?

With the ordinary electricity grid we all grew with, numerous problems arise due to centralisation of power supply and control. With this centralised power grid, all power generation or control is centralised at a few point in the network, think of large power plants or main circuit breakers. These critical point in a system are called single points of failure; when this points fails, the whole grid fails.

A break-down in one of these place immediately results in a grid-wide power-outage. The biggest power black-out in history occurred in India in 2012 affecting 9% of the world population. Black-outs are not only happening in old centralised grids in India; Australia was hit by a storm in 2016 and damage to a transmission station resulted in a state-wide cascading failure. “India blackouts leave 700 million without power” - The Guardian, July 2012

With this come other constant troubles. Firstly, transmission costs are high. Resistive heat-loss in transmission cables easily amount to 20% of a energy bill. Secondly, besides inefficiency, energy ownership is non-existent in developing countries such as India; feeding back into the grid when producing a surplus of energy is poorly reimbursed in most states, or not at all in others. Billing procedures are cumbersome, often due to isolation of rural villages and the lack of a network of communications. Distribution companies (DISCOM’s) have to go door to door to make up the energy bill. And how come fraud energy theft still widespread? We want to work towards a decentralised and distributed energy grid; democratisation of the power grid, easy access to electricity and sustainable innovation.

Why distributed systems?

A micro-grid can operate autonomously, even when the main grid fails. This is because all tools that support a micro-grid are not centralised in one spot, but are neatly distributed among the grid. Micro-grids that achieve decentralisation through distribution of generation, storage and control solve the most urgent issues in grids these days.

The robustness result from the lack a single point of failure, self-sufficiency from a balance between local production and energy storage capacity. With a self-sufficient micro-grid, power is produced and consumed locally and thus transmission costs become negligible. Distributed energy resources can be mostly sustainable; think of roof-top solar panels and farmer’s wind turbines that are reaching grid-parity within the coming years. This means it will be as cost-effective to use local solar power as power from a power plant.

A very important note is the tedious task of maintaining grid-stability. While single-points of failure are absent, problems in grid-stability arise in control due to distribution. An example; due to absence of a ‘infinite-bus’ aka. the rotating inertia of large turbines of centralised power-plants, maintaining frequency proves to be a problem. Made easy; solar panels do not contribute to necessary rotating mass, since they simply do not spin. We should keep this not in mind for the rest of the article.

Why share energy?

Put simple, inefficiencies in the grid arise when there are peaks in electricity demand while encountering dips in supply, due to the high intermittency of solar panels and wind turbines (think of clouds or windless hours). This problem can be mitigated if the power demand is controlled, shifting energy consumption away from peak loads and thus balancing the energy consumption or through energy buffers.

In modern-day micro-grids, households are typically prosumers; they produce, generate and store energy. Storage is essential for creating an energy buffer in the micro-grid; Charging during low-demand periods when surplus energy is available, while supplying the extra energy needed during peak hours, enabling an elegant tool for load-balancing and mitigating the supply-and-demand mismatch. Instead of load-balancing through urging end-users not to consume during peak-hours, we can deploy storage and create a buffer.

Households communicate with the grid through smart-meters, transforming the grid into a smart grids. One of may win-win situations could be to following; Household A can install rooftops, produce energy everyday and sell the surplus energy to Household B, that recently invested in a household energy storage system. Household A can buy back the energy in the night, when dinner is cooked on a electric stove. For this game of batteries charging and discharging in optimal configuration, we require a smart algorithm. We can give this mechanism a interface by running it as a platform or marketplace.

How to make a marketplace for energy sharing?

With the accelerating implementation of distributed energy resources and the requirement of keeping distribution losses as low as possible, a conclusion can be made that local energy trading is preferred. This thesis focusses on developing a decentralised algorithm for local energy trading. Decentralised, since no central aggregator is present to manage the trade. Local, since keeping energy within the microgrid to reduces transmission costs. Hence, game-theory is introduced to supply us with this autonomous and decentralised trading mechanism.

Households are represented as players and run their own optimisation on their smart-meter. As stated previously, batteries can initially run this algorithm autonomously, but efficiency can be increased by giving end-users tool to influence the game, e.g. stating the desire of a fully charged Electric Vehicle in the morning or a permanent amount of stored energy in case of emergencies. The algorithm will need a drive. To optimise a matching supply and demand, economic revenue is optimised. To keep grid-stability, the algorithm should punish selfish drainers; e.g. if the best response of all household batteries would be to drain to entire grid of its power, supply and demand will surely mismatch and a possible grid-failure could be imminent. Revenue is only optimised in a properly functioning grid, a black-out causes the biggest loss.

Conclusively, the charging strategy of the battery in household A will be an optimisation between variables; Best response of battery = optimisation(economical revenue + grid-stability)

How to make it tamper proof in absence of a trusted third party (TTP)?

Who will guarantee the algorithm is not tampered with? Without the authority of a rule-book, how can a group of players agree on the rules of the game? Surely one of your opposers will make up a rule in their own favour and win. During a game of chess with a friend, trust is created through a social-bond. In modern digital world, you deal with people you do not know on a daily basis. Rational behaviour in absence of a empathic bond is to choose for your self, and maybe even cheat. To make this situation more workable, TTP’s were introduced. Think of banks. They facilitate trust so random people can make transactions without being afraid to be scammed. Even so, things can go horribly wrong. So ideally, what is needed is a trust-less environment. Using blockchain, this environment is created.

Blockchain gives us a decentralised database that is tamper-proof, where all critical information about the algorithm and ‘trade-deals’ can be stored on this database, and that can be run by all stakeholders in the grid making it very robust. Consensus on the algorithm, trade-deals and prices can be reached without the help of a third party. From a less engineering point-of-view, Blockchain provides an unimaginable tool against fraud, bureaucracy and fór a more democratic and fair world. We want to create a truly decentralised energy market, not only of transfer from A to B, but decentralised payment back from B to A as well.

How is privacy maintained?

Since the trade algorithm basically plays rounds in a trade game, private information about consumption patterns are exchanged. As long as there is no ID linked to this information, there is no problem. Using ring signature schemes, players can share sensitive information without the receiver being able to trace the sender. This translates into; ‘a thief could know that an arbitrary family is on holiday, but he does not know what family and cannot track down the address of that empty home.’ Pseudonymization: “A thief could find out that a family is on holiday, but can not track down its empty home” When storing sensitive data on the blockchain, a similar problem arises. Zcash and Monero are blockchains where respectively the stored information is kept private and where ID-traceability is disabled, by use of ring signatures and zk-Snarks. With both levels of the system pseudonymised, privacy should be guaranteed.

Where lies the societal impact of a free energy market?

With an established energy marketplace, energy can now be locally traded directly among players. It creates an additional incentive to adopt distributed energy resources, because money can be made. Since solar power is expected to become cheaper than fossil-fuel alternatives, this marketplace indirectly results in the increase in sustainability. Launching this as a platform on blockchain, the marketplace becomes tamperproof. Ownership will thus belong to the end-user. Since the platform is decentralised on Blockchain, ownership is linearly proportional to contribution. A fair reimbursement for energy supply is possible, without extra fees.

With a immutable public database, transparency increases and billing/taxation becomes efficient. For every unit of energy flowing through a smart-meter, fair reimbursement can be provided. With this tokenising of energy, energy becomes an asset that can be traded for other essential commodities, enabling a smart economy. All stakeholders in the grid, micro-grid operators, DISCOM’s and end-user are all united on one platform. With this, the power grid will no longer be top-down, but more democratically owned by all.

Why is potential impact bigger in developing countries?

While being a great concept, in developed countries such as the Netherlands, an decentralised energy marketplace will result in an increase of efficiency. In addition, because of the tokenisation of energy, prosumers start getting paid for what they produce.

Conclusively, an economical boost.. Since services are already well provided and TTP’s are generally well trusted, a decentralised platform will merely play out as a financial bonus. Now imagine what the impact of a fair, decentralised and tamperproof economy could be in developing countries, in countries struggling with an authoritative government or countries wanting to transform into a honest and trust-less society because fraud and corruption still are widespread issues.

A leapfrog into a smart-city is perfectly possible. Introducing blockchain into a society means ownership of assets, dissolution of fraud and social inclusion. Pushing the development in distributed energy resources is rendered ineffective if prosumers, now in possession of tools to sustain a micro-grid, do not have the means of transparent sharing of energy. There is no still no means and incentive for the farmer in rural India to supply back to his village the energy he produces when his solar panels are not powering his irrigation system.

There is no possibility for the energy-poor to buy micro-amounts of energy for a reasonable price. There is no platform where all stakeholder can come together and provide services to maintain sustainable development and innovation. To provide this, we have founded Energy Bazaar. With Energy Bazaar, we are aiming to make the greatest possible impact in developing decentralised grids of future.