Abstract

The aim of this exploratory note is to draw the first outlines of the experimental use of blockchains for energy at the local level: to what extent can blockchains impact the energy transition of cities? How can cities and their inhabitants, thanks to this technology, become a producer of energy and consume all or part of this same energy? This exploratory note provides an overview of the types of energy this technology could apply to, as well as potential uses in the territories. Multiple experiments seem to be already launched by public and private actors, for example in the sector of municipal buildings, exchanges between private actors or in the energy sector for the (electric) mobility of people. The opportunities and vigilance of blockchain technologies for communities are discussed. In addition, perspectives to establish if and when a massification of this technology at the local level could be possible are presented.

1. Introduction

The blockchain is a technology of storage and transmission of information, transparent, secure, and functioning without a central control body (definition of Blockchain France). By extension, a blockchain ("block chains" or transaction register) is a database that contains the history of all the exchanges made between its users since its creation. This database is secure and distributed: it is shared by its users, without intermediaries, which allows everyone to check the validity of the chain.

Instead of being stored at a central intermediary, this register of all transactions is distributed on multiple computers through a peer-to-peer network - this means allowing open access to data that it is hosted on its server. It uses cryptographic techniques: it is indelible and decentralized. Users' computers keep a record of all transactions.

It is the multitude of participants that creates a large chain and plays the role of verification (previously assured by the intermediaries, or "trusted third party") and validation. To work, the blockchain only needs the power of the computers. There are several platforms on which blockchain projects are based. In particular, the Ethereum and Hyperledger platforms are well established, which justifies to examine them more closely.

Hyperledger is an open-source initiative, which is led by the Linux Foundation in partnership with major industry players such as IBM, Cisco, Intel, JP Morgan, SAP etc. Hyperledger aims to strengthen the use of the blockchain in

different industries, and works for that with industries such as the Internet of Things, finance, supply chain management, the IT sector and other actors.

This initiative aims to standardize the use of the blockchain for business, in order to facilitate the implementation of a large-scale commercial adoption. Hyperledger is not just a platform, but rather acts as a federator for several communities of software developers who want to use this blockchain platform to build their projects. Under the term Hyperledger Fabric, a framework is offered to develop blockchain solutions specifically dedicated to private companies. This differentiates Hyperledger from platforms like Ethereum or Bitcoin virtual currency, because they are based on public blockchains that are at the service of all actors.

Thus, Hyperledger Fabric has the following features:

It's a private blockchain: to access the network, you need a right of access; Memberships are controlled and regulated by a central authority / intermediary.

Transactions are confidential: companies using a private blockchain have the flexibility and security to make transactions only visible to participants who have the correct encryption codes.

In theory, the virtual currency is not necessary for the operation: thus, one does not need a process of mining (ie it is the process by which transactions - eg Bitcoin - are secured) and of algorithms to ensure transactions.

Finally, the process is programmable: we can introduce programming logic in smart contracts, which automates business management processes across the corporate network.

It is important to clarify what the term smart contract covers because it can be confusing. In the book Blockchain Decrypted - the keys to a Blockchain France revolution, smart contracts are defined as "stand-alone programs that, once started, automatically execute pre-defined conditions. They work just like any "if-then" conditional statement ("If" condition checked "Then" consequence runs), and have three main inputs: increased speed, better efficiency, and certainty that the contract will be executed as agreed. These programs are capable of overcoming moral hazard issues, and reducing the costs of auditing, enforcement, arbitration and fraud. "

Ethereum is an open-source initiative, which was developed by the Swiss foundation Ethereum Foundation. This initiative uses its own virtual currency, called Ether. Ether is the most used virtual currency after bitcoin.

The principle of the Ethereum platform is that its blockchain is public and open to everyone. It can be seen as a virtual machine (Virtual Machine): its purpose is to provide all the services of a remote computer, like a cloud that would be distributed.

Ethereum allows its network of users to create smart contracts based on the fact that the Ethereum software is active simultaneously on thousands of decentralized computers. The program is autonomous and capable of executing (pre-) defined conditions of an upstream contract. Only one player cannot change a contract in this smart contracts system.

The concept of decentralized applications (Dapps - Decentralized applications) is key in the Ethereum platform: a decentralized application is totally open source, uses a cryptocurrency (like Ether or Bitcoin, necessary to access a Dapp) and works autonomously without an entity being able to control the currency issued and stores this data in a public and decentralized register (without a central point of coordination). A decentralized application rewards its users ("minors") with chips from its cryptocurrency for their work of validating new insertions in its public and decentralized registry.

 Transactions are public and open to everyone (public blockchain) Ethereum uses the proof of stake system: this system randomly chooses the next creator of a block, taking into account factors such as for example the amount of virtual currency (cryptocurrency) that he or she owns (his stake). The creator that was chosen by this system then adds a block to the blockchain and can touch the reward, when the other users in the network have validated its approach (consensus mechanism). This stake / participation proof system is different from the proof of work system: for a user to be able to add an extra block to the blockchain in the proof of work system, he is obliged to perform a proof-of-work system. a series of expensive time and energy calculations (eg hash algorithms, solving mathematical puzzles) to validate transactions and add a block to the blockchain (his work done). The proof of work system favors users who own very powerful computers, capable of performing these calculations.

The proof of interest / participation system is, in principle, more energy efficient than the proof of work system, because in order to function it does not make use of these expensive and time-consuming calculations.

2. Applications in Energy

So far, blockchain technology has been especially attractive to the finance industry, which is already starting to use the blockchain and its ability to measure, store and certify information without the need of an outside provider, to reduce the cost and the complexity of financial transactions.

But also industries such as music, the media or even shipping believe that the blockchain would allow them to develop new applications and improve their services (for example the port of Antwerp wants to use the blockchain to make its container transport more fluid). What can the blockchain bring to local energy? Here, we will discuss the possible applications of the blockchain in the energy sector.

The blockchain can be used as the main IT solution for managing energy transactions, efficiently and at a reduced cost, without the need for a traditional central control body to guarantee reliability, such as a company energy services. Each energy transaction is recorded and stored by the blockchain on all computers (nodes) that are part of its network (eg a microgrid). All participants are made aware of each transaction in real time, and their computers check each other to prevent fraud within the system. The management of energy transactions can be automated and made even more efficient and less expensive thanks to the implementation of a smart contracts system, and in a next step, with the creation of autonomous and decentralized organizations/applications (Dapps), which will no longer require human intervention.

The blockchain stores and stores all energy flows and transactions in a distributed and secure manner. It can also be used to inform, for example, who has energy at a given moment, how much it has produced, sold or bought and how its asset / energy portfolio is evolving (asset management). All this is done transparently, and each stakeholder - energy service companies, distribution system operators, transmission system operators, citizens' energy collectives, local authorities through their Stadtwerke energy services, etc. - can access this tamper-proof and indelible information at any time.

Thus, it is possible to create a historical book of these records (proof of existence), which is important from a legal and legal point of view in case of conflicts. Depending on the type of blockchain set up (public or private), the identity of network members can be either known (public) or anonymous (private).

This ability to document the blockchain opens the possibility of changing the current practices of certification and verification of energy, especially as regards the guarantees of origin or the frameworks of the emissions trading system (p. eg EU ETS). In Europe, often guarantees of origin of renewable energy are false and fraudulent guarantees, which include fossil energy and allow actors to do greenwashing. The blockchain can verify the source and type of energy at any time in an incorruptible manner (real-time audit), and create a possession history of each renewable energy certificate. This process is transparent and unchangeable, and helps ensure the management of these certificates. It can also be used to record, certify and validate emissions trading between players in such a system, an approach that is being implemented in China by IBM and the Energy Blockchain Lab.

The blockchain can also be used as a control and evaluation system (monitoring), and allow actors such as local authorities or citizens (through a smart meter) to make a transparent and real-time monitoring of their energy consumption. With the precise information provided by the blockchain, local authorities will be able to make a diagnosis and identify for example their energy-consuming buildings that need an energy renovation.

The blockchain could also facilitate the exchange of these data between the different actors of the energy system. With the proliferation of connected objects (Internet of Things), a development expected in the coming years, communities will be able to constantly obtain an inventory of their entire energy infrastructure (eg energy, smart grid, etc.).

A blockchain in permanent communication with these connected objects, which uses smart contracts and autonomous and decentralized applications (which have the capacity to work with predefined procedures by technicians), could in theory manage for the community its energy infrastructure without having to intervene directly.

The blockchain could also be used to reform the remuneration process in energy, either through the real currency or the virtual currency (eg Bitcoin, Ether). Although the feed-in tariff or the net billing program have greatly facilitated the development of renewable energies in Europe, many observers believe that these are no longer the most efficient and flexible means of remuneration to encourage massive production and consumption of electricity. 'renewable energy. The smart contracts system could allow the implementation of an automated and flexible scheme that pays the prosumers in real time and adjusts demand at a given moment (demand response). In addition, micro-payments in energy will be possible with this system, at almost zero overhead costs and in very short intervals (eg every 15 minutes), since the presence of traditional intermediate as a Energy service or payment service company will not be required to process the cash flow and the transactions made. In a local context such as a community-citizen energy partnership, the energy provided to the community could be remunerated with a local cryptocurrency, which would be linked to the local currency. The community could profit from the mining of the local cryptocurrency and use this profit to reinvest it in the local economy and fight against fuel poverty. Although this scenario is not yet widespread in European communities, the English city of Hull has already created its own cryptocurrency (HullCoin), and reinvests the profit made with its mining in its social policy that reduces poverty in its territory . Vulnerable citizens volunteer and are paid with HullCoins, which they can then exchange for hot dishes in the local food bank.

Another possible application for the blockchain would be its use in a local or regional online energy market. The community could play the new role of intermediary, acting as a matchmaker and coordinator between local energy producers and its citizens. Through an online blockchain platform, the community would bring together the various local energy producers and their offerings, and could help its citizens choose an affordable energy mix.

This energy service would not only support the fight against energy poverty, but also keep the economic value of energy on the territory, since all transactions will be made at a local or regional level. In addition, small energy producers will not have to go through the wholesale market to sell their energy, but will be able to sell it directly to the citizens (Retail market). The indelibility, transparency and efficiency of the blockchain will ensure the stability of the operations of this platform.

The blockchain could also allow the establishment of peer-to-peer exchange and collective self-consumption in a decentralized system. Thanks to the digital trust brought by the blockchain, members of such a system - producers as well as consumers - will be able to exchange energy manually or automatically (smart contracts) in a harmonized and secure environment, using virtual or real money. Smart contracts will control the amount of energy produced and consumed in real time. Participants in such a network would also benefit from the fact that the path traveled by the energy exchanged is shorter than in a centralized system, resulting in less waste of energy and reduced energy costs (e.g. marginal cost). Smart contracts can ensure the stability of such a system by independently managing storage, the balancing market and the balance between demand and power supply.

Transforming its renewable energy produced into carbon credits and selling them on the market, or offsetting an intensive carbon activity (eg flying) - all of this could become more convenient and easy to execute and monetize (in real or virtual currency) through the blockchain. A blockchain application / platform can convert these activities quickly and automatically through a smart contracts system, in a secure and transparent way.

Finally, the blockchain can facilitate the development of electric mobility as a service through the implementation of a reloading system simpler (one-click) and less expensive than existing solutions. In addition, she could

"Uberise" and facilitate direct rental between car owners with innovative payment systems such as pay-per-use. The blockchain could also manage a massive flow of data generated by autonomous cars in dedicated exchange platforms, and also help local authorities - in cooperation with researchers - to use this data to improve the infrastructure of their urban transport.

3. Examples

It is important to note that most of the examples are still at pilot stage, experimentation - there are not really blockchain energy projects in communities yet.

4. Opportunities and Points of Vigilance for a Community

Behind the blockchain, there is no institutional organization or people identified. This raises questions of control and also of responsibility. If everything is decentralized, the power is certainly distributed, but there is no one to turn to if there is a problem. If the immediacy and irreversibility of the code makes it possible to automate contracts, it is also contrary to our legal logic: a citizen may not be subject to the rules and then be tried, challenge the law. The code executes itself. If traceability can guarantee transparency, it also questions the recording of our data. These ethical and legal issues remain open.

5. Perspectives and conclusions

It is quite complex to describe precisely the angular prospects for local communities to use the blockchain because, as we have seen, applications in energy are at the experimental or pilot stage. Moreover these initiatives sometimes can be thought exclusively "techno-centered" forgetting that the Blockchain is a means and not an end in itself.

Communities must be able to grasp it with the desire to question the current modes of governance of energy often not very conducive to take into account the motivation of citizens and other actors of the territory to want to be full-fledged players in the region. local energy. It is therefore a question of changing the mode of governance, it is under this prism that declining Blockchains projects will make sense for local energy.

The experts interviewed told us that a community should not start a blockchain project just to follow the "hype" of the blockchain, but that it should resort to using the blockchain only after making a decision reflected on the added value this technology could bring to its local energy policy, and how it could help drive systemic change in the current energy system.

References