One of the perennial use cases for blockchain is P2P electricity markets—direct purchase of power from the producer. This is often intended to support local community generation, usually from roof top or other small PV arrays. Blockchain transactions fit nicely into a market that manages automated meters and routing.
Community solar generation and purchase itself is a very tempting idea for many reasons. It is a way to build up local clean energy resources and jobs and offer consumers a cost-effective option to purchase green energy. It also helps people who can’t generate their own power (e.g., because they rent an apartment) invest in local sources. And some people may be able to and want to generate far more power than they consume, which they can sell this to neighbors.
This scheme can work at the scale of root tops up to fairly large fields of generators. In fact, there aren’t really any technical barriers. The key problems to solve are financial and legal.
Delivering power from one house to another requires infrastructure, and building new infrastructure would be expensive and insane. There already is infrastructure, but it highly regulated and not open to just anyone. The default business model is to sell and buy power via the utility, who charges a lot for access.
The use case for blockchain here is to bypass the utility financially, allowing anyone to purchase electricity from anyone (i.e., “peer-to-peer”). As is always the case, it is perfectly possible to build a P2P system with conventional technology. But this kind of simple asset purchase is just the kind of thing that blockchains can do pretty well, at least conceptually.
So this is a compelling case for blockchain and surely a real world need. Why is it taking so long for blockchain (or any) P2P power markets to come true?
Alyssa Hertig reports on the experience of an emerging system in Germany, called Litcoin . Litcoin is built on Ethereum and uses “Smart Contracts” to implement an exchange for direct consumer purchases of power. They have 700 users across Germany.
“Once a user finds the energy they want to buy, they make a payment in euros to Lition. Behind the scenes, an ethereum smart contract detects this payment and automatically sends the customer their energy.”
Does this concept need a blockchain? Not really. We have similar markets where I live. But it probably is pretty cheap to implement this with Ethereum, and the cryptographic signatures and protocols make the system pretty secure (assuming that the customer and producer facing code is secure, which it probably isn’t).
Litcoin makes some interesting claims. It makes a carefully qualified claim to be the first “P2P energy trading solution that is fully licensed and commercially live in a mass market (Germany)”. This has to be qualified because there are many other similar projects in other places in various stages of development (this, this, this…). Litcoin does seem to be in the biggest market I’ve seen, although 700 users in Germany is scarcely a success story.
They make other intriguing claims, including, “Private data is stored on private sidechains. Quantum-computer safe.” I’m not totally sure what that means exactly. I assume that their side chain uses what they hope is quantum-safe cryptography. (The main Ethereum blockchain of course, is definitely not quantum safe.)
While a P2P power exchange is very Nakamotoan in spirit, LItcoin has a number of non-Nakamotoan features. The aforementioned “side-chains” are a bag on the side of the main blockchain, effectively a pretty conventional distributed data store with a blockchain layer. For that matter, the exchange is operated by a “centralized” organization. Note that they also take and make payment in Euros, one of the fiat-iest of fiat currencies.
The reason for the centralized organization illustrates the heart of the problem. Litcoin has got as far as it has by working within the legal structures of the German power grid. When they say they are “licensed”, that means that they are an officially recognized legal entity, entitled to buy and sell power across the grid. This policy structure is the key to Litcoins very existence, and has nothing to do with blockchain, and everything to do with politics in Germany.
Hertig reports that the Ethererum blockchain is actually unsatisfactory for this use. I suspect that it was easy to boot up a working system, but they have found that it is slow. They also do not need a public blockchain, which is 99+% not their business, i.e., the blocks have everyone in the world’s transactions, so it is mostly spam from the point of view of the electricity market. And being oriented to clean energy, the LItcoin people are reported to be uncomfortable with the ghastly wastefulness of Nakamotoan “mining”—and rightly so.
Consequently, the company is allied with SAP (the epitome of a “centralized” organization, if there ever was one!) to create a “private” blockchain. In this, they join many serious businesses seeking the benefits of low overhead transactions without the waste and latency of a public blockchain.
It is highly probably that the resulting system will not use Ethereum or any generic blockchain. For one thing, a public blockchain is way, way overkill for the needs of the system. The Ethereum version would let me purchase power from German producers or sell to them, even though there is no way for me to actually transfer the electricity to and from the German power grid (and it would probably not be legal to do so). So why pay the overhead of a global system, when it can only be used locally?
It seems very likely that this won’t be implemented with Ethereum, though the ultimate system might have many features similar to Ethereum. For example, they might implement a private blockchain with executable contracts similar to (but more efficient than) Ethereum. (But then again, conventional databases have had executable scripts forever.)
Will Litcoin succeed? They might, though its not clear that blockchain will ultimately be critical to success. Success will depend on the availability of producers and the acceptance of consumers. Those will depend on many factors such as the costs of electricity from other sources, public policies, and how the design of the user experience. (Most people are not interested in spending more than a minute of two on their electricity bills—so using Litcoin has to be really, really simple.)
Not A CryptoTulip!
I’ll note that Litcoin is not really a strong candidate for the CryptoTulip of the Year. This is a real use case, and they are serious about solving it. Above all, they are interested in solving the problem, and willing to abandon blockchain technology where it isn’t helping the solution.
They aren’t irrationally exuberant, they are rationally critical. So Litcoin gets praise, but can not win the CryptoTulip Award.
- Alyssa Hertig, Ethereum Energy Project Now Powers 700 Households in 10 Cities, in Coindesk. 2018. https://www.coindesk.com/ethereum-energy-project-now-powers-700-households-in-10-cities/