Research Summary: The promise of peer-to-peer trading? The potential impact of blockchain on the actor configuration in the Dutch electricity system

TLDR

  • This paper uses Social Network Analysis (SNA) to provide insight into the future of the Dutch Local Energy Market which utilizes blockchain technology.
  • The influence of blockchain technology on the functions within an existing system can be significant, yet it is not likely to be as disruptive and decentralizing as the mass media suggests.
  • Blockchain should be considered a technology that opens opportunities for all actors to reconsider their existing roles rather than a technology that threatens them.

Core Research Question

How could the introduction of blockchain in the Dutch electricity system influence its actor configuration?

Citation

Buth, M. A., Wieczorek, A. A., & Verbong, G. G. (2019). The promise of peer-to-peer trading? The potential impact of blockchain on the actor configuration in the Dutch electricity system. Energy Research & Social Science, 53, 194-205. The promise of peer-to-peer trading? The potential impact of blockchain on the actor configuration in the Dutch electricity system - ScienceDirect

Background

  • Social Network Analysis (SNA): A method that investigates social structures via networks and graph theory. The paper uses social network analysis techniques to: (1) define the P2P Electricity Markets’ internal development status of innovation niches and (2) investigate how it evolves over time.
  • Quantitative SNA: Big data-oriented analysis, often using simple SNA surveys with massive participants.
  • Qualitative SNA: Conducting interviews to collect and analyze data.
  • Local Energy Markets (LEM): Markets that enable consumers and prosumers to trade energy within their community, facilitate (near) real-time pricing and assist the process of a local balance of supply and demand.

Summary

  • How does blockchain help Dutch Local Energy Market (LEM)? LEM requires advanced information and communication technology that facilitates local energy generation, trading, near real-time pricing, and balancing and provides a secure way to do so. Blockchain is a technology that promises to do all of this.
  • This paper considers the potential of blockchain technology to empower distributed and decentralized local electricity markets. Through social network analysis, this paper compares the existing system with the potential actor’s configuration and the corresponding expected shifts in functions and network position of the actors.

Method

  • First, the authors of the paper define 13 actors in LEM based on a literature study.
  • Then, the authors perform Quantitative and Qualitative SNA with 11 participants, who are managers or executives of LEM actors. During the Quantitative SNA survey, participants filled in two social network surveys where they were asked to attribute values to the degree of frequency of interaction with other actors in the network for the existing and the future electricity system.
  • The qualitative SNA’s data was gathered and analyzed through network drawing exercises, where participants were required to draw lines representing the relationships between the actors on paper.
  • After that, the authors analyzed the data, comparing several SNA metrics.

Results

  • Below are the actors and definitions from the Literature study find:
    • Consumers: general energy users.
    • Prosumers: consumers can produce some energy on their own and resell it to the market, like having a solar power panel.
    • Electricity producers: generate power.
    • Market Operators: sell the power to the grid.
    • Transmission System Operator: maintaining the high-voltage grids.
    • Distribution System Operator: maintaining the low-voltage grids.
    • Balance Responsible Party/Trader: anticipate electricity usage of each party on the grid.
    • Data facilitator: Sharing data between network parties.
    • Metering company: Collect data and send it to the data facilitator.
    • Aggregators: manage demand response and offer technical or economic services to electricity actors
    • Charge Point Operators and Mobility Service Providers: electric car charger maintainers.
    • Authoriteit Consument en Markt (ACM): supervise and regulate the market
  • The paper’s authors chose a total of 11 participants from each of the actors above except Consumers and Prosumers.
  • Quantitative SNA
    • The authors provided several metrics and pictures about the current and future networks.

    • Current Network

    • Figure 1: The social network for current configurators. The thickness of the line represents the strength of the actors.

    • Future Network

    • Figure 2: The social network for current configurators. The thickness of the line represents the strength of the actors.

    • Metrics comparison of current and future networks

Table 1: The SNA metrics for different actors in current and future SNA.

  • Qualitative SNA

    • The authors also show the function change for each actor on current and future LEM network, and the function change for each actor on current and future LEM network.

    • Table 2: The function change for each actor in current and future LEM.

    • Actors in the existing electricity system and the potential evolution of the system in a blockchain-based electricity system.

    • Figure 3: the involvement of the network. The more the middle, the more important the role is

Discussion and Key Takeaways

  • A new or existing actor would arise to be the blockchain operator overseeing the generation and optimization of the algorithms on the blockchain.
  • Since there are many actors, the implementation of blockchain is likely to have a difficult time being translated to practices in the electricity system.
  • The influence of blockchain technology on the functions within an existing system can be significant, yet it is not likely to be as disruptive and decentralizing as may be suggested in the mass media.
  • Blockchain should be considered a technology that can open opportunities for all actors to reconsider their existing roles rather than a technology that threatens them.
  • To perform a meaningful Social Network Analysis, one not only needs a detailed literature study to define the scope of the research but also needs to select domain-specific research participants.

Implications and Follow-ups

  • This paper is a stepping stone for the potential future of LEM in various ways, such as exploring the nature of the impact of blockchain technology under this context or the potential actor role setup. It is widely cited and has accumulated 38 citations within two years.
  • The results of this paper also inspired other proposed energy management system models to understand peer-to-peer energy trading further or managing electricity grids with distributed assets.

Applicability

  • This paper performs an outstanding Market Potential Analysis via Social Network Analysis with only 11 research participants’ interviews. This is possible because the paper only considers the view of influential executives which is applicable to other industries so researchers can define the scope of their research.
  • The research is a helpful guide for Blockchain researchers who want to do their own Market Potential Analysis. By interviewing key actors and using SNA, they can know the potential impact on relative stakeholders and know how to design their product to fit the need.
4 Likes

P2P electricity markets, especially Local Energy Markets (LEMs), have become top of mind in light of the energy crisis we currently face globally.

There have been previous attempts at creating such markets using a blockchain data structure, the most prominent one being Grid+ in NYC.

I found the use of Social Network Analysis (SNA) interesting in this context since LEMs tend to follow the social interactions of members within a community. Did the authors provide more context as to why this method was used to provide insights on LEMs?

4 Likes

@cipherix Thanks for your comment and questions.

This paper provides information on how key roles in current and future LEM interact with each other. Hence building a corner stone for future research and applications.

So far, Some papers reference this paper to talk about the potential future of LEM. For example, [1, 2] cite this paper to state that the impact of using Blockchain to decenterialize LEM is not disruptive but opportunities. [3, 4] cite this paper for its actor role setup in LEM.

Moreover, there are others that proposed energy management system model [5, 6] with Blockchain based on the result of this paper.

[1] Renewable energy sources from the perspective of blockchain integration: From theory to application
[2] Designing for justice in electricity systems: A comparison of smart grid experiments in the Netherlands
[3] Many actors amongst multiple renewables: A systematic review of actor involvement in complementarity of renewable energy sources
[4] Connecting the grids: A review of blockchain governance in distributed energy transitions
[5] A novel decentralized platform for peer-to-peer energy trading market with blockchain technology
[6] ​​A Blockchain-Based Configuration for Balancing the Electricity Grid with Distributed Assets

3 Likes

@EasonC13 Thanks for an enlightening summary of a paper that analyzes a hypothetical large-scale use-case of blockchain technology.

In the abstract of the paper, the authors conclude that “the impact of blockchain does not seem to be as disruptive and decentralizing as may be expected”. In my opinion, this seems to be a common denominator for most mature industries, such as the electricity system, where no tangible disruption has yet occurred as a result of blockchain - with finance as a notable exception. This finding is in line with more recent research on the question of whether blockchain is a disruptive or sustaining innovation, e.g. MIT (2022) who finds that most experts agree that blockchain is more likely to be a sustaining innovation than a disruptive innovation. I am curious as to whether you agree on this view?

Another aspect of the paper that caught my attention is that according to the study the only new actor/function to emerge due to blockchain is that of “controlling and operating the blockchain platform”, i.e. a blockchain operator. Yet, similar to other public blockchains, e.g. Ethereum, once the code and network infrastructure is in place it would seem plausible that the network itself is handed over to the local community, i.e. the LEM, who wants to participate in it.

This brings me to my second point. If a local energy market exists on a public blockchain is it then not possible to represent grid infrastructure as e.g. NFTs and import electricity production data from prosumers and producers through oracles? And, if so, do you think this will enable the formation of community-level DAOs that take a more active approach in distributing rents from energy markets? Also, do you find a complete migration of a local energy market to a blockchain feasible, and, if yes, how do you think it could potentially alter the network analysis conducted in the paper?

2 Likes

@windr
Thanks for your inspiring response, you ask many interesting questions that helps me to think deeper!

most experts agree that blockchain is more likely to be a sustaining innovation than a disruptive innovation. I am curious as to whether you agree on this view?

Yes I agree, I think as the performance (TPS) and standard of blockchain improve, the things Blockchain can practically come in handy will increase and gradually reveal its true potential.

Regarding your second point, I consider DAO is a good way. However, complete migration to the existing blockchain network has some concerns,s such as Gas Fee. Actually, I prefer a layer2 network focus on LEM because it is for ‘Local’ Energy Market and build a DAO for that layer 2 networks. Then, the token, NFT and oracle can run on that network. After all, if LEM use layer 2 as their solution, they might need to include cross-chain maintainer and developer into network analysis, too.

1 Like