Swedish state-owned energy company Vattenfall is to collaborate with 22 other European energy trading firms to launch a blockchain-based pilot.
Should the project prove successful it would become the world’s first blockchain-based trading system for wholesale energy.
Vattenfall’s Business Area Markets division will conduct the pilot in order to deepen its understanding of the technology and conclude whether or not such a decentralised solution could match its existing trading platforms while simultaneously reducing cost.
What is blockchain?
A blockchain is a database that exists on a peer-to-peer network capable of collating a list of records or transactions, all of which are time-stamped and linked to the previous entry. The data is intrinsically secure as it cannot be retroactively altered without changing all subsequent records. The technology has attracted huge interest from the financial services industry due to its capability of safely recording transactions between two or more parties without the need of a centralised broker.
The trial will be managed by Hamburg-based B2B solutions provider Ponton, which will provide software that facilitates encrypted sending and receipt of orders through a decentralised order book.
The trading is all managed on a peer-to-peer basis, removing the need for a central marketplace that is operated by a third party exchange or broker.
Vattenfall currently conducts all of its energy exchanges through brokers or broker platforms and Kilian Leykam, manager of business development of trading at Business Area Markets, revealed that around 1,400 deals are struck across all energy commodities and markets on an average day.
“Each deal causes transaction costs and has to be processed in our trading, reporting and controlling systems. Once we are able to apply blockchain technology in energy markets, we will be able to operate more efficiently and at lower transaction costs,” he said.
Meanwhile Vattenfall has also spoken of its interest in blockchain to enable trading of energy generated by small-scale, decentralised installations such as domestic PV, describing it as a “key puzzle piece of the new energy landscape”.
“Blockchain is widely seen as one of the most interesting and disruptive technologies for the coming years, with Bitcoin as the best-known example of a cryptocurrency based on this technology. With Blockchain, one party can tradepass a good such as money, securely with another party without a third party intermediary involved, such as a bank,” said Christian Tobias, solution architect at Business Area Markets.
The proof of concept project is to run until the end of this year and will enter a crucial phase towards the end of 2017 when live trading using the platform begins.