A blockchain to trade energy in Europe : cost reduction analysis

Abstract

The external cost per trade is gaining importance in energy trading companies as profitability is being reduced due to the increment of small volume transactions, at a reduced price and on a shorter term, with the expansion of Renewable Energy Sources as main driver in the background. Blockchain, a relatively new technology which promises a realm of no transaction costs among other advantages, could help to mitigate this unprofitable development by removing some charges, mainly those paid to intermediaries, such as clearing and exchange fees, broker fees, access to an exchange, index agencies, OTC electronic platforms fees, etc. This work aims to clarify the role that a blockchain could play in energy industry by focusing on wholesale energy trading and the costs that this technology could save to each type of market participant. A cost comparison between the German EPEX SPOT and a blockchain infrastructure which could provide the same level of service is developed in detail. The expectation of the trading community is analysed thanks to a survey to the energy trading community. This poll tries to gather the opinion of experts on the many questions around the use of a decentralized ledger technology to trade wholesale energy. Many of these questions are related to the compliance of this technology in current European Energy Markets Regulation. These rules are reviewed and analysed in regard of the application of blockchain in wholesale energy trading. Finally, it is concluded that the use of the new technology in this field could be a cost efficient tool for energy trading companies provided that the regulation is adapted to fulfil its many requirements. The results of the survey go in line with the rest of this research.