Authors: Marcel Kaiser, Simon Blöthner, Jonas Gross
Recently, the environmental impact of living, especially of transportation, has become more present and relevant in western countries. Looking at the future of the energy economy, energy demand and energy pricing, technological innovations should not be neglected that might impact all these fields. Blockchain technology has been identified as such a innovation. In this article, we discuss existing concepts of the energy economy, smart charging and blockchain technology. We sketch a possible future of energy utilizing blockchain technology from a German perspective.
The German government had an ambitious goal. Originally, one million electric cars were supposed to be on German roads by 2020. Although this target could not be achieved, Germany has now succeeded in significantly increasing the amount of electric vehicles on its roads. The number of electric cars in 2019 totalled 83,000, and sales of hybrid or electric cars in Germany almost doubled between January and October 2019. In view of the enormous potential of electric mobility, the potential of electric cars is not yet fully exploited. However, it can be expected that the number of electric cars will continue to rise significantly in the coming years. Both the range of electric cars and the charging infrastructure are more and more approved. This enhancement significantly lowers the barriers to installment and purchase.
Value added of electric mobility for the power grid
But what exactly are the advantages of electric vehicles? Electric vehicles have a lower energy consumption than combustion engines implying a positive effect on the environment. In addition, electric vehicles can also drive useful spillover effects on the energy industry. In the future, for example, there will not only be great importance attached to energy efficiency, but also to energy flexibility (demand-side management). But why is a more flexible energy demand desirable? This is primarily due to the fact that the production of sustainable energy is unsteady and the power grid is subject to strong fluctuations. Accordingly, the aim is to encourage consumers in the future to stabilize the grid without having to give up established habits and therefore quality of life. Here, rechargeable batteries, for example from electric cars, can help to smooth strong demand fluctuations.
In the context of electromobility, such an approach is known as “Vehicle to Grid”. Vehicle to Grid deals with the potential that can be realized by integrating electric vehicles and their batteries into the power grid.
An example: The charging behaviour of private individuals can be made dependent on the supply of renewable energies and the price of energy. In the event of high energy demand and low energy supply, for example due to unfavorable weather for photovoltaic and wind energy, the grid is utilized at full capacity and the price of electricity is correspondingly high. Individuals could then provide electricity stored in batteries, sell it and generate income in this way. In the opposite case of low energy demand and high supply, electricity prices would be low (partly negative). Accordingly, it would be beneficial for private individuals to demand electricity for their own consumption or for storage. Over time, this approach offers consumers considerable savings potential.
If a sufficiently intelligent charging control system is in place, these potentials can easily be realised without drastically changing charging habits. Under certain circumstances, this can encourage consumers to buy electric cars, since charge management of the car battery can generate additional income. In this way, financial returns could be easily generated without human intervention. Increasing the attractiveness of electric vehicles could in turn increase the incentives for further expansion of the charging infrastructure, which would reduce the so-called “range-anxiety”, the fear of “stranding” with the electric car.
But apart from the financial incentive for the consumer, there are other advantages of the vehicle-to-grid approach. Utilizing vehicle-to-grid would reduce the pressure on local grid operators and utilities in times of high demand, as an efficient, distributed energy storage system for renewable energy would be available. The use of operating reserves to mitigate grid congestion or power outages could be reduced.
Blockchain as the technological basis
But how could such energy management be implemented technologically? Distributed ledger technology (DLT) — often also known as “blockchain” — can be used for the implementation because this technology offers a mechanism for intelligent payment processing so that smart contracts (programmed logic on the blockchain) can reach their full potential. For example, price thresholds could be defined in the blockchain where electricity is automatically bought or sold. These thresholds could also be individualized for each user. In addition, such a logic can also be formulated in such a way that the vehicle is available the next morning as usual. In this way, the charging of the electric car could be controlled in a cost-effective manner without human interaction. This would result in the power grid being evenly utilized automatically.
Furthermore, it is possible to use smart contracts to process (electricity) payments automatically without an intermediary. An electric car, for example, could automatically pay the fees for the charging process without human interaction leading to considerable efficiency gains due to lower costs. The special potential of smart contracts in connection with electromobility can be enhanced in connection with a digital blockchain-based Euro. In this case, direct settlement would be possible without converting tokens into fiat currencies. Smart contracts are often based on crypto assets such as Ether. However, using crypto assets for the deployment of a smart contract has the disadvantage that their prices typically fluctuate considerably. Besides, companies are reluctant to deal with crypto assets and transfer money in crypto assets. Companies prefer classical fiat currencies, such as the Euro, in order to decrease exchange rate risks. A euro issued on a blockchain system could circumvent the problem of high volatility and lead to greater use of smart contracts utilizing sizeable efficiency gains.
Public support of electromobility and blockchain
As previously discussed, electromobility has been addressed and promoted by the German government already a few years ago. Blockchain technology has just recently moved into the focus of the German federal government. With the publication of its own national strategy paper, the Blockchain Strategy, Germany has taken a major step towards opening up the economy to blockchain technology and has positioned itself as a pioneer within the EU. On the basis of the measures and regulatory guidelines described above, start-ups, including those in the field of blockchain and electromobility, can now operate under greater regulatory certainty, making Germany more attractive as a business location.
A higher prevalence of electromobility can be useful mainly for making electricity demand more flexible. In this way, the power grid can be utilized more evenly, which is promising for grid operators, and thus in the long term for taxpayers. Households can generate additional income through automated charging management. The process of energy management and the associated payments can be handled efficiently on a blockchain basis. Smart contracts, in particular, offer enormous potential here, as they can be used to buy and sell electricity automatically and payments could also be automated.
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Marcel Kaiser is a project manager and research assistant at the Frankfurt School Blockchain Center (FSBC). His fields of interest are primarily decentralized finance (DeFi) and industrial blockchain applications. Besides, in the context of his master thesis, he analyzes the impact of blockchain technology on the economy. He speaks at public events about topics like Libra, quantum cryptography and blockchain in general. Feel free to contact him via mail (firstname.lastname@example.org), LinkedIn or Xing
Simon Blöthner is a research assistant at the Fraunhofer Institute for applied information systems. His fundamental area of interest are the drivers for technological progress and its impact on markets as well as economic growth. In particular he studies the effects of market structures, regulatory frameworks and incentives to innovate. Feel free to contact him via mail (Simon.Bloethner@stmail.uni-bayreuth.de) or on Xing (https://www.xing.com/profile/Simon_Bloethner/cv).
Jonas Gross is a project manager and research assistant at the Frankfurt School Blockchain Center (FSBC). His fields of interest are primarily cryptocurrencies. Besides, in the context of his Ph.D., he analyzes the impact of blockchain technology on monetary policy of worldwide central banks. He mainly studies innovations as central bank digital currencies (CBDC) and other crypto currency projects as “Libra”. You can contact him via mail (email@example.com), LinkedIn (https://www.linkedin.com/in/jonasgross94/), Xing (https://www.xing.com/profile/Jonas_Gross4) or follow him on (Twitter Jonas__Gross).