Blockchain technology is in its infancy and the energy sector is heavily regulated with rules varying from country to country, but the benefits of decentralised electricity trading based on distributed ledger technology are so high that start-ups that promise to set up such platforms frequently raise substantial growth funds — albeit most of the time in cryptocurrency. 

There are some larger-scale initiatives in the field, such as the “Enerchain” project, a decentralised energy trading platform for the over the counter (OTC) wholesale energy market which is supported by more than 30 of the leading European energy trading companies. For the most part, however, this is the domain of pioneering startups. Many are from Western Europe, but among them are several Romanian entrepreneurs that are aiming for global expansion after having collected tens of millions of euros from investors. 

A blockchain revolution

Today, blockchain technology provides an environment for the development of decentralised global electricity markets that are closer to the ideal market: transparent and incurring lower transaction costs and lower entry barriers. Real-time optimisation of production and consumption in particular generates value. 

Companies in the field promise worldwide clients, producers and consumers to manage their production/supply in a flexible way through automated real-time intermediation.

In essence, the technology facilitates more flexible trading of electricity among producers and consumers that use a platform, including new options on both ends. It allows for P2P trade, is friendly to prosumers — actors who are both producers and consumers — and is particularly applicable for low-carbon resources. 

The business model enabled by the new technology is aimed at cutting intermediation costs and delivering better optimisation options to both consumers and producers. On the other hand, the system still bears some risks, of which the greatest concerns the regulatory regimes that are so different and so strict in each country. 

This is this why Bittwatt, the Romanian start-up planning expansion to more than 30 countries, including 17 by 2022, budgeted 15% of its spending for integration with already existing, traditional platforms and only 30% for the development of the Bittwatt platform itself; a further 55% will be used for expansion and marketing purposes. 

“At this point I would not say that [the Beta version of Bittwatt’s platform] will completely replace the market as we know it now, but definitely it will change the way the market operates these days,” the CEO and co-founder of Bittwatt, Daniela Cristina Stoicescu, told bne IntelliNews in an interview.

“Making a parallel with the way people could work their money until now and seeing the way they do it now (electronic wallets, cards, etc), we could say that we see the future systems operating automatically, similar to the way stock market works today (based on demand-response),” she explained.

Rival start-ups from Romania

Earlier this year, another Romanian start-up, Restart Energy, which is already active in electricity and gas supply, raised $30mn in cryptocurrencies by issuing 400mn MWAT tokens in an Initial Coin Offering (ICO) aimed at financing a blockchain-based trading platform for renewable energy, including a complex franchising system in order to build “a global energy supply platform using blockchain protocol to democratise a sector burdened by bureaucracy and transaction costs, freeing up capital, saving consumers money, helping local small producers earn more and allowing real peer to peer direct energy trading using existing infrastructure”. More specifically, Restart Energy plans to expand its energy retail business (including by franchising) to more than 45 countries with deregulated markets and generate $3.78bn in revenues through 2023 by delivering 189TWh of electricity (including through its franchisees).

Bittwatt has come up with a somewhat simpler business model, perhaps a wise decision given the already high complexity generated by the blockchain technology used. The business plan envisages a turnover of $690mn (notably its model does not include franchises) and a 22% profit margin. Its ICO, which took place in April 2018, had a target of $30.4mn, and was declared successful at above $25.3mn. All tranches were successfully closed as of April 26. 

The Bittwatt co-funders, Stoicescu and Christian Hagmann, are experienced in both the IT and the energy sectors. In 2017, after more than 20 years in the energy sector, Hagmann started working as advisor on the ICO of Coss, a Singapore-based crypto-one-stop-solution platform, and also started developing Bittwatt. With an IT academic education, Daniela Stoicescu co-founded Bittwatt after having previously carried out several development projects for the national power distribution and transportation networks.

Bittwatt creates a matchmaking system based on blockchain that both decentralises and streamlines energy trading. It also creates a proper electrical power balancing system, and a fully transparent, 100% secure ledger of transactions and costs for all parties involved. At the root of the system are the smart contracts (otherwise called self-executing contracts). Thanks to the blockchain technology, which in essence registers those contracts (instantiated in the form of computer code) in a way that they cannot be backward changed, these contracts are automatically consolidated, allowing optimisation of the production function.

Bittwatt has already started developing a new marketplace for electricity balancing and trading — which is blockchain enabled — that incentivises producers and opens up competition on a level playground, according to its White Paper. Further steps are envisaged quite soon.

"The Beta version of the platform will be available in May in Bulgaria (Energy Market) and Romania (Eva Energy) and will allow suppliers and consumers to publish their bids and supply requests based on minimum configuration,” Stoicescu announced.

Immediately afterwards, Bittwatt will allow payment in Bittwatt tokens (BWTs) and currency exchange from Bitcoin and Ethereum to BWT. By the end of the year, it intends to apply the model to its Singaporean partner and an as yet unnamed Indian operator. The entire set of facilities will be phased in later, prioritising, of course, the capabilities offered to the final consumer, the company says. 

A 2bn strong market

Stoicescu gives more technical description of the system and how it aims to overcome major obstacles. Blockchain technology demonstrates that it is possible to implement such a system for the use in the electricity market from both the perspective of the business model and operational model, she claims.

"In popular terms, blockchain can be explained as a decentralised database where every data is verifiable and consistent. Of course, currently the transaction limit over blockchain is a challenge for us due to the fact that worldwide we have more than 2bn consumption places. But I’m positive that this will change in the next few years, since many new protocols are already developing and many organisations and institutions are preparing the transition to blockchain. "

The BWT as implemented by the platform has payment, escrow and protocol functionalities. Payments can be made both in the traditional manner and in the BWT currency, as long as both contract parties agree. If users chose to pay in fiat (the traditional method), the invoice value will be blocked in the BWT wallet until payment confirmation, so that the counter-party has the guaranteed payment. It is applicable to electric vehicle loading stations in order to enable energy-roaming.

Energy delivered on demand

A power plant doesn’t turn on when one enters the room and switches on the light, but this gives an idea of the system's ambitions. The goal as described by Bittwatt's White Paper is declared as "creating a blockchain enabled energy trading market that is simple, transparent and delivers more value to all its users." One direct question deriving from here is whether Bittwatt and other similar systems are designed to replace the electricity market as we know it now.

At this point Stoicescu believes it is premature to say a blockchain enabled energy trading market would completely replace the market as we know it now, "but definitely it will change the way the market operates these days."

"We intend our project to act as a hub for operators and to enable demand response, smart grid operation and smart metering devices so that energy production will come as a response to real-time consumption. "

Prosumers are emerging as important market players and the blockchain-based energy trading seems to be the best fit to incorporate them.

Specially for prosumers, Bittwatt has thought of creating a clearing house so that the platform can cover the legal part of the settlement between the parties. In the future, the number of prosumers will grow a lot (it already has in countries like Germany) and they will be able to benefit from additional functionalities so that their excess production could be rewarded in Bittwatt tokens, Stoicescu says, explaining why a dedicated clearing house is needed.

As already highlighted, national regulations are very diverse and based on centralised markets, and they seem to be an obstacle ahead of the developments of decentralised blockchain-based energy trading. But there are other obstacles as well.

Bittwatt expressed optimism and openness in this regard though, explaining that trades below a certain threshold might not have to be notified to regulatory bodies.

Stoicescu explained that "all regulations are welcome" as they tend to protect market participants and the security of the system itself. Most of them are applicable for days sales outstanding (DSOs) mainly because they are intended to ensure compliance with technical parameters of the network and to guarantee consumer access to the grid.

As for Bittwatt, its business needs to look at things from the B2C perspective — a relationship that does not interfere with the regulatory sphere of the energy system. Even if we talk about trading, up to a certain volume, participants can complete transactions without notifying regulatory bodies, Stoicescu said.

She expressed her belief that in the future, regulators will also implement a standard for total transaction transparency.

"Such processes will be easily integrated into the Bittwatt platform, given that besides the B2C platform, we also offer a commercial module that will be adapted to the regulations of each country."

Not all blockchain energy trading models are similar

Bittwatt is not the only platform that promises decentralised energy trading. Restart Energy’s RED Platform, also originating from Romania, does the same thing. But each has their own business model.

Bittwatt does not attempt to set up franchise networks or local providers, as RED does, and nor does it dedicate itself exclusively to the production or sale of renewable energy or even to becoming the world’s leading supplier, Stoicescu explained. What it is trying to do is create a platform where all participants speak the same language — in other words where all can benefit from rapid, transparent and verifiable exchange of information.

A relevant challenge is the short-time balancing of the system, namely the fine-tuning services provided by the centralised national system operators. Industrial manufacturers acting as virtual power points (VPPs) and storage capacities at micro-level are considered by Bittwatt as contributing to the balancing mechanism — implying that, as not all the technical aspects of blockchain technology are ready yet, small adjustments or additions are not unlikely during the development stage.

Bittwatt states it wants not only to be a trading platform but also to offer balancing services to its business clients, a matter less known to the general public but very important to the system and with a very high cost impact. For home consumers, we want to come up with automated and configurable programmes that work permanently in choosing and switching to the right supplier, according to their set-up, Stoicescu says. 

Last but not least, the Bittwatt platform is accessible for free to all participants — suppliers, manufacturers and consumers.

Unlike traditional markets, Bittwatt claims that the blockchain-based market framework is designed to empower all users (producers, suppliers and traders) in applying balancing processes.

Indeed, any provider, producer or trader operating on the Bittwatt platform is primarily registered under a balancing platform in accordance with the regulations in force, the Bittwatt CEO explains. The Bittwatt platform, with the help of real-time information collected, offers over-balancing, so that deviations are recorded (or even pre-recorded) every hour, allowing the market participant to take preventive action, respectively to purchase the energy deficit or to capitalise on its surplus.

The over-balancing mentioned may be provided by several manufacturers, not necessarily just those with tertiary reserve capacity. They will be able to act as a virtual power point (BVPP), providing the energy deficit required by platform participants for a variable fee.

Regarding the feasibility of hydroelectric power stations as a reserve, this aspect has been looked into and even in some cases implemented by EU states, and there are even EU regulations aimed at promoting and supporting them. With pumped storage, it will not be long before the technology becomes accessible at micro-level (for home use) and then at storage level.

 CEO and co-founder of Bittwatt, Daniela Cristina Stoicescu