The LCG Energy ecosystem to revolutionize the energy trading with blockchain
Blockchain technology is expected to grow from its current market value of more than $5 billion to over $25 billion by 2024, a staggering 500% increase that sets the vital role the technology will play in the energy sector (Source: Global Market Insights).
Two of the industries where blockchain initially found numerous use cases and offered a better alternative to their current processes and data infrastructure are the financial and banking industries. Due to their immutability and ability to store data across multiple nodes, distributed ledgers offer fair market conditions by removing one-sided power by intermediary parties that usually charge high transaction fees and can manipulate the flow of information, the typical scenario in a centralized environment. Blockchains are not changeable by any party, because they keep public (hence the transparency) but encrypted records of peer-to-peer transactions – manipulating any of the information stored would require access to more than 50% of the nodes in a network, which is virtually impossible.
How does exactly blockchain fit in energy and commodity trading
Energy trading involves a multitude of different processes that are not visible or known for the person engaging in the transaction. Mutual verification of the transaction is just the start – usually there are other counterparties involved besides the two engaging in the transaction such as exchanges, brokers, logistics providers, banks, regulators and price reporters, which requires setting up additional systems and conducting further actions by the companies trading energy. What is more, these companies have to create and maintain their own data infrastructures, overall resulting in a high complexity of the whole trading process and multiple potential points of failure.
Here is where blockchain can step in and bring the whole trading process to a whole new level. The technology can help companies streamline their internal processes and processes shared with external market participants (Source: the EY report on blockchain for energy and commodity trading). This will result in significant reduction of labor, capital and technology costs through process automation, faster settlements and lower dependency on multiple systems.
How blockchain found its niche in the energy sector
Since its foundation, the technology found its way in many other industries and the energy sector is not an exception. Although the use cases of blockchain go far beyond trading and are applied to everything that is connected to digitization and data, its fundamental application to any industry is associated with financial transactions. Prior to the invention of blockchain, energy trading was conducted on traditional marketplaces and was treated not much differently than commodity trading. For the most part, the situation has not changed much – thousands of transactions per day are executed and the number is growing. However, now there is an alternative that is on the rise – P2P marketplaces where users interact directly with each other can now be implemented with blockchain, which was the missing link that allowed them to function as intended. Blockchain based Peer to peer marketplaces get rid of the middleman, the platform where the transactions occur that has control over them. Not only does the technology offer a new layer of security and takes away the one-sided power due to informational asymmetries leading to higher transaction costs, but it could also offer greater speed, accessibility and unification of payment methods, ultimately making the trading experience more enjoyable and worthwhile.
There have already been several startups that focused on creating blockchain P2P marketplaces for energy trading, most notable of which is WePower. Big industry players have not fallen behind in their attempts to utilize the technology – for example, Shell and BP announced the launch of blockchain oil trading platform, which will automate & digitize various oilfield related services. Other companies are also implementing the technology to existing energy systems with a wide array of different use cases, such as green purchase programs that allow customers to buy bundled energy & renewable energy credits from specific renewable energy projects (Source: Smart Energy). With the blockchain being a rather new technology and still holding a vast potential for improvement, it will take some time for it to penetrate the energy industry to its core and spread out entirely throughout all of its aspects, but peer to peer energy trading is already being implemented with positive results, hence the expectations by energy companies and industry stakeholders that it will be among the hottest trends for the following 5 years in the energy sector.
Empowering the energy industry
Revolutionizing energy trading goes beyond the creation of online marketplaces that run on distributed ledgers. The technology can potentially enable so-called prosumers (micro-producers of electricity that are consumers themselves) to trade between each other in local communities and become independent of the centralized grid network and utility companies. It is believed that with the rapid growth of P2P trading with high pre-trade transparency and degree of standardization, more and more people will be encouraged to become prosumers of energy.
In a nutshell, here is what blockchain does to empower the energy sector and particularly the energy trading:
- Multiple nodes in one network (decentralization), which decreases the points of failure to a minimum. Multiple points of verification, leading to higher security and trust in the network by its participants
- Permanent record of all transactions that cannot be changed, leading to the end of one-sided informational asymmetries.
LCG Energy changes the game
LCG Energy, a licensed utility provider, energy contractor and trader with over 11 years of market experience has been working on a blockchain-based digital platform that will enable participants to acquire energy at 20% lower than average market prices and invest in renewable energy projects. LCG Energy will strive for a widespread adoption of the LCG Energy utility token and its acceptance as a universal payment method for energy trading in the foreseeable future
LCG Energy plans to go a step further and create a blockchain integration with Smart Meters, which will enable their owners to trade energy directly through their Smart devices. This concept currently does not have an equivalent and, if successfully implemented, will bring a revolutionary change to the industry.
To find out more about LCG Energy and their upcoming blockchain initiative, head over to https://lcg-group.de/
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