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How flexQgrid uses the blockchain technology for the quota-based secondary market

In flexQgrid a local market concept is developed for the optimal use of local flexibility between households and small industrial plants. BlockInfinity uses a decentralised, self-developed blockchain-based protocol to ensure that all bids arrive safely and unchanged in the market and that the market is "fair matched". The market mechanism allows market participants to trade their positive and negative flexibility. For example, the quota that the grid operator announces in the yellow traffic light phase is always adhered to in a market area, although individual participants can still exceed the quota if necessary, as they can flexibly trade power on the market.

A market area is typically specified by one or more low voltage strings. Market participants can be all households, renewable installations or other consumers, producers and prosumers connected to the market area.

The blockchain-based protocol is developed for the research project by BlockInfinity itself. A blockchain is the core of the application to be developed. With a blockchain, data records (often transactions) between several parties can be captured transparently and stored decentrally and unchangeably in the long term. The blockchain-based protocol is therefore not located on a single server, but is distributed over the various parties (in particular the clients/nodes of the parties). Thus, no central instance is necessary to make decisions and decisions are made jointly by all nodes based on the market mechanism.

What does BlockInfinity use the blockchain for in flexQgrid?

In flexQgrid there are various sensitive data, e.g. the bids of market participants, which are subject to special protection requirements. Manipulations of these data can have serious consequences for the individual market participants. Therefore, BlockInfinity uses the blockchain based protocol to

  • document the quota in a comprehensible and unchangeable way,
  • document the bids confidentially and unalterably,
  • document the electricity consumption (smart meter data) of market participants confidentially and unchanged, and
  • document the market result in a comprehensible and unalterable way.

If a market participant does not adhere to the published market result, sanctions ("penalties") are applicable. Alternatively, the market participant receives "rewards" for adhering to the quota. If necessary, these penalties/rewards are also stored on the blockchain.

The market mechanism implemented is a mechanism based on the merit order, which aims to maximise welfare in the market over several periods. A period block is 6 hours long and comprises a total of 24×15 minute quota periods. Within a period block, market participants can bid for all 15 minute quota periods in the block. One bid corresponds to a time series of 24 quota periods or 1 period block. The matching of bids follows an NP-hard optimization problem with a merit order optimization over 24 quota periods, which is very computationally intensive. The matching of the market, e.g. the execution of the market mechanism, is therefore performed outside the blockchain ("off-chain") and only the result is "published" on the blockchain, taking into account data protection.

The blockchain based protocol

There are many protocols described in the literature that can be used for (energy) markets or even local electricity markets. However, the known protocols usually have at least one of the following weaknesses:

  • The protocol is not really a decentralised auction because it requires a trusted third party.
  • The protocol requires that all bidding parties behave honestly. This often manifests itself in the protocol's inability to deal with parties who no longer respond.
  • Protocol requires the auctioneer to be honest. This often manifests itself in the fact that the decentralised auction is not resistant to censorship if the auctioneer rejects bids.
  • The protocol generates (very) much computing and communication effort.
  • The protocol requires an unspecified circuit for a multi-party calculation.

BlockInfinity therefore designs a blockchain based protocol, which is based on known cryptographic methods, which eliminate the known weaknesses and is understandable and comprehensible for the (technically experienced) user. The approach is based on the Ethereum Protocol with a proof-of-authority consensus mechanism.

Guarantee of data protection

The blockchain-based protocol does not allow other market participants to read the bids that an individual market participant submits. This guarantees a high degree of confidentiality of the bids. The only bids that are made public are the "winners" in the market. Since these winners have to carry out their transactions after the market, these bids should be public so that the Smart Contract can check the correctness and each participant can be sure that his money really arrives at the right place. Thus, the protocol allows transactions to be carried out without mutual trust between the partners. This eliminates trust as a prerequisite for a transaction as far as possible, while the bids continue to be treated confidentially. This "win-win" situation allows each market participant to publish his true preferences about the bids without the information being used against him. The exact description of the blockchain-based protocol will be published in the course of the project.

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