Integration of Blockchain Components in the Electricity Balance Area Management

Master's Thesis, 2019

117 Pages, Grade: 1.8




List of Figures

List of Tables

List of Abbreviations

1 Introduction
1.1 Problem statement
1.2 Research objective and research questions
1.3 Unique value of the project and scope limitations
1.4 Outline

2 Fundamentals
2.1 Key blockchain components to boost electricity balancing
2.2 Balancing electricity and imbalance sources in Germany
2.3 Balancing power market design
2.4 Balancing Group Management (BGM)
2.4.1 Balancing groups
2.4.2 Balancing Responsible Parties (BRP)
2.4.3 Management of balancing groups
2.4.4 Decentralized data management exchange framework in Germany
2.4.5 Balancing group accounting and settlement
2.4.6 Scheduling and deviations
2.5 Imbalance settlement price in Germany

3 Economical evaluation of balancing problem in Germany
3.1 Visualization of the latest consumption deviations for Germany
3.2 Latest trend of reBAP prices in line with regulation changes
3.3 Juxtaposition of historical reBAP values vs. spot prices
3.4 Markets arbitrage opportunity for BRPs
3.5 Germany-wide financial cost from being in imbalance
3.6 Clarification on direction of payment TSO-BRP
3.7 Risk management of BRP in line with the historic imbalance price analysis

4 Emerging solutions to avoid high balancing costs
4.1 Independent Aggregator and Demand Response regulatory barriers
4.2 The status quo for regulatory environment for the BGM
4.3 Regulatory challenges for end-customers in BGM over blockchain
4.4 Adjustments of market roles with blockchain model
4.5 P2P energy trading regulatory view in Germany
4.6 Service Model as a solution for P2P energy trading in German regulatory

5 Incorporation of blockchain components in the BGM
5.1 Secondary balancing market concept to facilitate decentralized balancing
5.1.1 Balancing scenarios split
5.1.2 In-Group balancing
5.1.3 An emulation instance for the quota market model
5.1.4 Inter-Group or cross-BRP balancing
5.1.5 Incentive mechanism against market prices
5.2 Rationale of blockchain as addition on top of the MaBiS
5.2.1 Key technological benefits of blockchain in the MaBiS settlement processes
5.2.2 Blockchain utility in financial transactions over MaBiS contracts
5.2.3 Potential blockchain Use Case in the sub-BG supervision

6 Conclusions
6.1 Discussion & Conclusion
6.2 Recommendations and outlook



The increasing uncertainty of the power supply in Germany due to the surge in fluctuating renewable energy, power plant failures and accidental changes in consumption lead to the energy system imbalance. This not only threatens the system security, but also turns into financially punitive consequences for energy market players. Current market-based solutions and the German established data exchange platform with market rules ‘MaBiS’ do not foster a bottom-up collaboration in balancing groups to timely offset schedule deviations. The capability to modify and/or shift consumption of industrial or commercial end-customers as well as to adjust energy output of generation units gives a unique opportunity for organizing a shared platform for flexibility services exchange to mitigate the risk of paying imbalance tariff. This thesis is therefore aimed to estimate the severity of recent balancing costs fallen onto balancing responsible parties (BRPs), the quality of forecast incentive, and prove a blockchain-based secondary flexibility market with quota mechanism of trading activation rights an efficient and economically viable tool for BRPs for offsetting schedule deviations at short notice. After developing a prosumer-enabled model which is system integrated complying with existing balancing management, various scenarios of deviations exchange are emulated. The focus of this work is set to justify the sufficiency of strategic value in blockchain technology as the market underlying infrastructure and as a complementary layer for the established data exchange platform. This thesis identifies blockchain benefits and regulatory challenges for synchronization of multiple flexibility providers, creating and managing deviations-conscious balancer communities, resulting in energy balancing costs reduction, enabling innovative business models and additional revenue streams for balancing groups.

Keywords: balancing group management, balancing responsible party, electricity balancing market, imbalance price, energy blockchain, service model, prosumer.

List of Figures

Figure 2-1: Blockchain consensus mechanism [27]

Figure 2-2: Germany split into 4 control areas with schematic view of balancing groups [37]

Figure 2-3: Balancing responsibility in UCTE with TSO against BRP [39]

Figure 2-4: Control reserve activation timeline [42] , [43]

Figure 2-5: Graphical representation of procurement and settlement with the TSO as a central role in Germany (own design)

Figure 2-6: The deadlines for the submission of schedules

Figure 2-7: BRP classification by specific purposes

Figure 2-8: Balancing group accounting model [56]

Figure 2-9: Modular representation of processes in a variety of time series flow

Figure 2-10: A breakdown of balancing in a distribution network [59]

Figure 2-11: Possible communication of schedules by business types in Germany [62]

Figure 2-12: Market roles and processes for data exchange in Germany [64]

Figure 2-13: Balancing Group Management model (adapted from [66] )

Figure 2-14: Shipping of schedule with static and dynamic data, BRP A to BRP B over the TSO [69]

Figure 3-1: Load forecast and realized profile visualized for the first half of 2017 in Germany

Figure 3-2: Load forecast and realized profile visualized for the second half of 2017 in Germany

Figure 3-3: Electricity consumption deviation in Germany, 2017

Figure 3-4: The yearly historical imbalance price range in relation to balancing volume in Germany, 2017 and first half 2018

Figure 3-5: Decision making rationale of BRP for portfolio adjustment [80]

Figure 3-6: Imbalance spread relative to system imbalance over 2017 and first quarter of 2018

Figure 3-7: Arbitrage between Day-ahead market and imbalance settlement system in Germany, 2017

Figure 3-8: System cost structure and development of the balancing cost share by year

Figure 3-9: Trend of capacity extremes during the control reserve activation events by year

Figure 3-10: Net balancing costs or total TSO cash flow after settlement with BRPs in 2015-2018

Figure 3-11: Detailed total system net cost for balancing

Figure 3-12: Detailed total BRP expenses charged by TSO for remained deviations

Figure 3-13: The relation of EEG cost component to the total system net cost on balancing

Figure 3-14: Direction correlation between reBAP and the system (NRV), own observation

Figure 3-15: Relative frequency for paid reBAP over 2015-2018 years (*2018 – until October)

Figure 4-1: Necessary agreements to acquire for Independent DR Aggregator in Germany [94], [97]

Figure 5-1: Reasonable incorporation area of the blockchain technology in the existing energy trading mechanism in Germany

Figure 5-2: Schematic simulation for the intra-Group, in-Group and cross-BRP assets exchange in line with the proposed service model

Figure 5-3: Intra-BG P2P matching over the blockchain

Figure 5-4: Life cycle of the quota-based secondary market

Figure 5-5: Emulation of an intra-Group scenario for P2P inter-load-only trading

Figure 5-6: Inter-BRP business dealing

Figure 5-7: Script logic for sending the right price signal at the state of system short, positive reBAP

Figure 5-8: Script logic for sending the right price signal at the state of system long, negative reBAP

Figure 5-9: Flow of the market processes in relation to the permission blockchain by BBG

Figure 5-10: The duration of clearing- and settlement deadlines according to MaBiS [141]

Figure 5-11: Sequence diagram on the deadlines for balancing groups billing [69] , [142]

Figure 5-12: Feasibility of blockchain incorporation in the balancing group management [66], [86]

Figure 5-13: A blockchain Use Case to resolve a hierarchical structure of sub-BG management

List of Tables

Table 2-1: Key technical characteristics of the blockchain technology [31] , [27]

Table 2-2: Design specifics for the German balancing market [5]

Table 2-3: A breakdown in the phases for the schedule registration in Germany

Table 2-4: Classification of BRP

Table 2-5: Key management activities of the BRP

Table 2-6: BRP classification by business types

Table 2-7: Essential steps of the settlement process in Germany [67]

Table 2-8: The ESS scheme divide

Table 2-9: The types of errors triggering one or the other type of report during the schedule transfer based on [71]

Table 2-10: Model for the calculating the reBAP by BNetzA

Table 3-1: The count of downloaded time series

Table 3-2: Statistics of the electricity consumption deviations in Germany, 2017

Table 3-3: Count of the studied reBAP values

Table 3-4: Final BRP limiting economic metrics after control energy activation in 2017

Table 3-5: Final BRP limiting economic metrics after control energy activation in 2018 half

Table 3-6: Possible negative impact to energy sector after enforcement of mixed pricing approach for balancing market

Table 3-7: Imbalance spread formula

Table 3-8: Accuracy of the incentive for BRP provided by the system

Table 3-9: Number of studied values according to the sign of NRV

Table 3-10: Statistics on the BRP incentive for improving quality of forecasting, in 2017 (full)

Table 3-11: Statistics on the BRP incentive for improving forecasting quality, in 2018, 1st quarter

Table 3-12: Blockchain value-added features in the P2P business model

Table 3-13: Measures taken for improving the balancing situation in Germany, since 2012

Table 3-14: Direction of payment between BRP and TSO in cases of oversupply and undersupply

Table 3-15: Probable reBAP sign outcome

Table 3-16: reBAP relative frequency by undersupply (positive) and oversupply (negative), 2015-2018

Table 4-1: Barriers for Demand Response programs in Germany

Table 4-2: Data flow from DSO after the real energy measurements

Table 4-3: Regulatory requirements for the end-customer to market its energy products

Table 4-4: Change in roles in the blockchain-based clearing and settlement processes

Table 4-5: The necessary permits to comply with financial regulations in Germany

Table 4-6: Legal barriers for prosumer before the P2P trades could be accounted for balancing

Table 4-7: Classification of the service provider by rights (own creation)

Table 4-8: Divide of the customer roles in the proposed service model

Table 5-1: Customer sensitivity due to product attributes

Table 5-2: Detailed interpretation on the roles in the setting of proposed service model

Table 5-3: Interpretation of the quota model conditions

Table 5-4: Market-specific parameters for intra-balancing-group trading

Table 5-5: Five key traits of P2P dealing in the blockchain balancing group

Table 5-6: Clarification on decision making by BRP for sending cost-effective price signals

Table 5-7: Slow-down factors of EDI transactions opposed to blockchain integration

Table 5-8: Current non-blockchain measures and its premises to improve the efficiency of MaBiS

Table 5-9: Key technological strengths of blockchain in applying with data exchange MaBiS

Table 5-10: Economical MaBiS downsides and key promises that blockchain can cultivate into it

Table 5-11: Merits and drawbacks of pooling sub-BGs in the cascades

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1 Introduction

Electricity is very difficult to store, it must be produced at the same moment when it is consumed. In other words, in every instance of time just as much power is fed into the electric grid must be taken from it [27]. Therefore, the balancing groups (BGs), so-called virtual energy quantity accounts, were established as the commercial solution and the key incentive for synchronising generation and consumption in Europe. In the BG all producers and consumers must report and maintain balanced schedules by submitting them to their Balancing Responsible Parties (BRPs) who send them to the TSOs before gate closure daily. The BRP is bookkeeping each feed-in and draw-off from the grid noted by each participant. All additions and deductions with the balance of energy quantity accounts must not leave any sums behind. BGs are expected to provide their best estimate in energy schedules that are composed based on generation and demand forecasts for each quarter hour of the following day, notifying how many in kilowatt hours of energy the BG will send out or take in. Yet what happens if that BGs get their forecasts wrong, e.g. the actual consumption does not match generation? In this case, the TSO aligns the imbalance between supply and demand by procuring different types of control reserves. The problem is that there are very heavy financial penalties [1] for having uncareful planning for BRPs. They have to offset unforeseen physical deviations from the registered schedules using balancing energy at cost of control reserve activation. Plus, the deviations are expected to grow more due to the inevitable coupling of sectors that utilizes the RES electricity in sectors like e-mobility, heating and industry [2]. This combined with an increasingly high number of distributed volatile energy assets and storage facilities will escalate the scheduling process by BGs. It could be financially painful for particularly smaller community groups if the cost of collective predicting their draw-offs or intakes of energy not right falls back onto its members. Therefore, this thesis elaborates on how to socialize this imbalance risk to ensure this will not turn out as risky penalty to a BG.

The blockchain technology provides multiple opportunities for BGs and BRPs to mitigate the divergence from notified trade schedules, and even turn this deviation into a profit and hence to maintain balancing commitment in such circumstances beyond control. The proposed project is aimed to prove the concept of blockchain infrastructure incorporated with current IT interfaces of balancing groups, and to carry out cost analysis at the BRP. The thesis will shed the light on the cumbersomeness of balancing electricity processes in the German power market as well as discuss the strategic behavior of balancing responsible parties focusing on the effectiveness of their economical incentive to improve the quality of balance forecasting. Based on the gathered findings, the business value of BRPs is presented, and key areas for savings as well as losses potential are revealed. Following that, possible local flexibility trading scenarios are emulated, a quota-based marketplace [3] steered by the BRP is proposed. Finally, regulatory aspects of applying blockchain in Balancing Group Management (BGM) and specifics about aggregator role and demand response approach in Germany is discussed.

1.1 Problem statement

The extreme imbalance prices of reBAP [4] and currently inefficient imbalance policies applied in the German electricity balancing mechanism [5] cause yearly significant financial damage to BGs, at about €212 million in 2015, €150 million in 2016, €186,8 million in 2017 and €93,2 million for the first half 2018 [1] (discussed in Chapter 3). The high imbalance costs are accrued to BGs only because they cannot manage to fulfill their load-demand estimations precisely on time or due to unforeseen events. In other words, the lack of communication and marketing tools between BG participants and the BRPs as well as insufficiency of information on the system imbalance [6] rules out the possibility for bottom-up adjusting oversupply or undersupply cases in nearly real-time. Hence, P2P flexibilities trading needs to be considered to support BRPs in balancing their portfolio internally and commitments in wholesale markets with significant reduction of financial deviation penalties [6], [8], [9]. Since an online meeting venue for agreeing on the re-scheduling and trading where the BRP can manage its pool community or where balancing group members can interact with each other is not existent yet, it is therefore worth to emulate logical scenarios for flexible services exchange for the benefit of all interested stakeholders. Also, it is important to check how blockchain technology-conform the currently utilized data exchange for the schedule communication with market rules ‘MaBiS’ is.

1.2 Research objective and research questions

The project ambition is to provide a framework for developing a blockchain-based local marketplace that facilitates an active involvement of prosumers and local consumers to make use of the flexibility they can offer. The following are objectives of the project:

1. Provide the framework of established balancing market processes and scheduling mechanism ESS with market rules MaBiS in Germany
2. Elaborate on how imbalance prices are formed and what serves as an incentive for BRP to deal with forecast quality
3. Demonstrate the balancing cost analysis in Germany, clarify on the decision making of BRP between two markets: Balancing Market and Day-Ahead (DA)
4. Pinpoint on the areas in the BGM where the blockchain technology may find its implementation
5. Bring awareness on current German regulations in demand response programs and intricacies between aggregator and BRP, develop a solution for aggregating prosumer’s flexibilities
6. Emulate potential scenarios of BRP portfolio optimization in an active manner using quota market approach with price signals

The research questions were developed based on practical experience and current state of scientific knowledge. Given the existing experience of establishing a P2P energy trading platform with the focus on providing energy flexibilities locally as well as taking into account profound studying of blockchain architecture variations [10], [11], [12], it becomes difficult to embark on the path of potentially beneficial blockchain shared database system. This urges the need for a systematic approach for blockchain components incorporation into BGM as well as its economical feasibility analysis. Apparently, this research gap should be covered to provide key actors with key insights on the mechanics of available energy markets as a primary tool for offsetting the imbalances and more innovative bottom-up enabling distributed ledger capabilities. It is therefore interesting to find out how a local flexibility market can be organized and whether there is a utility and commercial importance from it at all. To achieve the research objective, the following questions need to be addressed:

RQ I: Who are the Balancing Responsible Party (BRP)? How German BRPs are classified and what tools they use in daily operations for resolving imbalances?

RQ II: Do BRPs need to be balanced out even more? How urgent and severe the balancing problem in Germany? How strong the incentive and balancing group commitment?

RQ III: How to minimize imbalance costs of BRP with blockchain technology? Could it sharpen the planning BRP activities and provide new avenues for internal portfolio interaction?

1.3 Unique value of the project and scope limitations

Today commercial power provision is extremely inefficient and does not give any opportunity for the BG participants to rescue themselves locally from a shortage or surplus by offering their own flexibilities in a widely accessible and transparent manner [13]. Once a feature of blockchain-based P2P trading platform [14], [15] steered by BRPs is integrated into a BGM mechanism, new opportunities will become available for the group members to market flexible services in real time at the relevant time slots when supply imbalance arises in the power system. Whereas BRPs’ advantage would be self-balancing portfolio optimization that results in a lessened need of going on wholesale intraday market for urgent buying the imbalance energy to fulfill TSO’s request. Because of the large workload needed for this alongside with high price volatility that is de-touched from day-ahead prices due to a different pricing mechanism, the intraday continuous trading for many BRPs without internal flexible capacities is undesirable. This would also allow to avoid external pricey, time-costly and complex clearing and settlement procedures and other processes in electronic commerce involving many intermediaries [13] such as clearinghouse (ECC), exchanges (EPEX), brokers and index agencies (ACER). A shared marketplace attracts BRPs or power utility companies to managing price signals for its BGs.

The study could serve as an economical and engineering-scientific research, which considers most recent changes in economic incentive for BRPs in improving the quality of balancing as well as provides insights on the possible scenarios for organizing a secondary flexibility market utilizing underlying blockchain infrastructure layer. Based on such analysis the detailed models for integration of blockchain into existing IT systems of BGs and BRPs could be simulated. This research aimed at identifying what legal requirements need to be satisfied for successful adoption of blockchain-based customer-to-customer (or P2P) interaction under surveillance of a service provider in face of power utility companies, aggregator or ‘BGM-as-a-Service’ entities. Once the proposed approach is realized the advanced in economic efficiency processes of BRP could accelerate the promotion and deployment of RES projects as well as open up new avenues for marketing the network usage rights by large consumers in a decentralized fashion. The latter can significantly mitigate the threat of security of energy supply due to a sharper response to accidental consumption changes.

It is worth noting that the Network Code on Electricity Balancing (NCEB) – a European Target Model blueprint to harmonise all Member States’ energy only markets’ trading arrangements – got finalized, published and legally entered into force on 23 November 2017 [16]. However, due to the novelty of the enforced EU regulation and lack of any information on the German experience for adapting new guidelines, the Code will be set aside from the scope of the thesis.

Demand-Side-Management techniques to relax congestion management and detailed DSO role in the framework of German traffic light concept provided by USEF [17] is out of the scope of the thesis but also is worth noting because it presents a much larger savings potential. This could be explained simply by a 14-fold cost uptake in redispatch and curtailment of renewable feed-in since 2010 until 2017 [6], while the system balancing cost, on the contrary, have steadily been declined showing a 58%-drop over the past three years which is showcased and analyzed by the actual master thesis. Taking the urgency and severity of the problem into consideration, an innovative flexibility market concept where a transparent coordination ENKO-platform was recently proposed [18]. Accepting major added values of blockchain such as higher degree of decentralization, transparency and independence of third parties preserving users’ data privacy and sovereignty aspects, this platform serves as a venue for flexibility requesters (DSO) and providers (consumers and producers as well as aggregator and BRPs). Based on the sensitivity prognosis prioritizing the flexibility providers for relieving network congestions, the concept was developed in the framework of research project NEW 4.0 for more efficient and active congestion management in the north of Germany.

Additionally, the third party aggregator model to enable end-consumers in face of smaller BGs to market their consumption and generation flexibility capabilities in regulation market is out of the scope as well, although it got recently legally approved [19] by the German regulator Bundesnetzagentur (BNetzA). Therefore, the part of control reserves is not covered in very deep details to not skew the reader focus, though only main split and features are provided.

1.4 Outline

In summary, the integration of components into balancing group management, namely the addition of a secondary market to the BRP toolbox as well as synergizing with MaBiS processes is thought to strengthen market commitments of BRPs and hence drive the electricity balancing costs down. Therefore, the actual thesis tries to justify the potential of blockchain premises in the field of BGM from different angles, thus structured respectively. Firstly, by thoroughly studying the target group – Balancing Responsible Party (BRP) – their daily operations, incentives and strategies (Chapter 2). Secondly, by extensively estimating the severity of the balancing problem in Germany from the economical perspective (Chapter 3). Thirdly, by overviewing the regulatory environment for end-customer P2P trading and by developing a model for its legal activation to expand balancing benefits (Chapter 4). Fourthly, emulating scenarios from the internal portfolio optimization standpoint to enable a decentralized end-customer interaction (Chapter 5). And finally, by finding blockchain incorporation fit areas in the MaBiS settlement processes from the technological point of view (Chapter 5).

2 Fundamentals

This thesis seeks possible opportunities in the electricity BGM area for blockchain technology assimilation. In order to find these business cases, it is first and foremost important to extensively study the established processes for balancing in Germany, identify daily operations of market participants such as BRPs, and shed some light on the most recent regulations for electricity balancing. Followed by the economic evaluation of the most recent costs and incentive for balancing, the market application niche to enhance efficiency for balance group management is pinpointed. Afterwards, the most critical potential of blockchain technology is provided that suits to the described concepts. Deemed as a solution to strengthen the commitment of balancing group management, emulated scenarios for possible blockchain technology incorporation is outlined thereafter.

2.1Key blockchain components to boost electricity balancing

Business models have significantly evolved due to economy’s digital transformation. Today more than half the world’s most valuable public companies have internet-driven business platforms. The problem with this model is that value generated by people has no equal redistribution among all those who have contributed to its creation, only large intermediaries who operate the platforms reap all the profits [20]. Furthermore, such traditional methods face a lot of bureaucratic hurdles related to time-consuming, corruptive and unreliable money transactions by using conventional banking systems [21]. However, a fast-emerging technology area called blockchain already affects the way energy companies do business and is to change this imbalance. Transactions, contracts, and their records are first to become completely public, unstoppable and immutable, without passing through any centralized middleman.

The claim that blockchain will revolutionize energy handling and redefine companies and economies has become ubiquitously spread [22]. It can already be met in other various fields, such as e-voting systems, carpooling, renting, land register, notary deeds, government departments, etc. [23]. Yet this thesis sheds light on actual potential of blockchain to change existing business approaches in electricity balancing area. The focus is on customer-to-customer dealings to strengthen balancing group optimization and showcase by emulating possible interactions over the secondary blockchain-driven marketplace. Finally, the thesis dispels blockchain’s premises as a top layer for the German established electricity balancing-relevant data exchange functioning according to the market rules ‘MaBiS’.


Blockchain is a distributed, digital transaction technology that enables secure storage of data and execution of smart contracts in peer-to-peer networks [24]. In other words, it is an open, distributed ledger that can record transactions between two and more parties in an efficient, verifiable and immutable manner. It can also be programmed to trigger payments automatically. Every party can verify the records of transaction partners directly, without an intermediary. With the blockchain technology, the embodiment of contracts in digital code is realized, contracts are stored in a transparent manner on the shared databases that are resistant to any data removing, tampering, and alternating. Potentially to every agreement, process and payment a digital record and signature are assigned that easily can be identified, validated, stored, and shared (Figure 2-1). As a result, intermediaries like lawyers, brokers, and bankers can be made redundant [25]. And individuals, organizations, machines, and algorithms seamlessly transact and interact with each other not involving the middleman. This sounds like an ideal rejuvenating solution for already worn out red-taped utility bookkeeping [26], [27], [13].

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Figure2-1: Blockchain consensus mechanism [28]

Historical overview on Blockchain

In 2008 the blockchain concept was initiated by an individual or group of individuals with unknown identity who call themselve(s) Satoshi Nakamoto [21]. They describe a protocol facilitating peer-to-peer transactions via a digital currency called Bitcoin “without going through a financial institution”. The blockchain movement appeared in the aftermath of the financial crisis due to general distrust of the commercial banking system [29]. It follows an ideology of destructuring established hierarchies, “shifting societal influence from organizations to individuals, using democratic instead of autocratic decision processes, and empowering consumers claiming the high ethical standards of the new, decentralized world order” [30].

Plus, according to the US-based consulting practice Gartner there is a game-changing potential for blockchain as it can enhance resilience, reliability and transparency in many centralized systems, as it stays in the middle of ascending trend of the “Hype Cycle of Emerging Technologies, 2018” [31]. This categorization shows the frenzy that surrounds Blockchain with its growing potential. Next, all important technical components of blockchain for this thesis are summarized in the Table 2-1.

Table2-1: Key technical characteristics of the blockchain technology [32] , [28]

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Unlocking the potential of Blockchain

Blockchain is a peer-to-peer network that sits on top of the internet. It was introduced as part of a proposal for Bitcoin, a virtual currency system that avoids a central authority for issuing currency, transferring ownership, and confirming transactions. Bitcoin is the first application of blockchain technology and can be defined as a digital bearer token. However, broad blockchain-based adoption still requires enormous institutional change. Blockchain adoption will take place by specific application forms and will depend on the degree of coordination needed to generate value and the novelty of the application. Widespread use in the future is predicted if companies start building up skills and learn how to change internal business model to adopt Blockchain capabilities [25].

One of the potentials of blockchain in the energy sector is to resolve process and transactions gridlock. Specifically, it could provide new foundations for many institutions (e.g. power utility companies and system operators) using applications reaching banking, insurance, legal or anything else that involves a binding contract [25]. Blockchain can be described similar to distributed computing (e.g. the TCP/IP stack – transmission control protocol/internet protocol), which over a period of forty years shaped the world wide web and the phenomenon of digital transformation. TCP/IP technology has also driven business model innovation – in just a few years coming from early adoption to digital ubiquity, dramatically changing the way businesses are handled.

By comparing blockchain to TCP/IP it is clear that as e-mail enabled bilateral messaging, blockchain enables bilateral financial transactions. Blockchain is open, distributed and shared platform for development and maintenance just like TCP/IP’s. A disruptive transformation of energy sector might happen if blockchain dramatically reduces the cost of transactions and easily ensures the consensus among participants. Similar effect took place by TCP/IP when it unlocked new economic value by drastically lowering the cost of connections. Blockchain has the potential to become the system of record for all transactions [25]. If that happens, blockchain-based sources of influence and control emerge.

Today core function of the BRP business is to keep ongoing records of transactions, both financial and energy-based, to track past actions and performance and to guide planning processes. From this information they not only know how the organization works internally but also externally, organization’s relationships. Normally, a BRP keeps its own private records, while TSO distributes received measurements across internal units and functions since they do not have a master ledger of all their activities [25]. To achieve agreement on transactions across individual and private ledgers takes a lot of time and is prone to error.

A typical stock transaction, for example, can be executed within microseconds, often not involving humans. However, the ownership transfer of the stock, known as settlement, can take several days. Since parties do not have access to each other’s ledgers, it becomes impossible to automatically verify that the assets are actually possessed and can be transferred [25]. Instead, the record of the transaction crosses organizations and the ledgers are individually updated by a series of intermediaries who act as guarantors of assets.

By contrast, an interested party would host and maintain a ledger that is self-replicated by blockchain creating multiple identical databases. Whenever a change is added to one copy, the rest of the copies are updated at the same time. So, when transaction is forwarded, renewed information on the value and assets irreversibly enters in all ledgers. Hence, any necessity for third-party intermediaries to verify or transfer ownership is removed [25]. The beauty of blockchain-based system for an energy transaction lies in its settlement that takes place within seconds or minutes and in a secure and verifiable fashion.

However, scalability and security concerns, the cost of transactions, lack of supporting offline transactions and high hardware & resource requirements are major unresolved issues revolving around specific blockchain-based systems [34]. To cope with such constraints, various more flexible platforms have been developed (e.g. Hyperledger for B2B interaction [35], or Tobalaba by Energy Web Foundation [36], [37] for energy-related use cases). Due to the thesis scope limitations, the peculiarities of each particular blockchain architecture layer will not be studied but worth mentioning and left for future research and actual practical implementation.

In order to seize the global advantages of blockchain and accurately estimate the areas when it can be applied, the next section first covers all electricity balancing important aspects. It includes balancing market design, control reserves parameters, balancing responsibility as well as the incentive mechanism, roles and organization of the balancing group management are detailed. Alongside the content of the Chapters, the blockchain technology is always considered to be key to improve the related problem.

2.2 Balancing electricity and imbalance sources in Germany

A constant balance between the supply and consumption of electrical power must be guaranteed. Power imbalances cause frequency fluctuations in the system entailing equipment damage, infrastructure loss, and at worst, blackouts [5]. To maintain security of electricity supply, this responsibility belongs to TSO. Their job is to ensure that a control area they are responsible for is in equilibrium, both electrically and financially. In Germany there are four control areas and four TSOs respectively - TenneT, Amprion, TransnetBW and 50Hertz (see Figure 2-2). When imbalances arise in the power system, the participants of the balancing power market bid a price to alter production or consumption by open joint tender held by TSO. Rapid growth of variable renewable electricity generations from wind and solar energy sources created many challenges while integrating them into the power system. Because these sources are distributed and sensitive to weather fluctuations, forecast errors and power plants failure are common causes for deviations from load-demand schedules created by BGs, aggregated and managed by BRPs in energy systems. First, it is important to describe functions of BRPs and BGs.

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Figure2-2: Germany split into 4 control areas with schematic view of balancing groups [38]

The imbalance settlement system is schematically represented below (see Figure 2-3). Foremost, it is important to keep in sync the entire system encompassing multiple countries in the EU. According to this, each country must maintain their grid state as balanced out as possible. Normally, separate synchronous systems are interconnected via HVDC cables (asynchronously), while an internal connection among control zones is built with AC cables (synchronously) [39]. For example, there is multiple count of synchronous areas in Europa, to name a few: the Continental European, the Baltic, the Nordic, the British, and the Irish synchronous area. Different control zones within one synchronous system aim to assist each other when disturbance in frequency occur. The individual countries ensure balance by encouraging BRPs with imbalance and real-time prices to link their feed-ins and draw-offs. Being a single buyer of balancing services, TSO usually offsets what is left after this matching process.

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Figure2-3: Balancing responsibility in UCTE with TSO against BRP [40]

A BRP portfolio that is made up of generations, energy purchases and imports on the left side of feed-in, and residential and industrial customers, energy sales and exports on the right side of draw-offs. By the TSO definition a portfolio will be balanced only when the following equation (1) holds true in each settlement period by their respective control zone [40]:

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Px – capacity, MW

When the wholesale trade ends by a point in time know as Gate Closure Time (GCT), each BRP declares its scheduled imports, exports and energy exchanges executed with other BRPs and established power exchanges. This type of schedules can also be called ‘ nominations’ and they have to be equalized in all four control zones in Germany and other adjacent EU member states. By doing so the balance between production and load guarantees the frequency stability which is a prerequisite from the perspective of power system security.

The mismatches at the BRP of submitted schedules with real-time measurements form short and long positions defined as the imbalances. In every control zone by calculating these imbalances the following equation (2) must be appreciated:

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2.3 Balancing power market design

Whenever system imbalances occur within one imbalance settlement period (ISP), TSOs are taking over the responsibility not only for alleviating a single instance, but also for resolving the residual imbalances over several ISPs. To handle imbalance, TSO uses several balancing reserves, also known as regulated control reserves (Figure 2-4). Such reserves, which can act not only as suppliers but also as load and energy storage, can be differentiated according the technical characteristics, namely response time [41]. Any occurred frequency deviation from 50 Hz leads to the Primary Reserve (PR), automatic activation within 30 seconds across Europe. Once the system became stable, according to the common merit order list (cMOL) [42] the Secondary Reserve (SR) substitutes PR to roll frequency back to its standard value. the Tertiary Reserve (TR) is activated by TSO after prolonged usage of SR which capacity capability TSO wants to spare for next incidents. After the control reserves got utilized, the stage of settlement on costs from utilized balancing energy is fallen on the BRPs, which is the focus zone (highlighted in red) for this master thesis. Whereas the costs for capacity availability or holding are redistributed via grid fees to the end-consumers.

Figure2-4: Control reserve activation timeline [43] , [44]

The minimum capacity of all control reserves must be contracted by TSOs for the situations when local demand must be met after activation. The contracts of balancing capacity are tendered through auctions. It is important to note that in Germany a pay-as-bid system is used for control reserves such that successful Balancing Service Providers (BSP) are paid for capacity at the price (Regelenergiepreis) they bid into the tender [45]. Positive balancing capacity is used in case of the system shortage, while negative for resolving energy surpluses in the system. Technical requirements for bidders of balancing power are summarized in the Table 2-2.

Table2-2: Design specifics for the German balancing market [5]

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The demand for calling balancing capacity has completely inelastic character because it is not sensitive to the prices and is only defined by the imbalance state of the system. In other words, no price signals are given for electricity consumption, the electricity is consumed only then when it is needed [46]. For the submitted bids for balancing capacity there is a bidding ladder aligned in merit order where the least expensive bids have priority. The bidding ladder gets updated every four second in the course of imbalances occurrence followed by active matching bids with respective BSPs. Other situations when the BSPs use the imbalance settlement system contributing their imbalance positions in the opposite direction to the system imbalance are called ‘passive balancing’.

Once the control energy was utilized by TSO to restore the system balance in the respective control zone, the market-based accounting and settlement for involved BRPs happens after real-time (see Figure 2-5). If BRPs had misbehaved according to their schedules submitted before real-time, the energy deviations will be accounted with imbalance settlement price (Ausgleichsenergiepreis) in regard of BRP’s individual balancing state and the balance situation of the system in a single settlement period. These deviations can be offset on the energy intraday market or via OTC, or by means of other decentral solutions like a blockchain-based marketplace, the focus of which the actual thesis was set upon and will be elaborated in next Chapters. Imbalance mechanism applied in Germany is non-discriminatory single pricing. This means that during settlement long (oversupplied BRP) and short (undersupplied BRP) positions are linked with one price [5]. The computing of imbalance prices is relied on the average costs of only the energy component of reserves activation. For this stand only Secondary and Minute Reserves. The single pricing approach is a zero-sum game for the TSO.

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Figure2-5: Graphical representation of procurement and settlement with the TSO as a central role in Germany (own design)

Further, it is important to define and describe functions of balancing groups (BGs) and their managers – Balancing Responsible Parties (BRPs).

2.4 Balancing Group Management (BGM)

2.4.1 Balancing groups

BGs are virtual energy quantity accounts that balance all the actual supplies and withdrawals (physical grid connections) and energy flows between other BGs (commercial transactions) within a control area [47]. For the efficient management of BGs, the Energy Identification Code (Y-EIC for DE national and X-EIC – EU-wide [48]) is generated and assigned to each of BGs by a corresponding TSO in coordination with their BRP. Alongside, the Balancing Group Contract is concluded between the BRP and the TSO [49], [50]. This contract contains several regulations on data provision for billing of BGs.

The coordination of feed-in of power plants is realized by means of load forecasts. Therefore, every producer and every load are contained in a BG. There are two types of energy consumers in Germany [51]. First is RLM (Registrierende Leistungsmessung) which represents detailed power metering with the energy consumption of more than 100 MWh el. yearly drawn, e.g. large industrial consumers. Such customers must be equipped with a specific electricity metering device with resolution of 15 minutes which can transmit 35040 measured times series a year to the DSO. Second is SLP (Standardlastprofile), take form of standard load profiles of typical residential and commercial consumers based on the past measurements. In Germany they are provided by BDEW (Bundesverband der Energie- und Wasserwirtschaft) and approved by DSOs at each control zone [52], [53]. For example, H0 for households, L0 – agricultural farms and G1 for businesses. To ensure that the consumption and production are harmonized in a control BG, the virtual concept of BRPs was introduced.

2.4.2 Balancing Responsible Parties (BRP)

The BRPs are main participants on electricity wholesale markets, they can purchase and sell electricity, either Over-The-Counter (OTC) or on energy exchanges. Traditionally, generation and system operation are decoupled meaning that TSOs do not receive any real-time information on production and load [54]. Therefore, BRPs provide the corresponding TSO with schedules that list the net energy trade a BRP intends to execute. A BRP can either source forecasted capacities from his own balancing group or externally purchase various electricity products on the wholesale markets. For example, long-term contracts on OTC for securing the base load, supply programs for the seasonal requests or short-term supplies from exchanges to cover the load peaks. Depending on planning accuracy and possible unpredictable results from production or consumption side, a smaller or bigger difference for balancing group remains.

Specifically, a load BRP forecasts its consumption in 1/4-hour increments for the next day at latest. Afterwards, this BRP purchases this energy from the other generation BRP or through power exchange. Both BRPs submit their trade to the TSO until gate closure by 14:30 in Germany [50]. TSO cross checks if schedules are matching and provides the BRPs with a positive or negative feedback in case of no error or sum/remainder was left over (3). Next, TSO compares booked schedules with meter readings provided by the DSO and bills any imbalances towards BRPs. The updates are allowed during the day 30 minutes ahead of actual delivery until the intraday cross-zonal gate closure.

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A more detailed time flow of the BRP daily operations is schematically represented on the Figure 2-6.

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Figure2-6: The deadlines for the submission of schedules

Before Gate Closure Time (GCT) the TSO procures control energy based on the bids for balancing capacity submitted by BSPs, while after GCT starts the process of settlement with BRPs. In terms of the settlement of the schedule registration for the fulfillment day D in Germany there is following breakdown of the fundamental phases (Table 2-3):

Table2-3: A breakdown in the phases for the schedule registration in Germany

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Since the imbalance settlement period (ISP) in Germany has a granularity of 15 minutes, for each production schedule, there is a consumption schedule and vice versa. Based on this a BRP is obliged to pay for the established imbalance energy. According to [41] and [50] German BRPs contractually must stay balanced for each ISP and any intentional deviation is considered as infringement of duties. In fact, the difference between the imbalance price and day-ahead price is the penalty for having imbalance. Its value accounts for the aggregated deviations between scheduled and physical net energy during an ISP. Given that, almost all energy market players can be a BRP whether a utility, trader, consumer, and generator. The Figure 2-7 below differentiates BRPs into possible categories according to [56] and [57]:

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Figure2-7: BRP classification by specific purposes

From the perspective of the German balancing group accounting model, further visualization of BGs and their data exchange is sketched for the sake of clearer understanding [57] (see Figure 2-8). Generally, the management of different balancing groups is separated into three categories:

- more than 100 000 customers
- fewer than 100 000 customers
- TSO (BIKO) plausibility check

An aggregate balancing group managed by DSO consists of several other balancing groups. Specifically, feed-ins and draw-offs from conventional consumers and power plants, then only feed-ins from RES (EEG), then from network losses and from a difference residual balancing group. The EEG, difference and loss groups are managed by the system-designated BRPs or by system operators themselves, whilst the feed-ins and draw-offs from conventional customers by commercial BRPs.

In case of smaller customer bundles the DSO allocates all values to a single ‘Grid-BG’, while for larger bundles it is split into individual BGs that system operator leads correspondingly. Finally, the BIKO has to ensure that all feed-ins and offtakes in the entire control zone will be allocated to a single BG. Therefore, BIKO does plausibility check of each balancing areas as part of the settlement with BGs. As a result, the TSO reports to BNetzA the final deviation allocated in the Delta-BG.

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Figure2-8: Balancing group accounting model [57]

Also, there is a wide range of a variety of metered time series coming in and out the balancing area controlled by respective DSO, either upstream or downstream. This is out of scope of the thesis and further detailed decryption can be found in the BDEW code list [58]. However, since it is important to know how the deviations in the energy system are revealed, the key organization of profiles flow is schematically represented in brief. First, a short note on the most important types of time series and insight on how they are managed is grouped as following (see Figure 2-9):

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Figure2-9: Modular representation of processes in a variety of time series flow

In order to determine the final balancing error (reflected in the profile DZR), DSO reconciles all aggregated metered values with seized profiles from several balancing groups. The following waterfall diagram (see Figure 2-10) demonstrates the whole balancing process of a distributed network dividing into three main stages [59]:

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Figure2-10: A breakdown of balancing in a distribution network [60]

As it can be seen from the bar diagram above the largest in size is the input of profiles from neighboring networks. Second largest are the feed-ins and offtakes from large RLM-metered customers. The most interest for the thesis present large industrial customers (RLM) since they have most significant influence on the final deviation from the schedules thereby threatening the security of energy supply.

To avoid confusion on several types of BGs based on the above demonstrated possible BGs accounting composition and energy profiles flow, the focus of the current thesis falls on the non-system, non-exchange and non-EEG BRP classified in 1) and 2) below in the Table 2-4:

Table2-4: Classification of BRP

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More generally, BRPs maintain balancing in the control area, namely they shall be responsible not only for a balanced quarter hour performance of the feed-ins and draw-offs allocated to their BG, but also stand for an appropriate schedule management and the economic balancing of remaining balance deviations. BRPs comprising loads could also be municipal, industrial and residential types. Usually, BRPs are created by various market players, such as utilities, traders, industrial consumers, renewable energy operators, aggregators, DSOs and even TSOs. For instance, the number of BGs accounts for 2435 with 543 BRPs only for TenneT, the largest operating TSO in in Germany [47]. Several BGs can be managed by one BRP. It is worth noting that BG and BRP were established only for commercial transfer of electricity, no physics and geography is involved. The spatial distribution of balancing groups does not play any role, whether they are geographically neighbors or many hundred kilometers away from each other, this will not bring any advantage to them. Only borders of control areas constrain BRPs geographically and not any network topology [61], [60]. Therefore, the efficient management and coordination of balancing groups is key.

2.4.3 Management of balancing groups

In order to reduce the exposure to regulation energy costs, BRPs must analytically control reactions of their customers in the BG. The following Table 2-5 contains important daily activities of BRPs [47]:

Table2-5: Key management activities of the BRP

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The maximum efficiency of offsetting the imbalances is only achieved by aggregation of smaller customers in one portfolio, so-called ‘ pooling’. By aggregating generators and consumers in the perimeter BRPs take advantage from the canceling out of individual imbalances. The emergence of flexible assets set up BRPs to merge into larger pools to increase the likelihood of matching opposite signs. Thus, the natural tendency for the maximum portfolio optimization is in expanding it infinitely by diversifying with as many as possible fluctuating energy assets [62]. Also, it enhances the chances of predicting consumer or producer’s behavior and thus significantly diminish risk and uncertainty. The risk for paying penalties occurs when a BRP tries to optimize its positions to achieve higher profits and also being paid for this by the system.

Trading with counterparties can be categorized in a manner ‘from the greatest to the least’: exchange between neighboring EU-member states, adjacent control zones, within one control zone between balancing groups and finally within one balancing group (P2P). The following Figure 2-11 and Table 2-6 represent possible directions of communication for schedules on different levels between market participants in Germany [63]:

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Figure2-11: Possible communication of schedules by business types in Germany [63]

Table 2-6: BRP classification by business types

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The exchange schedule consists of feeding-in and drawing-off locations, electricity amounts and network usage time for each quarter hour of fed in or off taken including realized capacity exchange within the BGs. Of recent, in reliance on the intelligent measuring system (iMS) rollout, the ‘smart’ meter installation locations will be called market locations (Marktlokation - MaLo) and the balancing responsibility will be revised and set to re-assign from BRPs to the TSO by 01.12.2019 [64]. The measured energy values acquired by DSO with help of iMS will be transferred to TSO for further aggregation complying with the standards of GPKE and MPES. Subsequently, it is assumed a change in roles, specifically for metered data processing and transferring from DSO toward TSO in the framework of established market communication [59]. Further details are still under clarification.

2.4.4 Decentralized data management exchange framework in Germany

Currently, along with the German energy economic law (EnWG) exists the framework for decentralized information management designed by BNetzA describing the principles of market processes and rules for electricity and gas. The actual thesis considers only area of electricity. Under supervision by BNetzA following the decisions of German association of industry companies (BDEW), relevant messages and their format was defined and standardized. The uniform format for messaging is EDIFACT and currently being used for:

- Switching of suppliers (GPKE – electricity; GeLi Gas – gas)
- Accounting and settlement of balancing (MaBiS – electricity; GaBi Gas – gas)
- Metering (WiM – electricity and gas)
- Market processes for generating market locations (MPES – electricity)

The German EDIFACT framework is capable of handling around 40 processes. In addition, the data management system in the electricity market is decentralized [65]. In other words, there is no central access point or platform for interaction, yet instead the edi@enegy model features decentralized data exchange based on bilateral communication between the market participants [66]. The Figure 2-12 below depicts the organization of the decentralized data management of German electricity market.

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Figure2-12: Market roles and processes for data exchange in Germany [65]

2.4.5 Balancing group accounting and settlement

As described in the section 2.3.3 the TSOs stand for calculating the amounts of balancing energy that was utilized by respective BRPs within operating control zone, followed by the financial settlement. According to the German regulator BNetzA the required provision on the data exchange alongside with the obligation to cooperate in the course of the prescribed deadlines for this settlement process, known in Germany as “Bilanzkreisabrechnung”, is steered in line with the market rules “MaBiS” [60]. The most important steps are clarified below and visualized on the Figure 2-13 and detailed in Table 2-7.

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Figure2-13: Balancing Group Management model (adapted from [67] )

Table2-7: Essential steps of the settlement process in Germany [68]

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The invoices for allocated balancing energy are always issued by TSO toward the BRPs, regardless of the payment direction, whether a monetary sum is credited or debited by the party.

2.4.6 Scheduling and deviations

The electronic schedules matching and submission takes place at the central venue by TSO at each respective control zone. This process is performed in accordance to the regulations for ENTSO-E Scheduling System (ESS) [69], [70] with standardized data formats and names for market parties EU-wide. The scheme of the ESS contains four business types described above in the section 2.4.3 and it is also divided into two parts: ‘Day-Ahead’ and ‘Intraday’ [71]. The Table 2-8 gives the breakdown for the ESS stages to clarify the order and approval in the BRP-to-BRP over the TSO communication:

Table2-8: The ESS scheme divide

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Excerpt out of 117 pages


Integration of Blockchain Components in the Electricity Balance Area Management
University of Freiburg
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ISBN (eBook)
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balancing group management, balancing responsible party, electricity balancing market, imbalance price, energy blockchain, service model, prosumer, blockchain, balancing
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Andrei Gladikov (Author), 2019, Integration of Blockchain Components in the Electricity Balance Area Management, Munich, GRIN Verlag,


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