Problem
The potential consequences of the climate crisis can profoundly impact life, health, and ecosystems. A crucial strategy in addressing the climate crisis is the reduction of CO2 emissions, which is vital for safeguarding Germany’s environmental and economic future. This goal can be achieved by prioritizing the production of renewable energy. A comprehensive analysis conducted in 2006 demonstrated that the majority (62 percent) of renewable electricity generation replaced hard coal-fired plants, while gas and lignite power plants accounted for a 26 percent share.
The current electricity situation in Germany is influenced by the application of the principle of merit order, which is a market mechanism that prioritizes the delivery of electricity sources based on their marginal costs. The sharp increase in gas prices, resulting from restrictions and several other factors, has triggered an abrupt increase in electricity prices. The merit order principle establishes a sequential ranking of power generation technologies, with those that have lower marginal costs being dispatched first to meet the electricity demand.
Moreover, the current energy market disincentivizes and even penalizes the use of renewable energy sources. If consumers are willing to utilize renewable sources of energy, they are required to pay a higher price. The current electricity price is expressed in the form of a base price, and in the case of renewable energy sources, an additional cost for a green certificate needs to be added.
In addition to bureaucratic challenges, the energy sector also faces issues related to energy source diversity and tracking mechanisms. The lack of transparency in the electricity market further complicates these challenges.
Solution
To deal with the challenges associated with market intelligence and bureaucratic inefficiencies, our proposed solution includes the adoption of a blockchain-based system. Leveraging this technology provides numerous advantages for the platform, which includes decentralization and marketplace transparency. The transparency provided by blockchain ensures that transaction records are immutable, traceable, and accessible to all stakeholders.
The platform aims to facilitate decentralized electricity trading between consumers and providers.The price mechanism serves as a financial incentive for both parties to utilize or produce renewable energy. Suppliers who generate renewable energy will receive an additional premium. However, all energy providers will be compensated with a base price, irrespective of the energy source, to ensure a continuous energy supply. Consumers also have a clear motivation to use renewable energy sources. Due to the daily price fluctuations, the cost will be lowest during periods when the maximum amount of renewable energy is produced. In addition, the platform market design is based on the Vickrey auction instead of the classic merit-order principle.
Implementation
In the development of our electricity trading platform prototype on Ethereum, we have strategically employed various technologies to ensure the functionality, infrastructure, and frontend components of our system operate seamlessly.
To support the backend functionalities of our platform, we have employed Hardhat and Solidity.
In order to establish a reliable and efficient infrastructure for our electricity trading platform, we have implemented Ether.js and Alchemy. Ether.js, a JavaScript library, plays a crucialrole in simplifying interactions with the Ethereum blockchain. By leveraging Alchemy’s services, our platform benefits from optimized connectivity, ensuring stable and efficient communication with the Ethereum network.
For the frontend development, we have selected Horizon UI and utilized React. Horizon UI, a user interface framework, offers an intuitive and user-friendly interface for interacting with our electricity trading platform. React, a widely adopted JavaScript library, serves as the foundational framework for our frontend development, empowering us to create modular and reusable components.
Code
https://github.com/eric-official/energy-market
