BLOCKCHAIN: AN ENABLER FOR POWER MARKET OPERATIONS EXPLORING POTENTIAL USES OF DISTRIBUTED LEDGER TECHNOLOGY IN THE EVOLVING GEORGIAN POWER MARKET USAID GOVERNING FOR GROWTH (G4G) IN GEORGIA 30 May 2019 This publication was produced for review by the United States Agency for International Development. It was prepared by Deloitte Consulting LLP. The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government. BLOCKCHAIN: AN ENABLER FOR POWER MARKET OPERATIONS EXPLORING POTENTIAL USES OF DISTRIBUTED LEDGER TECHNOLOGY IN THE EVOLVING GEORGIAN POWER MARKET USAID GOVERNING FOR GROWTH (G4G) IN GEORGIA CONTRACT NUMBER: AID-114-C-14-00007 DELOITTE CONSULTING LLP USAID | GEORGIA USAID CONTRACTING OFFICER’S REPRESENTATIVE: PHILLIP GREENE AUTHOR(S): SRI SEKAR, JAMES CALLIHAN, AVTANDILI TODUA ACTIVITY AREA: 4420 LANGUAGE: ENGLISH 30 MAY 2019 DISCLAIMER: This publication was produced for review by the United States Agency for International Development. It was prepared by Deloitte Consulting LLP. The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government. USAID | GOVERNING FOR GROWTH (G4G) IN GEORGIA BLOCKCHAIN: AN ENABLER FOR POWER MARKET OPERATIONS i DATA Reviewed by: Giorgi Giorgobiani, Andrea Lora Project Component: Energy Trade Policy Improvement Component Practice Area: Electricity Trading Mechanism (ETM) Key Words: Blockchain, Clearing, Settlement USAID | GOVERNING FOR GROWTH (G4G) IN GEORGIA BLOCKCHAIN: AN ENABLER FOR POWER MARKET OPERATIONS ii BLOCKCHAIN: AN ENABLER FOR POWER MARKET OPERATIONS EXPLORING POTENTIAL USES OF DISTRIBUTED LEDGER TECHNOLOGY IN THE EVOLVING GEORGIAN POWER MARKET ACRONYMS BRP Balancing Responsible Party DAM Day-Ahead Market DEA Data Exchange Agency EBP European Blockchain Partnership EBSI European Blockchain Services Infrastructure ECC European Commodity Clearing EEA European Economic Area EEC European Energy Community eIDAS Electronic Identification and Trust Services (eIDAS) Regulation ERP Enterprise Resource Planning ESCO Electricity System Commercial Operator EU European Union EUR Euro GDPR General Data Protection Regulation GNERC The Georgian National Energy and Water Supply Regulatory Commission GoG Government of Georgia GREDA Georgian Renewable Energy Development Association GSE Georgian State Electrosystem G4G Governing for Growth in Georgia ICO Initial Coin Offering ICT Information, Communication, and Technology INATBA International Association for Trusted Blockchain Applications IoT Internet of Things IPFS Interplanetary File System IT Information Technology KYC Know Your Customer MO Market Operator MoESD Ministry of Economy and Sustainable Development MOU Memorandum of Understanding PPA Power Purchase Agreement PSDA Public Service Development Agency RE Renewable Energy STEM Science, Technology, Engineerng, and Math TPP Thermal Power Producer TRY Turkish Lira TSO Transmission System Operator UK The United Kingdom US United States USAID United States Agency for International Development VPN Virtual Private Network USAID | GOVERNING FOR GROWTH (G4G) IN GEORGIA BLOCKCHAIN: AN ENABLER FOR POWER MARKET OPERATIONS iii FIGURES Figure 1 – Blockchain Introduction ........................................................................................................ 10 Figure 2 – Blockchain Business Case Characteristics ......................................................................... 11 Figure 3 – Georgian Market Bilateral vs. Balancing Market ................................................................. 11 Figure 4 – Illustrative Power Market Clearing Protocol ......................................................................... 13 Figure 5 – End-to-End Georgian Current-State Wholesale Settlement Process .................................. 14 Figure 6 – Wholesale Market Design Considerations ........................................................................... 14 Figure 7 – Day Ahead Market Schedule ............................................................................................... 15 Figure 8 – Blockchain as an IT System Integration Layer .................................................................... 16 Figure 9 – Forgone Interest by Power Providers Due to Payment Delays ........................................... 17 Figure 10 – Blockchain Startup Investment Trends .............................................................................. 18 Figure 11 – Nord Pool Settlement Schedule ......................................................................................... 20 Figure 12 – ECC Invoicing and Fee Collection Exchange Settlement Process ................................... 21 Figure 13 – The Landscape of Blockchain Protocols ........................................................................... 24 Figure 14 – Blockchain Solution Primary Cost Drivers ......................................................................... 25 Figure 15 – Consortium Example ......................................................................................................... 26 Figure 16 – Blockchain Readiness Framework .................................................................................... 27 Figure 17 – Consortium Risk Assessment Framework ......................................................................... 28 Figure 18 – Blockchain Solution Readiness Framework ...................................................................... 34 Figure 19 – Key Considerations in Consortium Management .............................................................. 38 Figure 20 – Blockchain Implementation Roadmap Framework ............................................................ 39 Figure 21 – System Architecture Options and Considerations ............................................................. 40 Figure 22 – Riddle&Code Smart Meter Technology ............................................................................. 42 Figure 23 – Notional Future State Power System Powered by Blockchain .......................................... 42 USAID | GOVERNING FOR GROWTH (G4G) IN GEORGIA BLOCKCHAIN: AN ENABLER FOR POWER MARKET OPERATIONS iv CONTENTS 1. EXECUTIVE SUMMARY .............................................................................................................. 6 2. BACKGROUND: GEORGIAN POWER MARKET ASSESSMENT ............................................. 9 2.1 REPORT CONTEXT ..................................................................................................................... 9 2.2 THE APPLICATION OF BLOCKCHAIN TO FUTURE-STATE GEORGIAN MARKET CLEARING AND SETTLEMENT OPERATIONS................................................................................. 15 2.3 THE CURRENT STATE OF BLOCKCHAIN DEPLOYMENT WORLDWIDE ............................ 18 2.4 NON-DLT ELECTRICITY TRANSACTION SETTLEMENT PLATFORMS ............................... 20 3. PROVIDING THE FOUNDATION FOR A BLOCKCHAIN SOLUTION ..................................... 23 3.1 TECHNICAL INFRASTRUCTURE ............................................................................................. 23 3.2 CONSORTIUM ............................................................................................................................ 26 4. SUITABILITY FOR BLOCKCHAIN IN THE GEORGIAN POWER MARKET ........................... 27 4.1 RISK ANALYSIS......................................................................................................................... 27 4.2 THE POLICY LANDSCAPE ....................................................................................................... 30 4.3 STAKEHOLDER LANDSCAPE ................................................................................................. 32 5. RECOMMENDATIONS AND NEXT STEPS .............................................................................. 36 5.1 RECOMMENDATIONS TO GEORGIAN GOVERNMENT ......................................................... 36 5.2 DEFINE TRANSFORMATIONAL ROADMAP ........................................................................... 38 5.3 A NOTIONAL EXAMPLE OF THE FUTURE ............................................................................. 42 6. REPORT REFERENCES ............................................................................................................ 44 USAID | GOVERNING FOR GROWTH (G4G) IN GEORGIA BLOCKCHAIN: AN ENABLER FOR POWER MARKET OPERATIONS v 1. EXECUTIVE SUMMARY Georgian Power Sector Reform Since acceding to the European Energy Community (EEC) in 2017, Georgia has been actively pursuing power sector reforms to comply with the EEC’s policy requirements and to more effectively integrate with the energy community. The net effect of these reforms will be to create a more transparent power sector, whose operations are dictated by competitive market principles. One of the key areas for reform is the wholesale power market – where the country is moving from a system that can now take over 50 days to settle financial obligations, to a system that takes two to three days to settle – this is the “clearing and settlement” on which this report focuses. More specifically, this report explores the potential of using blockchain as an enabling technology to make this transition to a more efficient and timely settlement process. Why Blockchain? A blockchain is a digital and distributed ledger of transactions,