Towards a Blockchain Contract-for-Difference Financial Instrument for Hedging Renewable Electricity Transactions

Title: Towards a Blockchain Contract-for-Difference Financial Instrument for Hedging Renewable Electricity Transactions
Authors: Alao, OlakunleCuffe, Paul
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Date: 1-Oct-2020
Online since: 2020-11-24T17:00:20Z
Abstract: Contract-for-Difference financial instruments are available to renewable electricity generators in day-ahead electricity markets to allow them to hedge against revenue risk. Traditional CfDs while designed to hedge revenue risk, introduce other new risks such as counterparty credit, margining and third-party risks. We therefore propose a novel financial instrument - an Ethereum blockchain-based dual escrow smart contract, to serve as the mediator in a CfD agreement between a renewable electricity generator and supplier. This financial instrument addresses hedging related risks that result from traditional CfD agreements in day-ahead electricity markets. In this paper, we design the logic of the financial instrument, translate this logic to smart contract codes and demonstrate its expected performance. Overall, the proposed financial instrument has the benefits of reducing hedging related risks inherent in traditional CfDs. Likewise, it enables secure, efficient, cost-effective, consistent, reliable, transparent and frictionless transactions between contracting parties in a CfD agreement.
Funding Details: Sustainable Energy Authority of Ireland (SEAI)
Type of material: Conference Publication
Publisher: IEEE
Copyright (published version): 2020 IEEE
Keywords: BlockchainSmart contractRenewable electricityElectricity derivatives
DOI: 10.1109/energycon48941.2020.9236436
Language: en
Status of Item: Peer reviewed
Is part of: 2020 6th IEEE International Energy Conference (ENERGYCon)
Conference Details: The 6th IEEE International Energy Conference, Gammarth, Tunisia (held online due to coronavirus outbreak), 28 September - 1 October 2020
ISBN: 978-1-7281-2956-3
This item is made available under a Creative Commons License:
Appears in Collections:Electrical and Electronic Engineering Research Collection

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