Verv’s Free Market Model; What are the Advantages of a Distributed Peer-to-Peer Energy Trading System?
Challenges with the current energy model
The increasing adoption of consumer owned renewable energy resources has introduced a number of complications related to the economics of trading energy and balancing of the energy grid. Before discussing the economic problems that have been faced, it is best to cover the introduction of solar panels within the UK.
To incentivise the adoption of renewable energy systems within the UK, the Department for Business, Energy and Industrial Strategy initially offered a very attractive Feed In Tariff (FIT) for the supply of locally produced green energy back to the grid. In April 2010, a base rate for the supply of energy generated from home owned solar panels was set at 37.42 pence / kWh [Source: Ofgem]. When compared to the 13.5 pence / kWh which most consumers paid for their energy, it is obvious that this rate was extremely good for those producing their own clean energy. This was done to offset the extremely high price for solar panels at the time so that any early adopters of this technology would have a decent return on investment and would make back their payments on the solar panels within a few years.
The reduction of Feed In Tariff (FIT) rates
Towards 2016, the FIT scheme was amended so that rates were progressively reduced, and made to decrease according to the number of solar panels installed by a single household. Special benefits were granted to community and school based installations. Projects have also been implemented to install solar panels on social housing estates such as Hackney’s Banister House where we now have a live peer-to-peer energy trading field trial and recently performed the UK’s first physical p2p trade of energy on the blockchain. Following 2016, the FIT rates were more drastically reduced and have been declining since. Today the FIT rates are set at around 4.25 pence / kWh while consumption tariffs hover around 13 pence / kWh.
The changes were likely made in part due to the problems associated with feeding solar energy back into the grid. The grid’s current infrastructure is based on a centralized flow of energy out from large scale energy producers. The introduction of energy produced from homes back into the grid can affect the voltage and frequency of the electricity along distribution lines, damaging electronics and grid infrastructure. In effect, it is very difficult for the current energy grid to handle large and unpredictable power loads being fed back into it at both the distribution and transmission level. Even disregarding the challenges facing the current energy grid, production of solar power creates challenges for larger scale energy producers as well.
The ‘duck-curve’
Widespread adoption of solar energy sources means that there is excessive energy produced during daylight hours, placing less load on other conventional energy generation sources such as natural gas and nuclear power plants. However, when the sun goes down, the supply of this energy must be transferred to these other means of production. This, combined with the increased energy demand in the evening, leads to a massive ramp up in the energy demanded from these other services in a very short amount of time. This problem is becoming increasingly hard to mitigate in California where large scale adoption of solar and wind energy has taken place. It has become so pronounced that it is best illustrated in a graph which has been given the surprisingly affectionate moniker of the ‘duck-curve’. Here the Net Load is the expected load on the grid with the unpredictable and uncontrollable solar and wind loads removed.
Many of these other sources of energy, particularly nuclear and coal, have a long ramp up time before they are capable of supplying energy and so are not able to automatically respond to these large shifts in energy demand. This means that new energy production methods and infrastructures are needed.
Current solutions to the large shifts in energy demand
Aside from the development of other power sources which are capable of supplying energy at short notice, there are a number of other solutions which have been proposed to help to counteract this effect. One of which is the implementation of Demand Side Response (DSR). Here energy suppliers are able to communicate with businesses to request that they delay or reduce their energy consumption during peak periods and even take up more energy when supply is in excess to help balance the grid.
Another solution is the implementation of ‘time of use’ tariffs to promote the use of energy during periods of low demand to offset its use during high demand times through cheaper prices. The adoption of in-home batteries also provide load balancing services as excess energy can be stored during the day to be used in the evening, placing less demand on the grid.
The use of ‘time of use’ tariffs, DSR, smart meters and battery storage, along with the widespread adoption of now much cheaper solar panels is indicative of the domestic energy market’s move to a smarter, better connected and distributed energy grid. It also points to a freer market in which the consumer and prosumer hold greater control over how and when they use their energy.
But there’s way more that can be done…..
What does Verv bring to the table that’s different?
The solution proposed by Verv is to introduce a highly connected system which allows for the peer to peer trading of energy between prosumer and consumer households using a free market model driven by the supply and demand of energy. While fixed tariffs on energy consumption have somewhat protected consumers from volatile energy prices, and FIT’s have managed to encourage the adoption of home owned renewable energy production to help the grid, a freer market based on supply and demand can help to even out loads on the grid, provide incentives for homeowners to support the grid through ancillary services such as home batteries and help the end consumer reduce their energy bill. It also supports the move to the future of a connected and decentralised energy grid.
However current smart meters within the UK lack the capabilities to support such a free market, they do not have the capabilities to allow for; control of home batteries, monitoring of energy supply/consumption over short periods of time or prediction of when energy might be supplied/consumed from a home. Future designs are being made to monitor energy for half hourly settlement of bills, however this is still a comparatively large time scale when compared to the extremely volatile net loads shown in the duck-curve. Verv’s AI-based smart hub with its super high frequency sampling rates, combined with interfaces to home battery API’s, effectively is designed to solve these problems and allows for more controlled supply of energy to the grid when it is needed.
The benefits of the Verv system brought to life
To detail some of the advantages of this system, consider the following example. During times when use of grid infrastructure is minimal and energy demand is low, a home with a battery might store energy at a cheaper price to be used at a later time or even sell this energy off to homes in a neighbouring area when demand is high. This acts as a load balancing service to the grid where the conventional energy generation services do not have to alter their power output throughout the day, flattening the duck-curve. It also avoids the need to build more generation facilities and avoid or defer grid reinforcement through these efficiencies. According to Ofgem this type of system would save consumers £17bn-£40bn by 2050 [Source: Ofgem]. Verv’s energy trading platform doesn’t even require the battery owner to own a source of power generation such as a solar panel, they could simply use the battery as a sort of energy broker. Those with solar panels will be incentivised to own batteries to take advantage of similar properties while the current FIT schemes have no incentives to discharge energy at optimal times.
Verv’s energy trading platform also implements the same desired properties of DSR; when demand and prices are low, energy is best used at these times and supplied when demand is high. It also self scales, as more users join the system the margins between these prices will decrease accordingly. This allows for schemes focusing on lowering the barrier of entry to these systems by subsidising installation of PhotoVoltaic panels and home batteries such as Repowering London. Transmission costs could be introduced for each trade through an energy aggregator which, when combined with a competitive market for grid infrastructure, could help incentivise the move to a more decentralised and locally distributed energy grid. A decentralised/distributed energy grid in and of itself is a great improvement to the energy grid as it has fewer points of failure and provides improved grid resilience.
The VLUX token will be a key enabler in creating this smarter and more flexible energy system that benefits the consumer. The VLUX trading platform is designed to provide a single marketplace where users can buy and sell clean energy, and in the future, also enable households to provide ancillary services to the grid.
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