Application of blockchain technology to energy trading #4
Regulations of P2P Energy trading
I have written 10 articles on the topic of blockchain and energy trading in Japanese, but have not translated them, so I will do so when I have time. This is my fourth article.
In the last 3 articles, I discussed the possibility of peer-to-peer energy trading from the standpoint of decentralization of energy network, trading system requirements, and system coordination between peer-to-peer trading system and existing energy IT infrastructure. Those are technical analysis and discussions. In this article, I will discuss regulatory aspects (in the context of Japanese law) of peer-to-peer energy trading. I believe that regulations of other countries for peer-to-peer energy trading are similar and underdeveloped.
Can a prosumer supply electricity to other consumers?
The first challenge is whether it is legal for a prosumer (residential solar PV owner who is also a consumer) to supply surplus electricity to other consumers. To get straight to the point, under the current Japanese regulation, a prosumer is likely to require license of Retail Electricity Supply Business to supply electricity to other consumers. As below, a prosumer is considered “Retail Electricity Supplier” defined in Article 2 of Electricity Business Act.
Article 2 In this Act, the meanings of the terms listed in the following items shall be as provided for by the respective items.
(i) Retail Electricity Supply: Supplying electricity to meet general demand.
(ii) Retail Electricity Business: Business of retail electricity supply. (excluding General Transmission and Distribution Business, Specific Transmission and Distribution Business, and Generation Business)
(iii) Retail Electricity Supplier: Person who has obtained a license of the next Article to conduct a Retail Electricity Business.
2. A person who intends to conduct a Retail Electricity Business shall obtain a license from the Minister of Economy, Trade and Industry.
Source: Electricity Business Act (my translation referring to translation of old Electricity Business Act)
The main criteria of Retail Electricity Supplier is “to meet general demand” and “conduct a Business.”
If many unspecified consumers participate in trading on a peer-to-peer energy trading platform and the trading counterpart of a prosumer are end consumers, then it is considered meeting general demand. It would be grey case if trading counterparts are limited to specific consumers such as neighbours, based on the Article above (but it can still be considered “meeting general demand” as the end consumer is general consumer).
To digress a bit, Electricity Business Act has “Specified Supply” that is different from conducting an Retail Electricity Business.
Section 7. Specified Supply
Article 27.31 A person who intends to conduct a business supplying electricity shall, except in the case of conducting an Electricity Business (excluding a Generation Business) or any of the following cases, obtain a license from the Minister of Economy, Trade and Industry for each recipient of electricity supply and each place where electricity is to be supplied.
(i) Where such person intends to supply electricity through the generation facilities intended exclusively for supplying electricity to meet the demand in a single building or in any premises specified by an Ordinance of the Ministry of Economy, Trade and Industry.
(ii) Where such person intends to supply electricity to be used for a Retail Electricity Business, General Transmission and Distribution Business or Specified Transmission and Distribution Electricity Business.
Source: Electricity Business Act (my translation referring to translation of old Electricity Business Act)
Nevertheless, Specified Supply is originally intended for supplying electricity generated in an industry complex to other facility of the same company or subsidiary companies. It does not assume peer-to-peer energy trading. In any case, it is not practical for a prosumer to obtain license for each place of electricity supply.
Back to discussion whether a prosumer is considered Retail Electricity Supplier, in terms of “conducting a Business, ” it is considered business if electricity supply is compensated and repeated. Peer-to-peer energy supply is not supposed to be free of charge and not one-time transaction. It is therefore natural to judge it as “conducting a Business.”
In conclusion,
- It is highly likely that the act of supplying electricity to other consumer by a prosumer is considered Retail Electricity Business when unspecified consumers participate in trading.
- It is not clear whether a prosumer is considered Retail Electric Supplyer when the prosumer supply electricity to specified consumer(s) such as neighbour(s).
- In either case, if electricity supply is compensated and repeated, it is considered “conducting a Business” therefore a prosumer is considered Retail Electricity Supplier.
If a prosumer supplies electricity as Retail Electricity Supplier, the prosumer would have obligations such as securing supply, balancing, and customer support. It would be totally unrealistic for a prosumer to obtain license of Retail Electricity Supplier. Likewise, it is not realistic either to obtain license of Specified Supply.
The current Electricity Business Act does not assume peer-to-peer energy trading and there is no regulatory framework that allows peer-to-peer energy trading. Policy development is needed for peer-to-peer energy trading to be legal.
Network fee of peer-to-peer energy trading
The next regulatory challenge of peer-to-peer trading is network fee.
Network fee is paid by Retail Electricity Supplier for the use of transmission and distribution network in accordance with the contract with customers. Transmission and Distribution Business Operator recovers its investment in the infrastructure and operation cost (transmission, distribution, substation operation, ancillary services etc.) by network fee paid by Retail Electricity Suppliers. The network fee is not completely pay-per-kWh, but the portion of pay-per-kWh is approximately as follows. The voltage is supply voltage to consumers.
- Extra high voltage (20,000V+): 1.5–2.0 cents (US)/kWh
- High voltage (6,000V+): 3.5–4.0 cents/kWh
- Low voltage (100/200V): 7.5–9.0 cents/kWh
Except Okinawa Electric Power Company. Okinawa Electric’s rates are higher than those by about 1 cents/kWh.
Source: TEPCO EP etc.
The current network fee is structured around supply voltage of consumers. It assumes large generation plants connected at extra high voltage and that electricity goes through transmission and distribution network. Therefore, network fee for extra high voltage consumers is the lowest because the use of network is the least. Network fee for low voltage customers is the highest because the use of network is the most.
It is reasonable that peer-to-peer energy trading has to bear network fee as long as it uses distribution network, aside from who pays it. However, as explained above, the current network fee is determined by supply voltage of customers. If a prosumer supplies electricity to a neighbour just 10 meters away, then the highest network fee applies.
The current “low voltage” network fee assumes electricity travelled through hundred kilometers of transmission lines, substations, and distribution feeders. On the other hand, when peer-to-peer energy trading takes place between a prosumer and a consumer on the same feeder, only a far end portion of the distribution grid is used. No transmission lines and substations is supposed to be used for the peer-to-peer trading. To be fair, “low-voltage to low-voltage” network fee should be applied, but such category of network fee does not exist under the current network fee structure. A new network fee structure that suits peer-to-peer energy trading would be needed.
Peer-to-peer energy trading and balancing operation
Under the current regulation, Retail Electricity Supplier has obligation of balancing supply and demand of contracted consumers in 30-minute slots. I have seen discussions of how supply/demand balance can be achieved when peer-to-peer energy trading is realized. I think that if the responsibility of balancing remains in Retail Electricity Suppliers as currently conducted, it would be the simplest.
The assumption is that all the participants of peer-to-peer energy trading has contract with the Retail Electricity Supplier and that prosumers get supply of electricity from the Retail Electricity Supplier as well when solar PV is not generating. Besides, those prosumers only transact with consumers who have contract with the Retail Electricity Supplier.
The total demand of a Retail Electricity Supplier that have prosumers at any given slot is the following:
Total demand = ∑｛（demand of each consumer）－（solar PV self consumption*）｝
*zero except prosumers who generate electricity
This equation does not include surplus electricity from solar PV of prosumers that is used for peer-to-peer trading. I understand that Retail Electricity Suppliers forecast demand using models based on past data and weather data, but the existence of peer-to-peer energy trading does not affect prosumers’ demand. Whether prosumers sell surplus electricity to an utility (Transmission and Distribution Business Operator or Retail Electricity Supplier) or share it to the community via peer-to-peer energy trading, it does not affect demand.
With regard to supply, surplus electricity of prosumers need to be added to supply of Retail Electricity Supplier. Otherwise it needs to be subtracted from the demand. With prosumers’ surplus electricity taken into consideration, Retail Electricity Supplier dispatches generation facility or procures from JEPX (wholesale market)or balancing group to meet predicted demand in every 30-minute slot. If consumers of a Retail Electricity Supplier have peer-to-peer energy trading with prosumers of other Retail Electricity Suppliers, then surplus electricity traded peer to peer needs to be taken into consideration in supply.
If a sell tender of surplus electricity on a peer-to-peer trading platform is not transacted, imbalance would occur unless Retail Electricity Supplier reflects unsold surplus electricity into its supply. This imbalance will not be a problem in early days of peer-to-peer trading because the amount of electricity traded peer to peer would be a tiny fraction of the entire supply.
The above is my thought at this point and I will summarize this in the below figure. In the future I might come up with a better way.
Summary
The below is a summary of regulatory aspects of peer-to-peer energy trading:
- It is likely that prosumers need to obtain license of Retail Electricity Supplier under the current Electricity Business Act. However, it is not realistic for prosumers who are individuals to meet requirements of Retail Electricity Supplier and get registration. A new regulatory framework would be required for peer-to-peer energy trading.
- It is reasonable to apply network fee to peer-to-peer energy trading. However, the current network fee structure assumes generation facilities are connected at the extra high voltage and does not have a fee category for distribution from low voltage prosumer to low voltage consumer. If peer-to-peer energy trading is beneficial for the society, a new framework that suits the nature of peer-to-peer energy trading would be needed.
- I think it would be good if Retail Electricity Suppliers continue to have responsibility for balancing. Surplus electricity of peer-to-peer energy trading should be added to supply of Retail Electricity Suppliers.
Thank you for reading and your feedback is welcome. In particular, if I miss anything in this discussion, please let me know at yasuhiko.ogushi@gmail.com or via LinkedIn.
I wrote this article partly based on discussions in blockchain policy commission organized by the Ministry of Economy, Trade, and Industry in January 2018 in which I participated as a member.
