Application of blockchain technology to energy trading #5
Market scale of peer-to-peer energy trading
My last article discussed regulatory aspects of peer-to-peer energy trading. Conclusions were:
- 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.
In this article, let us assume that all regulatory challenges are solved. I will discuss how the business of peer-to-peer trading would look like and how big the market is if it is run as a business. The context (market conditions etc.) is in Japan.
Buyers and sellers of peer-to-peer energy trading
I will try to quantify market scale of peer-to-peer energy trading in Japan. Almost all consumers could be buyers, but sellers are limited to those who have generation facility. Thus, the number of sellers determine market scale. Specifically, sellers are the following:
- Owners of grid-connected renewable energy generation facility who does not sell surplus electricity under feed-in-tariff (FIT) program (started 2009 for residential solar PV, in 2012 for 5 types of renewables) and can send back surplus electricity to the grid
- Owners of grid-connected generation facility that does not have PPA (power purchase agreement) contract with Retail Electricity Supplier or others and can send back surplus electricity to the grid. Regular use or emergency generators.
Technically speaking saved demand (negawatt) can be treated equally as the above generated electricity by generation facilities of the above 1. and 2. However, for simplicity, I will think only the above 1. and 2. as sellers peer-to-peer energy trading.
Renewable energy generation facilities of the above 1. includes business and residential which consists of ones with contract period of FIT program expired and ones not on FIT program from the beginning. I think that the main sellers will be owners of residential solar PV with FIT contract (10 years contract period) expiring after November 2019.
Large solar PV generation facilities have 20-year contract period and those will expire after 2032 (as FIT for large solar PV started in 2012). I cannot think that non-FIT renewable generation facilities exist at a reasonable scale after FIT started. I would assume that the main sellers will be residential solar PV owners with FIT contract expiring after 2019.
I would assume that there is no significant number of other generators of the above 2. I would also assume that residential CHP (combined heat and power) that can export power to the grid have PPA contract with energy company and exclude from discussion.
I will summarize the discussion in the below table.
Market scale of peer-to-peer energy trading
Then, how big is the market of peer-to-peer energy trading? The below chart shows the number of small (10kW or smaller) solar PVs that expires FIT contract after 2019 tabulated based on the data from Japan Photovoiltaic Energy Association (JPEA).
In 2019, more than 550 thousand solar PV on the FIT program will expire. It should be noted that some of those 550 thousand solar PV started operation in the 1990s and may have short remaining life time. I would assume that ones that expire after 2020 will have gone through 10 years of operation and will be able to operate for another 5–10 years with power conditioner replaced.
Based on 53.4 million household (Statistics Japan) in 2015, the number of sellers in 2020 will be 750 thousand and it corresponds to 1.4%. In 2016, it will be 2.24 million and 4.2%.
Capacity of the above FIT-expired solar PV is shown below. Approximately 9.5 GW of residential solar PV will “graduate (this is usual description in Japan)” from FIT by 2026.
Then, how much electricity can be traded in peer-to-peer market? It will be as below, with the assumption of capacity factor 13% and surplus electricity rate 73%. (Self-consumption is not traded peer to peer of course but shown as reference. Energy storage will increase the amount of self consumption.)
The actual electricity that can be used for peer-to-peer trading will be smaller than the above for the following reasons:
- After expiration of FIT, some solar PV owners will contract a new PPA with a retailer or a house maker (likely at much lower price than FIT).
- After expiration of FIT, some owners will buy energy storage to maximize self-consumption.
- Some solar PV among ones expiring in 2019 will retire. In particular, there are solar PVs that will have operated for more than 20 years.
The total electricity generated in Japan is 864,453GWh in 2015 according to the Federation of Electric Power Companies of Japan. Using 864,453GWh as denominator, the amount of electricity that can be traded peer to peer is 676GWh (0.08%) in 2020 and 2,663GWh (0.31%) in 2026.
In terms of amount of electricity, peer-to-peer trading may have marginal impact on the entire electricity system in Japan if I consider FIT-expired solar PV as the only source of supply.
- In the short term (within three years), the main source of supply of peer-to-peer energy trading is residential solar PV on the FIT program that expires in or after 2019.
- In the mid and long term, new non-FIT renewable energy facilities and large renewable generation facilities that expires FIT after 2032 can be sources of peer-to-peer energy trading.
- The number of the above 1. is 750 thousand in 2020, 2.24 million in 2026. Those correspond to 1.4% and 4.2% of the entire household in Japan respectively, using 53.4 million household in 2015 as denominator.
- The amount of electricity of the above 1. is 676GWh in 2020 and 2,663GWh in 2026. Using the total generation in 2015 as demoninator, those figures are 0.08% and 0.31% respectively.
5. Actual amount of electricity will be less because some solar PV owners have PPA contract with Retail Electricity Supplier, some buy energy storage to maximize self consumption, other remove solar PV.
The discussion is based on the assumption that residential solar PV will be the main source of supply for peer-to-peer energy trading. Although I think that this scenario is likely, there might be other scenarios in the future.
Thank you for reading and your feedback is welcome. In particular, if I miss anything in this discussion, please let me know at email@example.com or via LinkedIn.