Inefficiencies with the Power Markets, Part 3 — Removing the Hidden Costs & Hurdles in Green Power Development
Dear reader, we welcome you to the third and final part of the Green Power Exchange series Inefficiencies with the Power Market. In Part 2, PPA Complexities, Bridging the Gap between Producers and Consumers we reviewed the current complexities for green energy producers associated with executing Power Purchase Agreements and the GPX solution to simplifying this out-dated process. In Part 3 of the series, Removing the Hidden Costs & Hurdles in Green Power Development: Forward Selling Power the GPX Way, we will review the opaque mechanisms hindering the transparency of power trading, the hidden accumulating costs of green power development and then assess the GPX solution to each of these on-going issues in the power market.
Black-box secrecy, hidden costs and expensive capital
Owing to the exclusive and non-inclusive nature of the existing power trading mechanisms, as outlined in Part 1 of this series, Accessibility and Abuse, the black-box processes result in hidden and opaque costs being added to the consumer bill.
When comparing the residential and commercial cost of electricity to renewable PPA rates, the widening gap is by no means limited to one jurisdiction or region, as can be seen in Figure 1 below.
Figure 1: Consumer Prices vs Selected Renewable Energy PPA prices
Furthermore, the development of green energy projects relies heavily on centralized authorities for lending and also carries heavy legal requirements which, when combined, results in the project development investment cycle becoming time-consuming and costly. From the GPX team’s vast experience in developing solar projects, Figure 2 below demonstrates how a 1MW project can carry significant external costs that may hinder or destroy a projects chance of being realized.
Figure 2 Hidden Costs of Renewable Development
The GPX Approach: Transparency, Integrity and Forward Selling Power
By directly connecting consumers and producers of green power, the GPX platform offers a fully transparent approach to trading power. The removal of black-box trading, unnecessary middlemen and intermediaries and hidden costs will enable the potential savings outlined in Figure 1 to be realized, which will save money for both producer, who can sell their power directly for more money, and for the consumer, who can buy their green power for cheaper.
Further, the ability to buy and sell power without the need for a utility would allow producers to forward sell their power to consumers on the same network, these sales would come at a discount to incentivize consumers to purchase. All the terms would be laid out in the smart contract and demonstrate significantly reduced risk for both parties, as the producer could guarantee cash flow so long as they meet milestones, and the consumer could acquire future power for a large discount, enabling them to predict their future cash flows more accurately. This would also significantly reduce the developmental risk of power generation projects by guaranteeing cash flow up front. In parallel, with this guarantee of revenue, developers will have highly bankable projects with a tangible income stream confirmed as soon as the plant goes online. This will give developers access to favorable rates from banks throughout the entire development cycle, thus eliminating an entire round of financing, due diligence, and legal fees outlined in Figure 2. The tokenization of the actual power-generating asset would allow for a transparent and efficient method of fundraising.
We hope you enjoyed the Inefficiencies with the Power Market series, if you have any questions about any of the material, please feel free to reach out to the author, Tom Helliwell, GPX Senior Manager, Europe: th@gpx.energy
Stay tuned on the Green Power Exchange social media channels for announcements of new and exciting material releases over the coming weeks!
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About GPX HOLDINGS LTD
The Green Power Exchange is a peer-to-peer power-trading platform striving to remove the middlemen in power-trading. Using blockchain technology, IoT integration and a user-friendly interface, the GPX platform represents a radical departure from current opaque and antiquated energy trading practices. GPX will enable an inclusive approach to power trading by directly connecting the producer and consumer. For more information, visit our website Green Power Exchange.
