Regulatory Sandboxes and Peer-to-Peer Electricity Trading in the United Kingdom
There are over one million solar PV installations with an installed capacity of 13,4 GW in the United Kingdom (UK) as of the end of November 2020. Many of these installations are small-scale with 92.6% of all installations being sub-4kW systems. They provide around 20% of the total installed solar PV capacity in the UK [1].
Most of these small-scale PV systems were installed during the boom after the introduction of the Feed-in-Tariff (FIT) scheme in April 2010. However, the FIT scheme was eliminated for new installations nine years later in April 2019 and many prospective prosumers lost their certainty to receive a steady and predictable income from solar PV systems.
Hence, new incentives and support for prosumers are needed in order to ensure their participation in the energy transition. At the same time, it is an ongoing challenge to integrate the rising number of intermittent small-scale PV systems into the existing electricity market while remaining grid stability.
The digitalization of the energy sector can provide promising solutions for both problems. It is important to have a policy environment that is favorable for new business models and startups with innovative ideas to enable this progress.
The energy regulator Ofgem (Office of Gas and Electricity Markets), therefore, has introduced the so-called ‘Regulatory Sandbox’ to support innovators who want to trial novel approaches or launch pioneering business models. Companies that are approved to act in the ‘regulatory sandbox’ receive guidance from Ofgem and may be granted relaxation of existing regulatory requirements that would hinder the introduction of the company’s innovative advances [2].
Verv, a startup that was approved for the ‘regulatory sandbox’, realized the first peer-to-peer (P2P) trade of energy on blockchain technology in the UK in April 2018. The pilot project was implemented in a social housing community in Hackney (London) in which solar panels were installed on 14 of the blocks of flats. The 40 participating flats received smart hubs that enabled the local trading of electricity and the analyses of the energy consumption of the households.
Verv took advantage of the ‘regulatory sandbox’ and implemented a P2P renewable energy trading platform on which households with solar panels were able to sell their excess energy directly to their neighbors which is not allowed under the normal regulations. This direct trading of electricity between neighbors created a win-win situation for the prosumers and consumers where consumers could purchase green energy for a below-average electricity price and the prosumers could sell their excess electricity for rates that were higher than the Feed-In-Tariff (FIT) at the time. The results of this pilot project show a potential reduction of energy bills and carbon emissions by 20% [3].
This kind of peer-to-peer electricity trading is even more important after the end of the FIT scheme since it can offer attractive business models for prosumers with small-scale PV systems. Furthermore, the local distribution infrastructure of electricity can help to reduce the strain on the national grid and decrease the distribution loss by shortening the distance between electricity production and consumption [4].
So far, there are only a few projects that implement peer-to-peer electricity trading in the UK. However, the number of startups that are trying to implement microgrid projects with P2P models under the ‘regulatory sandbox’ are growing. Moreover, there are efforts to change existing regulations that restrict the broader implementation of P2P models. For example, a modification that would enable consumers to buy and sell electricity from/to multiple providers, a prerequisite for P2P models, is currently in the assessment procedure [5].
Since many countries face similar challenges, it will be interesting to follow the amendments to the regulations and the hopefully growing number of P2P projects in the UK.
References
[1] https://www.gov.uk/government/statistics/solar-photovoltaics-deployment
[2] https://www.ofgem.gov.uk/publications-and-updates/energy-regulation-sandbox-guidance-innovators
[3] https://verv.energy/research
[5] https://www.elexon.co.uk/mod-proposal/p379/
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Text by Christian Doedt
