P2P Energy Trading on the Blockchain
P2P Energy Trading: an Overview
What is it?
In a world where energy technologies and battery storage systems are rapidly improving, and the sharing economy seems to be disrupting every industry, many consumers are asking, why can’t we trade energy? Peer-to-peer (P2P) energy trading looks to address just that question by enabling people to buy and sell energy to each other directly.
What are the benefits?
One of the main hurdles that prevents small-scale producers (prosumers) of renewable energy from engaging in exchange is regulation from the National Electricity Market (NEM.) NEM requires that vendors on their market have a generator larger than 5 megawatts, which is equivalent to 5,000 5kW solar systems. If the cost of a 5kW system is approximately USD 10,000, then the cost of a system large enough to meet the NEM’s minimum would be USD 50 million. This is significantly more than the vast majority of households can afford, creating a huge barrier to entry for homeowners with a small array of solar panels. However, with P2P energy trading, everyone from a 1.5kW solar system homeowner to the biggest coal-fired power plant can engage in peer-to-peer energy exchange.
On top of lowering the barrier to entry for many consumers, P2P energy trading would allow users to purchase energy from specific sources. This means that it would be possible to buy solar energy or energy produced specifically by your neighbor. By enabling P2P commerce, prosumers will be able to generate revenue on their excess energy and consumers will be able to obtain transparently-sourced, reliable energy. The hope is that by cutting out the middleman, prices will go down and more people may be incentivized to install solar panels and other types of renewable energy generators.
Where does the blockchain come in?
Traditionally, to buy or sell power, traders need to draft contracts and communicate with each other directly. After arrangements are established, all of the necessary transactions have to involve the public macro grid used by all consumers. However, with the introduction of the blockchain, traders will be able to place bids for power and execute purchases through the implementation of smart contracts, without the need for a central utility or authority. Smart contracts are essentially transactions that are only completed after certain conditions are met. For example, if I wanted to buy 10kWh of power at 15¢ per kWh from someone in the Ann Arbor community, the smart contract would only activate when a seller was willing to meet those conditions. Additionally, payments could be real-time as opposed to on credit, and reconciliation has the potential to be almost instant.
P2P Energy Trading Projects to Watch
While there are many companies and projects working to make P2P energy trading a mainstream reality, there are three that I would like to highlight — Power Ledger, Grid+ and LO3 Energy.
Power Ledger looks to bring P2P photovoltaic (solar) energy trading to the world through the use of readily installed hardware, a simple smartphone app, and software built on the Ethereum blockchain. Power Ledger’s platform facilitates fast, cheap, secure and transparent settlement of multi-party transactions and the development of dynamic trading ecosystems. Their app is easy to use for both prosumers and consumers, and creates low-cost, autonomous distributed trading.
The Perth-based company raised AUD 34 million (roughly USD 26.5 million) through their token generation event and already has run tests in small communities in Australia. They have established partnerships with companies like Origin (one of Australia’s largest utility providers), Thai government-backed renewable energy developer BCPG, and most recently American not-for-profit energy company Helpanswers.
Grid+, a startup out of New York blockchain development studio ConsenSys, is trying to disrupt the traditional energy sector from a slightly different angle. They aim to remove the middleman from the equation by purchasing wholesale power and selling it to their users, avoiding the 100% markup utility retailers often make. By using P2P energy technology and “smart meters,” Grid+ believes that it will be better able to estimate consumers’ future demand, allowing for energy to be purchased in advance for a lower price. Having more accurate data will also allow prosumers to have better information to decide when it is best to sell their energy to Grid+ and may encourage more people to invest in battery storage solutions. While in the short-term Grid+’s solution is not quite P2P, they aim to enable P2P capabilities in the long-term.
As another energy solution token built on Ethereum’s ERC-20 protocol, Grid+ raised upwards of USD 30 million through their token sale last Fall. Even though the company has a long way to go before their expected launch in Texas, they are well positioned to leverage blockchain technology to disrupt the energy industry.
What makes LO3 Energy different from other projects is that they are innovating in the P2P energy space from the angle of building community. Paired with Siemens’ Microgrid software, LO3’s blockchain program allows for members of the Brooklyn community to buy and sell solar energy. Like other P2P energy trading projects, Brooklyn Microgrid offers economic and protective benefits, but it adds an additional layer of community focus. The project aims to not only build an example of how P2P energy trading can succeed in the real world, but also build a strong community behind it.
On the larger scale, LO3 is looking to revolutionize the future of energy through a project they are calling Exergy. Exergy looks to take the technology (the Exergy-compliant meter and mobile app) and spirit that are making Brooklyn Microgrid successful and apply it to the rest of the world. LO3 aims to create democratized energy marketplaces all over the globe, empowering many of the people who were once consumers to be the new energy producers. LO3 opened up their ERC-20-compliant XRG token sale in late November to accredited private investors, with following accredited public pre-sale and public general sale rounds to come. In December, Siemens invested an undisclosed amount in the company, strengthening their existing relationship with LO3.