The Sharing Economy Meets the Energy Sector
Leticia Santana
Leticia is a graduate of the University of Toronto, having studied Mathematics, Computer Science and European studies. She is interested in exploring the many ways technology can help improve and innovate diverse fields. She believes that blockchain technology is a powerful tool which expands the range of possibilities for collaboration by digitizing one of the core purposes of so many our systems-trust. She is excited to be part of a team working to deliver on this promise at Hygge and is moreover thrilled at the opportunity to do so in service of a mission as critical as helping build clean energy communities.
What is the Sharing Economy?
The sharing economy is a new business model that is taking the world by storm. In simple terms, the sharing economy is the use of technology to facilitate the trade of goods or services between private individuals, or peers. If you have taken an Uber, or stayed at an Airbnb, you too have participated in this new way of doing business. This economic model promises a more efficient utilization of underutilized resources and a sustainable alternative to traditional corporate capitalism. In our environmentally conscious world, these peer-to-peer firms have managed to capture a significant portion of sectors with historically high entry barriers such as transportation and hospitality. The energy sector might be next.
“. . . the sharing economy is the use of technology to facilitate the trade of goods or services between private individuals, or peers.”
Why Now?
For context, thanks to policies and incentives geared toward promoting greater renewable energy supply, recent years have seen an increase in distributed energy resources (DERs) installations all over the world. Naturally, the number of prosumers (i.e. consumers who also produce energy) is growing. In fact, about three fourths of the current solar energy supply is linked to the adoption of Feed-in-Tariff (FIT) schemes.
FIT schemes allow prosumers to sell their excess energy back to the grid for an economic return, which for a few years after implementation remain significantly higher than the average cost of energy to the consumer. However, as effective as they have been in the past, the industry has started to question the need for such programs going forward. Industry members are increasingly calling to end FIT as they believe that, since costs have fallen considerably over the last few years, it is no longer necessary to subsidize renewable energy. Countries such as Germany and the UK have retired their FIT schemes, citing among other concerns the need for more market-driven sources of support for renewable energy promotion.
It is no surprise, therefore, that peer-to-peer energy markets (i.e. community markets where prosumers can trade their excess energy directly to their neighbors) are gaining traction. As an alternative that does not require subsidies, peer-to-peer trading is a great option for countries seeking to phase out FIT while continuing to promote renewable energy.
Another option not requiring subsidies is net metering. Under this billing arrangement, prosumers are eligible for credits on their electricity bills for renewable electricity generation they send to the grid. These are valued at the same rate customers are charged for electricity drawn from the grid. Even so, of the two, peer-to-peer community trading is still the better option since in addition to all the benefits resulting from net metering, it has the added advantage of reducing network losses by decreasing the need for long-distance power transport. Additionally, unlike individual net metering, it incentivizes communal ventures to expand green energy generation.
“As an alternative that does not require subsidies, peer-to-peer trading is a great option for countries seeking to phase out FIT while continuing to promote renewable energy.”
How is it being implemented?
There are several ongoing pilot projects which aim to test the benefits of peer-to-peer energy trading. An early example of such projects is the Brooklyn Microgrid (BMG), which was launched in 2016 and is still operating today. BMG is a community energy market within a microgrid. Under the platform Pando created by the company LO3, members can buy and sell energy from each other with smart contracts based on the blockchain.
Australia:
Due to its liberalized energy sector, high renewable penetration and favorable grid structure, Australia is emerging as a center of peer-to-peer energy trading initiatives. For example, the Australian company AGL launched the Solar Exchange, an online marketplace enabling solar households to trade their excess solar power in the form of solar tokens. Similarly, the Australian company Power Ledger has carried out a number of trials and projects in peer-to-peer energy trading with its platform which uses blockchain technology to enable users with solar panels to trade their excess solar energy with their neighbors. Another innovation originating from Australia is Greensync’s Decentralised Energy Exchange (deX). Normally, behind-the-meter generation capacity is invisible to the energy market operator. However, deX is a digital technology platform that allows utilities to see exactly what distributed energy resources are available at any time on customers’ premises and how they are performing. deX can remotely control those resources at times of high demand or volatility to avoid shortages.
“. . . Australia is emerging as a center of peer-to-peer energy trading initiatives.”
United Kingdom:
In the United Kingdom, the regulatory body Ofgem introduced the idea of ‘regulatory sandboxes’ where innovators could test new technologies for the energy sector without needing to follow existing regulations. Under this program, in April 2018, a company called Verv conducted the UK’s first peer-to-peer trade of energy on blockchain technology. Results showed a potential to reduce energy bills and carbon emissions by 20%. Likewise, one of the UK’s biggest energy firms, EDF Energy, ran a peer-to-peer energy trading trial at a social housing estate in south London. Project Community, which ran between March and October of 2019, enabled residents to use, store and trade electricity generated by solar panels on the roof of the building.
“. . . the regulatory body Ofgem introduced the idea of ‘regulatory sandboxes’ where innovators could test new technologies for the energy sector without needing to follow existing regulations.”
Europe:
Germany, for its part, is aiming to have 80% of its supply come from renewable energy by 2050 and so is actively looking for ways to increase its supply of green energy. Among other projects, energy storage company Sonnen, in partnership with grid operator TenneT, trialled blockchain-based energy trading between customers in Northern and Southern Germany and neighboring Holland.
“Germany . . . is aiming to have 80% of its supply come from renewable energy by 2050.”
Asia:
India launched a pilot project will see state government buildings generating electricity using solar rooftops. By 2022, India hopes to generate 40 GW of solar energy using solar rooftops. Similarly, Singapore has launched a pilot project for peer-to-peer energy trading. The project will allow Singapore businesses and households to trade locally-produced solar energy though SolarShare, a Senoko Energy service offering. Likewise, Thailand announced this year that Thai Digital Energy Development (TDED), a public-private joint venture, has made a deal with Power Ledger to develop a blockchain-based digital energy business. Thailand hopes this venture will help them meet 25% of their total renewable energy target for 2037.
“By 2022, India hopes to generate 40 GW of solar energy using solar rooftops.”
Next Steps?
Sampled above are just some of the many sandbox trials being conducted across the world to trial peer-to-peer energy trading markets. Most of them involve utilizing blockchain technology to support and facilitate peer-to-peer energy trading, indicating the great potential of blockchain technology in this field.
However, current regulatory schemes in the electricity sector are mostly made based on the conventional power system paradigms, which is vertical and unidirectional, and are therefore increasingly not fit for modern power systems with high DER penetration. For most of the world, peer-to-peer energy trading projects are happening only within regulatory sandboxes as pilot projects outside the main regulatory framework.
Regulatory challenges for future peer-to-peer policies include defining the role and responsibility of prosumers, establishing the relationship between peer-to-peer energy trading markets, existing electricity markets, and other evolving entities such as distribution system operators (DSOs), and proposing appropriate schemes for the distribution of taxes and fees for peer-to-peer energy trading. That said, while peer-to-peer energy trading may not be at the stage of mass integration just yet, its potential is undeniable.
