The adoption of peer-to-peer (P2P) electricity trading will turn individual consumers from passive to active managers of their networks. Such a marketplace can relieve constraints on the growing system and offer an alternative to costly grid reinforcements. Arina Anisie and Francisco Boshell at IRENA run through the benefits, including investment costs, bills, resilience, congestion, mini-grids, energy access, and more. They note that very few pilot projects actually test these benefits, and point at those that do. Questions still remain around the impact of P2P energy trading on the grid, identifying sustainable business models, capital investment, legal provision, and the design of a conducive regulatory framework, among others. Last year’s EU Clean Energy Package put P2P electricity trading on the legal map. Germany, Denmark, the Netherlands and the UK lead Europe. Further afield, the authors cite projects in Australia, Bangladesh, Colombia, Japan, Malaysia, and the U.S. Peer-to-peer trading’s challenge is to enable distributed energy resources that provide cost-effective support to renewable-based power and bring benefits to all consumers and the entire system.
The Peer-to-peer (P2P) electricity trading model was born as a consequence of the increasing deployment of distributed energy resources, increasingly owned by the end consumers. P2P electricity trading is based on an interconnected platform, that serves as an online marketplace where consumers and producers “meet” to trade electricity directly, without the need for an intermediary.
An important motivation for peers to engage in such a model is that prosumers (consumers that produce electricity) would sell surplus electricity to peers at a higher tariff that they could sell back to the grid, while consumers could buy, at a lower tariff, local renewable electricity.
Experiences from pilot projects already show costs savings for consumers when trading electricity with their peers. For example, Lition is a P2P energy trading platform, launched in 2018, that connects clean energy producers and consumers in Germany. According to their own information, Lition is saving customers an average of 20 percent on their utility bills, and power plants are seeing increased revenues of up to 30 percent (GJETC, 2020). In addition, a study analysing the economic benefits for residential consumers and prosumers, given different solar generation contexts and load flexibility levels in Portugal, concludes that economic gains can reach 28% for consumers and 55% for prosumers (Neves et all, 2020).
Supporting the electricity system
Besides the potential financial benefits for individual consumers and prosumers, the P2P electricity trading model makes renewable energy more accessible, and empowers consumers while making better use of their distributed energy resources. It also keeps the community resilient to outages in emergencies, and it can improve the energy access in some cases.
Supporting the main grid
Creating localised electricity markets is about helping the grid as well. P2P trading platforms enable better management of decentralised generators by matching local electricity demand and supply at all times. A well-functioning P2P electricity trading scheme encourages consumption of electricity at the right time of day from the power system perspective, therefore decreasing the peak load while also minimising the reverse flows of electricity. Therefore, it can help reduce investments related to the generation capacity and grid infrastructure needed to meet peak demand.
The distribution system operator can potentially discount on the network charges for the consumers or prosumers that help reduce grid congestion, once they become aware of the system benefits of the P2P trading mechanism, i.e. reducing distribution system congestion and reducing the peak demand. Moreover, the P2P platform operator can also enable peers to provide ancillary services to the main grid, as the P2P electricity trading platform can serve as a virtual power plant by coordinating with the decentralised generators to match with the local electricity demand.
Despite the large set of benefits P2P electricity trading can theoretically bring to the whole power system, very few projects that actually test these benefits are piloted. One of them is Piclo, a P2P electricity trading company that has signed up all six distribution system operators in the United Kingdom (UK) to its flexibility marketplace. The Piclo Flex platform allows distribution system operators to identify flexibility options to meet their distribution system needs in each specific location of the grid. Part of a trial funded by the UK government, this marks a stage in the transition of distribution system operators from passive to active managers of their networks. The marketplace gives them the chance to relieve constraints without having to resort to costly grid reinforcements.
In addition, most P2P projects today are carried out in isolated mini-grids, where implementation is less challenging. In the context of a renewable mini-grid, P2P trading could improve the energy access and the reliability of local electricity generating sources.
In such mini-grids, users are generally supplied electricity through solar home systems, which often cannot store the electricity surplus. By enabling P2P trading and connecting several solar home systems to each other as well as with other homes without access to electricity supply, energy access of these citizens can be improved. Such a project is implemented by SolShare in Bangladesh.
Enabling Citizens Energy Communities in Europe
The EU Clean Energy Package (CEP) released last year sets a regulatory framework that gives more prominence to consumers in the energy transition and puts P2P electricity trading on the legal map. The CEP measures aim to enable active consumer participation in the markets while ensuring their rights and setting their duties. It extends the level playing field in generation to the prosumers, but also aims to make consumers financially responsible for the imbalances they cause in the electricity system.
The Clean Energy Package recognises Citizens Energy Communities (CECs), as a critical enabler for encouraging the involvement of the individual in the development of the electricity sector. CECs are based on voluntary and open participation, with its primary purpose to provide environmental, economic or social community benefits to its members rather than to generate financial profits. Indeed, by cooperating with their neighbours, energy communities aim to realise a fair energy transition and effectively fight climate change (REScoop and Energie Cities, 2018).
According to the Clean Energy Package, CECs may engage in generation, including from renewable sources, distribution, supply, consumption, aggregation, energy storage, energy efficiency services or charging services for electric vehicles or provide other energy services to its members or shareholders. Besides, CECs ‘should not face regulatory restrictions if they apply existing or future ICT technologies to share electricity.’ Also, the electricity sharing process ‘should not affect the collection of network charges, tariffs and levies related to electricity flows.’ (European University Institute, 2019). These provisions open the door for P2P trading in Europe, while setting the rights and responsibilities of such an emerging business models to ensure a well-functioning electricity system.
The potential for these types of business models in Europe is significant. There are more than 3,500 community energy initiatives in Europe (REScoop MECISE, 2019). The figure below shows an indicative number of community energy initiatives, with Germany as a front-runner followed by Denmark, the Netherlands and the UK.
CECs include cooperatives, eco-villages, small-scale heating organisations and other projects led by citizen groups for the nine European countries analysed in the recent study by JRC (JRC, 2020). The drivers for CECs range from environmental consciousness and a desire to produce green electricity to greater ownership of local energy infrastructure, and almost 30% of cases out of the 24 community energy initiatives studied mentioned renewable P2P trading as a driver (JRC, 2020).
Pilot schemes for P2P electricity trading are carried out also beyond Europe, in many developed and developing countries, including Australia, Bangladesh, Colombia, Japan, Malaysia, and the United States.
In US, for example, Brooklyn Microgrid is a community energy market within a microgrid, where members are trading electricity between each other with smart contracts based on blockchain. The regulatory framework doesn’t enable extending the P2P trading beyond the microgrid, in the public distribution grid.
A trial of transactions between individuals is piloted in Colombia, called Transactive Energy Colombia Initiative. The project is implemented in Medellin, where many energy users, especially those living in high-rise buildings, are not able to generate their own electricity. P2P trading will allow these users to buy electricity from other people around the city based on different attributes, such as renewable shares, generation infrastructure, and location. Creation of social value around energy is a key point of this project (UCL, 2019). The P2P pilot will group 14 residential users with different income levels in Medellin, each of them independently connected to the distribution network. Low-income users will have solar panels installed on their rooftops and will trade electricity with high-income consumers and prosumers.
In Asia, The Sustainable Energy Development Authority (SEDA) of Malaysia has completed a P2P electricity trading pilot project between November 2019 and June 2020. Prosumers could trade electricity with consumers or sell their excess solar photovoltaic electricity to the utility TNB. Exchanges were tracked via a blockchain platform, developed by Power Ledger, an Australian-based company. Findings of the pilot project show that there was notable interest from the solar PV industry including local governments to have P2P electricity trading implemented. The pilot showed that the greatest motivation for prosumers and consumers to take part in this ‘regulatory sandbox’ was the opportunity for energy arbitraging.
Addressing the hurdles
Those pilot projects also highlight the issues that deserve more attention before the P2P can be implemented at scale. For example, issues around the impact of P2P energy trading on the grid, identifying sustainable business models for P2P, capital investment and legal provision for live implementation, among others. Further, designing a conducive regulatory framework is needed.
Regulation that considers both the users and the system needs
Regulation that considers both the users and the system needs is important for the successful implementation of P2P electricity trading. To reap the benefits of P2P electricity trading, regulators would need to ensure a level playing field for platform-based businesses vis-à vis traditional utilities and retailers.
While the users will expect the same or improved services at lower costs, their behaviour should be guided to alleviate rather than to stress the system. At the same time market principles need to be respected and cost sharing principles applied to fairly to remunerate the entities responsible for operating and maintaining the electricity infrastructure in place. A fair formulation of network charges, as well as the electricity tariff structure, when P2P trading is using the main grid is challenging.
In addition to the physical layer of P2P electricity trading for which an electrical network is needed, another important layer refers to a virtual, digital layer. P2P trading is facilitated by digital platforms where a large number of peers can interact. Data from both producers and consumers need to be collected and analysed to check the reliability of the power system. Smart grids and smart homes, including broadband communication infrastructure, network remote control and automation systems are thus fundamental enablers of P2P electricity trading model.
Systemic innovation for consumer empowerment
P2P electricity trading pilots show that a systemic approach – i.e. innovation in technology is accompanied by innovation in business models, regulation and system operation – enables distributed energy resources to provide cost-effective support to renewable-based power systems, bringing benefits to all consumers, prosumers and the entire power system. IRENA’s report “Innovation Landscape for a renewable powered future” identifies 30 key innovations that can reduce the cost of integrating large shares of renewables in today’s power systems, with P2P trading being among them (IRENA, 2019).