Can Blockchain-Enabled P2P Trading Work Successfully? A Software Company in Australia Conducted a Trial To Find Out
image credit: Dr. Jemma Green, Power Ledger co-founder, and Vinod Tiwari, Power Ledger head of BD and sales,
- Aug 5, 2020 9:37 pm GMTAug 5, 2020 4:20 pm GMT
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When the blockchain hype crested during the first quarter of 2018, the technology’s use in developing peer-to-peer (P2P) energy trading markets was considered one of its most important applications. Despite several projects that have proliferated since to test this application, there is little publicly-available or quantifiable evidence of blockchain’s efficacy or utility in energy markets.
That is why Australian company Power Ledger’s recently-released report about its energy trading trial conducted in Western Australia is an interesting read. It bridges the gap between theory and possible practice. A reading of the report, however, reveals that there is much ground to be covered before blockchain or P2P trading becomes a reality in energy markets.
Forty-eight participants in Western Australia signed up for the P2P trading trials at Power Ledger, which describes itself as a “blockchain-enabled software platform for trading renewables” on its website. The Perth-based company conducted the trials in two phases and installed its Virtual Power Plant (VPP) software in the homes of electricity subscriber participants - a group consisting of prosumers and consumers. In addition to selling their energy to other consumers, prosumers sold their energy back to energy retailers at a fixed preset price. Power Ledger also set up additional real-time metering hardware - a Saturn South three phase mini-meter - to provide “instantaneous feedback” on energy consumption behavior to users. The hardware was later removed
Reading The Report
The final report for RENeW Nexus, as the project was called, states that the project is “technically feasible”, meaning that it can be accomplished using existing equipment and technology.
Technical feasibility, however, does not seem to be a guarantee for financial success from energy trading. Seventeen out of a total of 18 households that participated in Phase 1 reported monetary losses from trading. The main reason for this was a skewed ratio of prosumers to consumers in the trial, leading to excess energy production of solar energy and less demand.
In Phase 2, the company improved upon this ratio. But it still resulted in a majority of participants buying their electricity from the grid. The report states that this was due to low demand for energy, when solar PV energy was at its strongest, during daylight hours. “These figures (reference to the demand during daylight hours) highlighted the mismatch between consumer demand and the availability of solar PV generated energy.” This is not good news because the premise of P2P trading between consumers is mostly predicated on renewable energy sources, such as solar energy, that enable consumers to become producers without making significant investments in energy infrastructure.
The study also mentions the importance of developing regulations for P2P trading-related activities. For example, real-time meter data collected during P2P trading for billing purposes still needs to be passed through a data file by the energy retailer in order to be compliant with existing regulations. In turn, this could potentially add charges to the overall bill and reduce transparency of the overall process. Energy trading by grid customers is also not allowed in most countries. (Brooklyn Microgrid faced a similar situation here in the States before it was allowed to conduct pilot tests).
One of the more interesting conclusions of the trial relates to the use of battery storage in such trading systems. "An uptake in 10 and 15 kWh batteries to 50% market penetration would enable a district to become 68% energy autonomous. That means only 32% of their energy would be sourced via high voltage transmission networks. Such a reduction could spell significant network savings in the future," the report's authors state. Power Ledger is focused on renewables and battery storage has become an increasingly important component of renewable game plans because it enables energy storage when the sun is not shining. "In regions where there is too much excess solar energy, batteries are essential to deal with grid system security. VPP with batteries along with P2P provides a perfect mechanism that enhances grid resiliency while making energy cheaper and cleaner," Vinod Tiwari, head of business development and sales at Power Ledger stated in an email interview.
The trial report leaves several important questions unanswered.
According to Tiwari, their trial had 48 customers - a mix of prosumers and consumers. But that figure is misleading because it is a summation - 18 in Phase One and 30 in Phase Two - of the numbers across both phases. Some participants also dropped out or did not actively participate in trading after installing Power Ledger’s software.
There are two reasons why this figure is important. First, it could provide answers to the question of low participation rates. While the concept of energy trading by consumers sounds intriguing, it also involves education and engagement. For example, seven consumers who signed up for the trial never logged into the platform during Phase 2. The number of participants also holds an important future lesson for scalability of such systems. Public blockchains with smart contract capabilities, such as Ethereum, have publicly-documented scalability issues and fewer participants means less number of transactions.
For its trials, Power Ledger used a 950-node public blockchain that mainly runs on Amazon Web Services and is developed by ECOchain, a Bangkok-based company. In addition to a whitepaper that most such startups have, ECOchain has also released a yellow paper that uses complex mathematical formulae to theoretically prove its transaction-processing capability and speeds.
But theory is hardly equal to practice or a real-world application. Blockchain was and continues to remain a buzzword that is often mistakenly referred to as an elixir for the world’s problems. (In fact, executives from Power Ledger seem to not understand a question related to blockchain scaling during their Youtube presentation). Blockchain is nothing but a distributed database in its simplest form. But that database can be expensive for some industries and, as I mentioned earlier, have problems in scaling.
I did not receive a satisfactory answer when I put these questions to Power Ledger. Tiwari, their head of business development, mystifyingly said that the company has “several hundred” customers and that they will soon “onboard several thousand customers” in Europe in response to questions about scaling.
Pricing mechanisms for electricity trading are also not clear in Power Ledger’s trading system. One of the purported benefits of P2P trading is that consumers can directly respond to price signals from trading markets rather than being shielded from the actual costs, as is the case in electric grids. But the report does not explain Power Ledger’s trading fee of $0.5. (That fee is the variable in the overall cost, which includes fixed network and capacity components). What is the economics behind this figure and is it sufficient to ensure operational costs are covered? The network and capacity costs were also subsidized during Power Ledger's trials; so the larger question of pricing for such systems still remains.
Trading platforms will need large volumes of transactions to cover their costs, if they charge low fees. But Power Ledger has other plans to monetize its platform. “Power Ledger’s business model includes a license fee and a transaction fee. We are a technology company and our pricing arrangement provides an optimum commercial business model to be rolled out at scale,” Tiwari told me.