Blockchain to Disrupt Utilities as Customers Trade Power: BNEF
Power Ledger launches first offering of power tokens
Peer-to-peer power trading may improve efficiency of markets
By Bryony Collins
Peer-to-peer energy trading using blockchain will improve the use of power networks and create more efficient energy markets, according to Power Ledger, an Australian company that is holding its first ICO, or initial coin offering, on August 27. The first tranche of the sale will be for 100 million power tokens at 8.8 U.S. cents apiece.
New forms of generating power, and trading over encrypted blockchain networks will effectively “cannibalize” the incumbent power market, but also create new opportunities for utilities, Jemma Green, co-founder and chair at Power Ledger, told BNEF in an interview.
The growing penetration of rooftop solar and batteries is changing the energy landscape – increasing costs for those who continue to use the network, and reducing utility revenues as customers seek to generate their own electricity. In Australia, “network costs would need to go up 22 percent to offset the loss of revenue” from declining utilization, said Green.
Using a blockchain to enable peer-to-peer trading of energy over the grid means that payments can be settled instantly and losses on distribution networks are reduced as energy is consumed closer to the point where it is produced, Green told BNEF.
By engaging in P2P energy trading, utilities can have a more “enduring relationship with their customer” and prevent them from moving to a new supplier, she said. Power Ledger enables households to sell their excess solar energy to a neighbor, and the general public to invest in a large-scale solar farm using blockchain, for example. In this way, blockchain will allow the the wider public to make a return on trading power.
Utilities are starting to recognize the potential for growth in the blockchain market. Innogy SE has partnered with startup Conjoule to engage in the P2P energy trading market in Germany, while Siemens AG is working with LO3 Energy in the U.S. and Australia to develop similar concepts in those markets. Also in Germany, Ponton Enerchain is building a wholesale energy trading pilot with 24 firms, including Enel SpA, E.ON SE and Iberdrola SA.
Power Ledger’s Jemma Green spoke with BNEF in the following interview. Find out more about the company’s ICO on the website here.
Jemma Green with Sir Richard Branson on his Necker Island for the 2nd Annual Blockchain Summit
Q: What is Power Ledger and how does it enable the trade of locally-generated electricity?
A: Our system is a distributed ledger for distributed energy markets. Our first product is peer-to-peer (P2P) trading across regulated networks. And that’s where if you’ve got a house with solar panels you sell electricity to your neighbor, or equally if you’re a solar farm, instead of having an offtake agreement with one buyer you could sell to many customers. Our first deployment of that was in Busselton, south of Perth, from August to December last year, where we trialed it within a retirement village, and the second deployment of that has been in Auckland with Vector Ltd., which is the network operator for two-thirds of the Auckland market.
The second product is trading within apartment buildings and offices. In Australia, nearly 20 percent of households have rooftop solar but hardly any in apartments, which represents 32 percent of the housing stock.
Q: What is your third product?
A: It’s using blockchain to fractionalize ownership of a renewable energy asset. So you can use the blockchain to buy 1 percent of a solar farm, and get 1 percent of the income off the back of it. So blockchain is the asset register and manages the income and the payments. That could be a wind farm or a solar park doing a crowd sale, using blockchain to provide a way for smaller investors to purchase part of a renewable energy asset.
You can also use that asset registry in the secondary market, so people could buy and sell shares in that asset throughout its life. So you can do it down to a few thousand dollars, rather than just having institutional investors funding these projects.
Q: What are you trying to achieve with the ICO on Sunday?
A: We’ve created 1 billion power tokens, and we are selling 35 percent of those, so 350 million power tokens in what is called a token generation event or ICO. The system involves sparks and power tokens, which work together. If an application host, which could be a network operator and a retailer, wants to allow their customers to trade P2P, they will need to purchase power tokens and put them up as a bond to be able to purchase sparks, and sell those to their customers. It ensures when those customers go to redeem their sparks for cash, there are funds there in the form of power tokens.
Our token generation event is to allow market participants to be able to purchase power tokens, which is essentially a license to be able to trade P2P on the platform.
Q: What would success look like Sunday?
A: The way that some ICOs have happened recently… some buyers have bought all of the tokens and it’s not allowed access to everybody. So we have put a maximum amount of tokens that people can purchase on Sunday, and that’s $25,000. In our Telegram social media chat, nearly 1,000 people from all over the world have said they are interested in using our platform.
Distributed solar power set to ramp up over time
Cumulative installed capacity of solar, 2012-2040
Q: How could Power Ledger’s application be of benefit to the energy system?
A: Dave Martin, one of the other co-founders, recognized the problem of declining utilization of the networks because of distributed solar and storage being installed. As a result, network charges are going up for the remaining users. He saw with a blockchain that you could see the grid as a trading platform, and enable small transactions on it, and provide price signal in the distribution end of the electricity network to maintain utilization.
Q: So ultimately this could be a way of reducing network charges and broadening access to renewables?
A: In electricity markets you get your bill every 60 days, and in the wholesale markets it takes 60 to 80 days to clear the transaction, but by using the blockchain you can settle the payment instantly the moment the energy is generated and consumed. It means that consumers can be paid for the energy they’re generating and selling sooner. So it can create more efficient markets, and if you generate electricity closer to the point of consumption then you have less line losses as well.
Q: Where is the business model there?
A: We take a clip on the ticket for each kilowatt-hour that’s transacted. And then we’ve developed building products. These have been deployed already in two apartment buildings in Fremantle, [where we will connect a shared electric vehicle] to one of the apartments with a fast charger. The EV can be hired by any member of the public and the payments will occur on Power Ledger’s platform. Also, anyone that’s got their own EV can also charge it, using the Power Ledger platform to pay for the electricity. And there’s also a daily fixed charge per apartment that’s connected.
Strata laws in Australia enable this to happen, and it’s the same in the U.K. – its freehold and leasehold legislation, which allows the freehold to charge for electricity to leaseholders. And in North America, the condominium law is essentially the same piece of legislation.
An apartment that’s five storeys or less can fit enough solar on the roof space to provide enough electricity for the building, and so as cities [evolve] there’s a real opportunity to include solar in this part of the property market, which up until now has been quite excluded from renewable energy.
Q: When do you expect Blockchain to disrupt energy markets?
A: It could happen very quickly. The building product can be deployed at scale without any regulatory reform. Legislation is already favorable toward the deployment of distributed solar and storage in buildings, and technology like Power Ledger increases the rate of deployment of distributed renewables. So you could the energy market disrupted in five years.
The regulator here is predicting here that if there is strong uptake for batteries, the network costs would need to go up 22 percent to offset the loss of revenue. So there’s already a structural shift afoot.
Network operators need to find new ways of maintaining utilization of the grid, and retailers need to find ways of connecting with their customers. The retailers we talk to realize that, regardless of Power Ledger, there is change afoot, more renewables and grid defection, and customers want to trade P2P. And there’s also a lot of customer churn. One way to have a more enduring relationship with their customer is to offer them P2P trading. So it’s effectively cannibalizing their incumbent market, but if they don’t do it, somebody else will.
So I think the disruption is inevitable for them, but the suffering is optional.
We’re in deep conversation with a very large energy retailer in Australia to do a sizable peer to peer trial, which we hope to announce soon.