Peer-to-Peer Electricity Trading
The idea behind peer-to-peer electricity trading is to enable individuals and businesses to buy and sell electricity between each other directly, bypassing traditional centralised utilities. This is achieved through a decentralised energy trading platform, or peer-to-peer electricity marketplace.
In a peer-to-peer electricity marketplace, participants with distributed energy resources such as solar panels or wind turbines can generate excess electricity and sell it to others in the network. Conversely, those who have higher energy demands can purchase renewable energy directly from other market participants, creating opportunities for both buyers and sellers to achieve better financial outcomes as well as supporting renewable energy generation. In Australia trades need to be facilitated and settled by a market operator with a retailer license to ensure that National Electricity Rules are abided by.
This decentralised model of energy trading offers several advantages. It empowers individuals to take control of their energy consumption and production, fostering a sense of ownership and engagement in the transition towards cleaner energy. It also creates an opportunity to upgrade and adapt to a more robust and flexible electricity grid that is less susceptible to disruptions.
Moreover, peer-to-peer electricity trading has the potential to unlock economic benefits for participants. Producers can earn income from selling their surplus electricity while consumers may have access to cheaper renewable energy options compared to traditional utility rates.
While still relatively new, the concept of peer-to-peer electricity trading holds immense promise for transforming the way we produce, consume, and trade electrical power. As more individuals, communities and businesses embrace peer-to-peer, we can expect greater decentralisation of our energy systems and a transition towards a more sustainable, electrified future.
How Does Peer-to-Peer Electricity Trading Work?
The process of peer-to-peer electricity trading typically involves three main steps: generation, trading, and consumption.
First, energy producers who are feeding excess electricity back into the grid, register with the peer-to-peer market so they can sell electricity. A “generation profile” is created, which predicts how much electricity will be available to be sold. From here, the energy producer can assign prices to the predicted electricity exports and send it into the market in the form of a sell offer. Each sell offer contains the volume, time period and price.
On the other side of the equation are the consumers buying electricity. They also need to be registered with the market, so that their profile is available. This profile is referred to as a “load profile” and defines the amount of electricity that the buyer needs to purchase to meet their usage requirements. The buyer sends a purchase order into the market. Just like the sell offer, this purchase order will cover a specific period of time, a specific volume of electricity and include the price that the buyer is willing to pay.
At this stage we have both offers and orders being sent into the market with the required information to enable the matching engine to start connecting buyers and sellers. Namely, the price, the volume, and the time that the electricity will be available or required.
The next step is the trade, and there are a number of ways that two participants can be matched for a trade. In some cases, the generating party will have already arranged to sell the electricity to a specific party. In that case, the price and volume will have already been determined and the offer will only be available to that party. This is common in power purchase agreements, but in a peer-to-peer market, it can also be done informally (e.g. over the phone between friends or family).
In other cases, the electricity might be made available to a specific group of people, at a specific price. This is common in community projects, where a group of individuals share a generator. In these cases, the generator might offer its electricity at a specific price, but to a group of market participants, rather than just an individual.
If there is no pre-arranged deal, then offers and orders will sit in the market until they are matched. An unmatched sell offer will wait until a compatible buy order is placed, and conversely an unmatched buy order will wait for a compatible sell offer to enter the market.
If a match does not occur before the time when the electricity is actually exported or consumed, then the unmatched offers and orders will be settled on the spot market at the wholesale price at that specific time.
Find out more about how the Localvolts peer-to-peer market works here.
Roles of consumers and producers in the market
In peer-to-peer electricity trading, both consumers and producers play important roles. Consumers have the opportunity to purchase renewable energy from producers at potentially lower prices compared to traditional utility rates. They can choose which producer they want to buy from based on factors such as price, location, or environmental preferences.
On the other hand, producers have a chance to monetise their excess energy production by selling it directly to interested consumers. This enables them to maximise their return on investment in renewable energy technologies.
Platforms facilitating peer-to-peer transactions
Although there have been many papers and studies, so far, there are very few genuine peer-to-peer electricity platforms in the world. At the time of writing this, Localvolts appears to be the only independent marketplace that operates across a national grid, and is open to everyday consumers. There are, however, a number of other peer-to-peer solutions that offer closed networks or who integrate with a major utility to deliver a “hybrid” solution.
Advantages of the Peer-to-Peer Electricity Market
The peer-to-peer electricity market offers several advantages over traditional energy markets, both for the market participants, and the industry as a whole. Here are some of the key benefits:
Empowerment of energy consumers and prosumers
Peer-to-peer electricity markets allow consumers and prosumers (those who both consume and produce electricity) to actively participate in the energy market. By facilitating direct transactions between each other, these platforms empower individuals to take control of their energy choices, negotiate prices, reduce their bills and even profit from excess energy they can feed back to the grid.
Furthermore, a peer-to-peer market that is open to everyday consumers creates a level of transparency that is not available in the traditional energy retail model. This will lead to a better understanding of the electricity industry across the entire community.
Enhanced efficiency and cost savings
The peer-to-peer model eliminates intermediaries by facilitating transactions between buyers and sellers of electricity. This streamlined process reduces administrative costs, can reduce transmission losses, and improves overall efficiency in the energy supply chain. Consequently, participants can benefit from lower costs, fairer pricing mechanisms, and potentially significant savings on their electricity bills.
Promotion of renewable energy integration
Peer-to-peer is particularly conducive to supporting renewable energy integration into the grid. Producers of solar panels or wind turbines can easily connect with nearby consumers through this type of platform, promoting local generation and consumption of clean energy. This encourages sustainable practices while reducing reliance on fossil fuel-based power sources.
By allowing individuals, businesses and communities to control how they manage their electricity, the peer-to-peer model helps to pave the way to viable investment into renewable energy generation.
Increased transparency and trust in energy transactions
Traditional centralised models often lack transparency regarding pricing structures or sources of electricity generation. In contrast, peer-to-peer markets provide transparent records of transactions along with real-time data on renewable generation sources, and in the case of Localvolts, accurate emissions data. This increased transparency fosters trust among participants by ensuring fairness, traceability, accountability, and reliability in every transaction.
Grid resilience and reliability
Another key advantage of peer-to-peer electricity markets is their contribution towards developing a more resilient grid. By decentralising energy production and consumption, these markets reduce dependence on a single power source. With correctly configured infrastructure, in the event of a power outage or natural disaster affecting one part of the grid, participants can still access electricity from nearby sources within the market. This distributed approach minimises the impact of disruptions and ensures a more reliable energy supply.
Moreover, peer-to-peer electricity markets can enable real-time balancing of supply and demand within local communities. With visibility into live prices, participants are incentivised to adjust their consumption patterns based on market prices and availability, leading to more efficient use of resources. This flexibility helps maintain a stable grid by matching demand with supply without overloading or straining the system.
The Future of the Peer-to-Peer Electricity Market
Peer-to-peer electricity markets have the potential to change the landscape of the energy industry and grid infrastructure, and create a wide range of opportunities for further growth and innovation.
Emerging trends and developments in the market:
The peer-to-peer electricity market offers a very different approach to managing electricity at a time when the industry is working through a number of changes and challenges. One of these changes is a significant increase in the cost of electricity, which has seen a number of smaller retailers forced out of business, and is putting financial pressure on households across Australia.
The concept of peer-to-peer trading offers an alternative to simply paying an increased fixed price for electricity, where consumers can shop around, and even negotiate for better prices.
Moreover, advancements in smart metering technology, along with development of market APIs have facilitated real-time monitoring of market conditions and energy consumption, enabling more accurate pricing models for peer-to-peer transactions and/or wholesale market trading. This has opened the door to automated optimisations, where batteries, EVs and even household appliances can switch on and off based on the live price of electricity.
Automated peer-to-peer electricity trading
Automated trading within a peer-to-peer market is another opportunity that could have enormous benefits to market participants. Peer-to-peer creates the potential to develop a matching engine that automatically balances prices between participating producers and consumers to find the best price for everyone. This engine would use all of the participating generation and consumption profiles, combined with the wholesale market price forecasts to ensure that all participants consistently achieve the best possible result. This type of concept will likely utilise machine learning models or artificial intelligence.
How to get involved
The peer-to-peer electricity market offers a range of advantages including consumer empowerment, improved efficiency, support for renewable energy adoption, as well as enhanced transparency and trustworthiness in energy transactions. These benefits make it an exciting prospect for shaping a more sustainable future in the field of energy.
Localvolts is an authorised electricity retailer and the world’s first and (at the time of writing this), only independent peer-to-peer electricity market that is open to everyday Australians, and operates across the national grid.
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