Perth-based start-up Power Ledger has put its hope on a peer-to-peer energy trading platform underpinned by blockchain.
The energy market is being disrupted, with new technology bringing radical change. If more and more consumers invest in solar and storage to rely on behind-the-meter generation, the logic goes that fewer and fewer people will be left to share the cost of maintaining networks. One scenario is that as take up of renewables accelerates a negative loop of revenue loss will bring about the end of life for networks.
The much-hyped “death spiral” would be a very grim outcome. No-one’s better off if the electricity distribution networks fall into disrepair.
But there’s hope. If consumers were able to use networks to trade their surplus clean energy among themselves it would “ensure the ongoing relevance of the grid”, says Power Ledger co-founder and chair Dr Jemma Green.
It sounds like a novel approach for an energy start-up, where the language about incumbent providers sometimes takes on a dark tone, but Green knew a peer-to-peer trading model would mean nothing without the poles and wires that link us.
“We formed Power Ledger to develop a product for that purpose [to trade across regulated networks],” she says, “recognising that as consumers install batteries in their homes they are likely to spill less electricity out across the network, and that spells problems for the network businesses because of less network utilisation.”
The Power Ledger model took shape in January 2016 when Green met with blockchain developers who had worked on applications for sectors other than the cryptocurrency bitcoin, for which the computerised ledgering system is best known. The group saw the potential for using blockchain to trade energy in apartment buildings, but first the system needed to be adapted for purpose. “The bitcoin blockchain uses a lot of electricity,” Green says. “It’s a very energy-intensive blockchain.”
Power Ledger uses a proprietary system it has dubbed EcoChain, which has stripped back on computational labour by providing proof of state rather than proof of worth. “[EcoChain] has a superfast block time designed specifically for energy transactions. It uses very little electricity,” she says.
Thesis in action
Green has form in the world of transactional commerce from 11 years as an investment banker in London. She returned to Australia nearly five years ago to complete a PhD in disruptive innovation looking at solar and battery systems designed for apartment buildings. The potential for a blockchain transaction solution came to her when she was designing a solar-and-storage energy system for the White Gum Valley project of four apartment buildings in Fremantle, Perth, and couldn’t find any software that would manage the allocation of units of energy to each apartment.
A peer-to-peer trading system can’t exist without a regulated network via which the electricity is traded, so a trial was negotiated with New Zealand distributed system operator (DSO) Vector. This project began last year and is ongoing. It is a world-first using blockchain for energy transactions, Green says.
How it works
Once a trading platform was seen to be working a system for financial settlement was put to test at the beginning of this year. A customer can transfer funds to the Power Ledger platform where they can buy tokenised units of electricity. The person selling the electricity receives Sparkz, the tokenised units of electricity, and can offboard them to be paid into their bank account.
The platform is even sophisticated enough to allow a seller to choose an individual buyer and set a price independent of the market. “You might want to give it to your mum or the cat haven, but generally people want to maximise the return on their electricity,” Green says.
The system is too immature for prices to be decided in a deep market, but it’s coming. “Ultimately we will do that when we have more liquidity in the market,” she says. “At the moment we’re setting the price.” A price is agreed with the retailer and distributed system operator.
The White Gum Valley project is nearing completion, with two of the four buildings completed. Fourteen of the apartments are occupied and energy is being traded. The property includes a fast-charge port for electric vehicles, where drivers can charge and pay via the Power Ledger platform.
New market, new world
Blockchain allows participants to transact directly, without using an intermediary. But traditional retailers are not out of the picture. They can use the Power Ledger platform in three ways, Green says. They can do the usual billing and peer-to-peer trading on the platform, buying surplus energy when it suits them and selling energy when participants require it; they can white label Power Ledger and include peer-to-peer trading itemised within a regular bill, or; all electricity bought and sold can be transacted on the Power Ledger platform.
“In terms of the market opportunity it depends on the network charge and what the DSO is willing to charge for use of a discrete part of its distribution network,” she says.
For the incumbents, the Power Ledger platform can be useful in a few ways: across the network, a DSO and retailer can decide they want to offer peer-to-peer trading; two retailers can allow peer-to-peer trading between their networks, or; DSOs can join to allow trading between regulated networks.
Green sees a lot of potential for the energy users who so far may have been feeling left out in the renewables revolution. About 32% of buildings in Australia are on strata titles and about 70% of those are five storeys or less, she says, so a lot of them have the potential to retrofit solar, run an embedded network and use the Power Ledger platform. The only requirement for consumers is a smart meter. “If they don’t have solar panels they can still buy the renewable electricity.”
As for selling the peer-to-peer trading idea to the retailers and networks, Green says “it’s been an interesting conversation”. Some are interested in peer-to-peer trading but haven’t really understood the need for the blockchain. Some have been less open to the idea. “[The attitude has been], you could disrupt us, so we don’t really like you,” she says. “That’s their initial reaction, but when we talk to them further they see there’s a potential for them to have a more enduring relationship with their customers, particularly where the cost of churn is so high.”
Another option is a retailer may offer a PPA to a customer where the surplus electricity may be sold using a revenue-sharing arrangement via the peer-to-peer trading. “There are different ways the retailer can use our technology to help them in doing what they doing.”
There is also a big opportunity in linking owners of large solar and storage systems such as commercial and industrial with the residential market, she says. “That is quite an exciting area for growth.”
Power Ledger charges a daily fixed rate per apartment building; for peer-to-peer trading across regulated networks it takes a volume-weighted “clip on the ticket” of every kWh sold.
If it achieves scale and the architecture is robust, the company is potentially very large. “If all the stars align, yes,” Green says.