Why is the energy business so heavily controlled and regulated?
Mostly, its history.
When you have a few large generators and millions of consumers, its big business – and that leads to operators trying to control markets which triggers political oversight, which inevitably leads to questions of control.
So what we have across the world is a system of generation, transmission and distribution over a grid system that connects where energy is made and where it is used, and a parallel system of metering and accounting to bill users.
Microgrids and peer-to-peer systems want to change that
Imagine a new housing development where the developers have decided to create a private network of electricity wires that connect the homes instead of using the cables and equipment provided by the grid.
There may be a few connections to the main grid, but the rest of the properties are effectively off-grid.
At the same time, each house has solar panels for electricity and hot water, excellent insulation, low running requirements and perhaps a micro-chp unit and battery storage.
The independent network forms a microgrid.
The existence of housing units with the ability to generate electricity and heat from a variety of sources and a population that uses energy creates a network of peers – equal participants.
The concept of peer is sometimes forgotten – the households of the future will be both producers and users of energy – so called prosumers.
What they need to work are markets
In a microgrid peer-to-peer system, there will need to be some way of keeping everybody happy – and that is done by a price system and a market.
If people are free to set prices (or the trading is automated and the machines trade among themselves) then the market will result in a price that matches supply and demand.
It avoids the cost of routing energy through the grid, so it should be cheaper.
A peer-to-peer network does not have to be part of a microgrid
We could have renewable generators, like a solar farm, connected to the grid that want to directly sell all their output to a user connected somewhere else on the grid.
They can currently enter into a bilateral contract that is settled and billed by a supplier.
A true peer-to-peer system could eliminate the need for a supplier, and simply have a separate contract – based for example on a contract for differences model – although these are still complex to create and agree on a one-to-one basis.
A start in this direction is Open Utility’s Piclo platform that matches users with local generators.
We are still in the early stages of a transition
We’re a long way away from having solar PV on every roof and local networks of users have yet to spring up.
Will there be a revolutionary peer-to-peer change, or is it likely that the majority of the system will still be controlled by a few producers.
If history is anything to go by – network effects and scale matter.
We may have lots of committed, small players, but Google style companies for energy will still probably emerge – a few highly connected hub players that aggregate and influence how everything else works.
We still operate in a winner-takes-all ecosystem, and peer-to-peer is a small part of it.
Will it be different this time?