Prosumer power

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Microgrids that enable households to trade small quantities of locally-sourced power directly with each other using blockchain could disrupt traditional business models.

Remember the days when you borrowed a cup of sugar from your neighbor? Now imagine if you could buy or sell small amounts of sugar to your neighbor whenever the need arises. Such peer-to-peer micro-transactions may well be the future of energy trading.

The global push to cut carbon has helped distributed energy resources like solar and wind to grow rapidly, reducing dependence on large-scale, fossil fuel power generation. The latest statistics from UN-backed renewables policy network REN21 show 98 GW of solar photovoltaic capacity was added globally in 2017. This was nearly double wind power’s extra 52 GW and more than the combined net additions of coal, gas and nuclear.

The traditional power supplier-hub model is at risk of losing its prominence. Environmentally conscious prosumers with smart meters, rooftop solar PV installations, backyard wind farms or battery storage placed within a smart-technology-driven microgrid are emerging as the newest market players.

Smart microgrids are scaled-down versions of a traditional power network, but differ in their objectives. The microgrid is able to operate autonomously – off-grid – or in parallel to the larger network it connects to, creating a community energy system.

Such transactive energy systems look to integrate locally-sourced renewables more effectively, increase efficiency and grid reliability, cut carbon emissions and encourage end-user participation with smart energy meters and apps.

The US National Institute of Standards and Technology defines transactive energy as “a system of economic and control mechanisms that allows the dynamic balance of supply and demand across the entire electrical infrastructure using value as a key operational parameter.”

In effect, prosumers and consumers get price signals that encourage them to balance their supply and demand more frequently, which can be a cost-effective way to use power more efficiently.

Disruptive potential

In principle, microgrids have the potential to disrupt utilities’ traditional business model for supplying small end-users, which is often based on static pricing with infrequent billing.

They also change the environment for the existing distribution system operators, who manage the physical flows to the end-user.

Eurelectric, the European trade association for utilities and DSOs, published a downbeat assessment of blockchain’s near-term value to the electricity sector in May 2018. It argued that the currently available technology has high costs, slow transaction speeds and may be difficult to scale, among other things.

But the key constraint for microgrids is likely to be regulatory rather than technological. The current rules in most jurisdictions were written with a centralized system involving large enterprises in mind. For many prosumers, the cost of complying with the standard licensing rules and obligations is likely to outweigh the profits of peer-to-peer micro-transactions, unless regulators can be persuaded to offer exemptions or change the rules.

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