The big promise of peer-to-peer energy trading

A peer-to-peer marketplace for electricity trading would allow households to trade flexibility with each other to their mutual benefit – and that of the wider system, as Daniel Saker explains

Barely a day goes by without a mention in the media of the rise of distributed energy, highlighting technologies such as solar photovoltaic (PV) and electric vehicles (EVs). The excitement around distributed energy systems and disruptive technology appears endless, but is well justified: solar PV supply in the UK now outstrips that of coal on a daily basis and new storage technology is starting to demonstrate its capabilities at scale.

The burning issue for policymakers is how the electricity system will cope with and facilitate the continued growth of distributed energy resources, which is moving us away from the centralised system we are accustomed to. It is recognised that a smarter system that unlocks flexibility right down to individual devices is one of the most attractive solutions. Yet this is highly complex to achieve, as it involves many interlinked technical and socio-economic factors, in addition to a complete rethink of industry roles and responsibilities. Fortunately, the right questions are being asked, and there is significant industry engagement, as shown by the 240 or so responses to the UK government’s call for evidence published late last year.

Government and Ofgem’s smart systems and flexibility plan recently gave a clear vision of the emerging electricity system, which is characterised by smart technology offering new system flexibility in tune with end customers’ requirements. This was evident in the selection of case studies, which covered smart storage heating, home batteries, EV smart charging and smart demand-side response. To facilitate these new technologies, policymakers are rightly focused on establishing local flexibility markets that provide price signals for distributed energy resources to respond to.

One of the concepts grabbing industry attention is a peer-to-peer marketplace for energy transactions. Essentially it would allow customers to trade flexibility with one another in a way that could benefit both themselves and the wider electricity system.

It’s not difficult to see how revolutionary peer-to-peer energy trading could be in an increasingly decentralised system. Take, for example, a street that has seen a rapid growth of solar PV on household roofs and plug-in EVs on driveways; the consequences of this would traditionally involve upgrading the local infrastructure or curtailing both EV demand and solar PV generation.

But traditional approaches are costly, particularly if carbon is included in the calculation. On the other hand, peer-to-peer offers a way of co-optimising distributed energy in a way that can lower curtailment and defer the need to build new infrastructure. For example, when forecasts indicate that a customer’s solar PV generation will have to be disconnected because the wider network cannot handle it, the customer could agree to sell to a neighbour with a plug-in EV at a price that suits both of them, avoiding wastage of a low-carbon supply.

Local energy balancing through peer-to-peer trading may be closer to reality than many people realise. Trials such as SSEN’s Nines (Northern Isles New Energy Solutions) project have shown the benefits of using local flexibility within constrained networks. Shetland is completely disconnected from the main UK gas and electricity networks, but is superbly located for wind power. The high penetration of electric storage heaters and hot water tanks in Shetland provide an excellent flexible resource to exploit wind-generated power. With help from Smarter Grid Solutions, SSEN commissioned one of the first active network management systems in the UK. This allows wind-generated electricity, the network could otherwise not cope with, to be delivered to household heating systems where it is stored for later use.

The next steps towards unlocking the benefits of local flexibility are increasing the visibility and controllability of distributed energy resources, as this will underpin new peer-to-peer marketplaces. Smart metering will go some way to improving visibility and help drive innovative business models.

Another critical step in facilitating peer-to-peer and local flexibility services is the transition to distribution system operators, who will be responsible for providing information on network congestion to the market in real-time. The ENA’s Open Networks Project is working on the detail of this and is ensuring that new distribution network operator functionality is fit for purpose, both in terms of continuing to provide network reliability and enabling smart technology to provide customer benefits.