Trials and Tribulations of P2P Energy Trading

Trials and Tribulations of P2P Energy Trading

THIS ARTICLE WAS WRITTEN BY Energy Watch | 24.03.20 | 11:03 PM

Malaysia’s peer-to-peer (P2P) energy trading sandbox will explore a system in which a central platform is used as a trading point for a P2P market. The ultimate aim of this system is to provide greater consumer choice, increased adoption of green energy, and to encourage investment in renewables – unlocking economic benefits for both generators and consumers. However, many technical and regulatory hurdles must be overcome before such P2P technology can be implemented on a wider scale.


1. Managing the Grid

Ensuring the stability of the national electricity grid is a paramount concern when establishing new P2P networks. Introducing P2P energy trading across the country risks undermining wider grid stability. This could hamper the work of the Grid System Operator, who not only maintains the security, reliability and stability of the entire grid, but who are also responsible for economic dispatching of power plants, administering daily outages and maintenance of the network, and executing corrective measures during system emergencies.

The need to integrate centralised oversight of P2P energy trading as part of the wider grid is evident, and vital in managing and meeting supply and demand for electricity. This necessary oversight presents an important case as to why traditional utilities will be vital in effective and scalable adoption of P2P.


2. Bill Breakdown

Practical matters such as billing processes must also be designed to accommodate P2P transactions. Legacy networks have established systems for consuming and paying for electricity, which fledgling P2P markets lack. Constructing the right framework for payment is an important step towards adoption of P2P.

Billing processes must be designed to accommodate P2P transactions

This challenge has resulted in many P2P platform providers partnering with existing utilities and electricity retailers. This enables consumers’ P2P transactions to be incorporated into their existing utility bills, eliminating the need for a separate bill, and providing a more integrated and user-friendly approach. It is important within such systems to ensure clear distinction between charges applying to P2P electricity, and charges applying to consumption from the centralised grid. This can be considered as much a technical challenge as it is a structural one, and is a major factor in why smart meters are integral to successful P2P implementation.


3. Security, Sustainability, and Affordability

The affordability and sustainability of the wider national electricity supply ecosystem is essential when assessing the viability of P2P integration. It’s important that the cost of implementing P2P energy trading and implementation of platforms does not drive up average costs for everyday consumers.

The commitment to ensure secure, sustainable, and affordable access to electricity is the foundation of Malaysia’s electricity supply landscape. That means any implementation of new technologies must be assessed holistically, taking into account the knock-on impact on other areas of the system. This is why utility companies will be essential in providing truly scalable and sustainable P2P networks that don’t undermine wider energy security.


4. Regulatory Restructuring

Navigating the regulatory environment is often considered the primary challenge in P2P implementation. The development of innovative technologies will inevitably outpace the regulatory landscape, creating a situation where technical feasibility can be demonstrated, while decision makers are still grappling with the legislation required to regulate the landscape. Amongst other key factors, that legislation must include setting out the legal rights and responsibilities of various parties included in the market.


5. Comprehensive Pricing

The pricing challenge is particularly acute in a market which includes the tiered tariff structure, such as in Malaysia. Under current pricing arrangements, the true economic cost of electricity in Malaysia is offset by measures designed to provide a more affordable electricity supply to everyone, whilst balancing against the surcharge impacts of changing fuel costs.

Factoring these conditions into a P2P market creates a complex economic challenge. It is necessary to consider that creating a P2P not only benefits a small group of communities who can afford installing the necessary infrastructure for a segregated system. The overall cost to manage and operate the grid will need to be considered – any rogue decisions may result in higher costs across the electricity supply value chain and thus higher bills for those who may not be able to afford it.

This new market will require careful planning of a regulated price that reflects both the economic costs of P2P implementation, as well as the financial circumstances of citizens and commercial consumers across the wider national context. These market structure challenges are a significant hurdle to P2P adoption.


6. Consumer Understanding

Pricing mechanisms, access to the P2P market, and rules of consumption and distribution sit alongside numerous other structural aspects that will form the foundation of this emerging market. These structures will define market rules, and need to be shared and understood by all participants in order to maintain trust within the evolving ecosystem.

Added to the complexities above will be the consumption choices of consumers themselves. Broadly speaking, consumers are more influenced by cheaper pricing than flexible pricing choices. That means unless consumers are equipped with an understanding of the true economic costs of electricity generation, consumption trends are more likely to be influenced by affordability than they are by any smart pricing structures.


The Road Ahead

The fundamental challenge that P2P energy trading must overcome isn’t just ensuring technical feasibility. The true challenge is one of integrating these emerging markets into the wider electricity ecosystem in a sustainable way, ensuring grid stability and managed oversight, and operating with an appropriate pricing structure that matches the consumer demand with the reality of affordable supply. That means providing an opportunity that helps complement and contribute to a secure and affordable electricity network for all. That will be the true test of P2P energy trading going forward.

 

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