The Collective Power Platform is a local peer to peer energy trading market for and by prosumers.
Renewable energy is not only our only option for creating a sustainable energy system, it also has a huge potential for empowering the consumer. Energy is changing from a commodity into a highly differentiable local product. The decentralized sustainable energy system of the future demands specific decisions by individual consumers. This will change the “end-user” into the key user who is also producing and trading energy himself: a prosumer.
Therefore we propose the Collective Power Platform, a local platform which automatically optimizes the local production and consumption between the participating prosumers of the platform. The platform creates a virtual utility where people can trade local energy, produced by and for local prosumers in the same city or local grid. The demand which is not covered by local production is bought by the platform at whole-sale markets. Initially no high shares of decentralized production are required, and people will still have the security of the national grid.
People are empowered to choose their own preferred combination of: local energy produced by other prosumers in the local Power Collective, investing in renewable energy technology themselves, or buying centrally produced energy at whole-sale markets. The platform will evaluate this choice and/or energy technology based on price and CO2 emissions. A grid can only be considered smart if the people within it are enabled to make smart decisions. The beauty of this concept is that it can be deployed grid by grid and prosumer by prosumer (the platform is opt-in), essentially creating transactive smart grids from the bottom up.
The philosophy of the platform is to be a facilitator for prosumers, and therefore it only charges money based on access to the facilitating platform and not based on the amount of energy traded. This is essential, because how can we otherwise incentivize smart and efficient energy use if our profits were to be dependent on selling energy as a commodity?
What actions do you propose?
The price we as consumers pay for electrical energy is based on the amount of kilowatt hours we consume (kWh). The incumbent system is based on a limited number of centralized producers transforming fossil fuels (commodity) into kilowatt-hour’s (also traded as a commodity). The transition towards renewable energy sources is radically changing our energy system:
- the grid needs to have a balance between supply and demand to provide high power quality and avoid black-outs (i.e. the right voltage and frequency). Therefore flexibility or the ability to shift supply or demand within a certain timeframe (e.g. batteries or demand response) are crucial for an energy system. Sometimes electricity and flexibility can be produced by the same entity (e.g. gas turbines). Most renewable energy sources (RE) are non-dispatchable, creating an increasing demand (value) for flexibility. This is reflected in the price volatility of electricity during different times of the day and even during the year. The German energy market sometimes even has negative prices of energy during renewable peak production (1). This severely limits the profitable deployment of RE and creates a situation where sometimes flexibility is more valuable then electricity production. The valuation of energy therefore gets a strong temporal dimension (2).
- The majority of (potential) renewable electricity and flexibility production is located in the local distribution level (i.e. low economies of scale). Consumers on the local level also have high unused potential for providing flexibility (e.g. demand response, vehicle to grid, micro-CHP with heat storage, batteries) (1). This also introduces a bidirectional energy flow. This requires smart distribution grids (i.e. local load balancing) to prevent congestions and low power quality.
- If an increasing share is being produced, consumed and transported within the local distribution grid, the value of these products is increasingly becoming more dependent on the supply and demand of actors within that respective local distribution grid. This means that the valuation of electricity and flexibility is increasingly dependent on the location where it is produced: a locational dimension (2).
- As the devastating effects of climate change are becoming more and more clear, the emissions associated with a source of energy is an crucial aspect. The only way in which we are able to make smart decisions for the environment is if our energy system is transparent and each consumer knows the origin of the electricity they are offered.
The trends described above are inherently part of the transition towards renewable energy. It is obvious that electricity cannot be treated like a commodity anymore as the decentralized and non-dispatchable nature results in a highly differentiable product. A product with a very specific value per kWh depending on the time, location, and source of energy. This specific value is increasingly deviating from the aggregated value of these products in wholesale markets, which are still designed for centralized production based on energy as a commodity (e.g. different local value of flexibility in grid 1 vs. grid 2). Renewables don’t make sense in this system and neither do proposals for aggregators and adjustable feed-in tariffs that try to emulate renewable sources as a commodity in wholesale markets. Also wholesale markets are accessible exclusively for producers, retailers, and the RSO (load balancing of your portfolio is a legal prerequisite enforced by the RSO) (3). Consumers and prosumers can only buy electricity through retailers, which are not transparent about their production and on top of that this adds unnecessary transaction costs. This also means that consumers are not incentivized to invest in renewable production that would fit the specific local demand for energy (i.e. from a renewable source, at the right time, at the right place). The current market structure lacks incentives for decentralized flexibility and smart distribution grids creating instable in-efficient grids and energy markets. This is currently the main obstacle for large-scale renewable energy deployment and reducing the CO2 emissions created by our current electricity system (4).
Renewable energy is not only our only option for creating a sustainable energy system, it also has a huge potential for empowering the consumer. The decentralized sustainable energy system of the future demands specific actions and decisions by individual consumers. This will change the traditional “end-user” into the key user who is also producing and trading energy himself: a prosumer.
Therefore we propose the Collective Power Platform, a local platform for transactive grids which automatically optimizes the local production and consumption between the participating prosumers of the platform. The platform essentially creates a virtual utility where people can trade local energy, produced by and for local prosumers in the same city or distribution grid. The remaining demand which is not covered by local production is bought by the platform which represents the power collective at whole-sale markets. Initially no high shares of decentralized production are required, and people will still have the security of the national grid.
People are empowered to choose their own preferred combination of: local energy produced by other prosumers in the local Power Collective, investing in renewable technology themselves, or buying centrally produced energy at whole-sale markets. The Collective Power Platform will evaluate this choice and/or energy technology based on price and CO2 emissions. As a result the prosumer is empowered to make smart personal choices. A grid can only be considered smart if the people within it are enabled to make smart decisions. The beauty of this concept is that it can be deployed grid by grid and prosumer by prosumer (the platform is opt-in), essentially creating transactive smart grids from the bottom up.
The Collective Power Platform has five key values:
First of all the Collective Power Platform empowers prosumers to become part of the energy system itself. Together with other members of the collective in the local grid he forms a virtual utility, which allows them to develop an energy system that reflects their personal preferences and values. The philosophy of the platform is to be a facilitator for prosumers, and therefore it only charges money based on access to the facilitating platform and not based on the amount of energy traded. This is essential, because how can we otherwise incentivize smart and efficient energy use if our profits were to be dependent on selling energy as a commodity?
Empowering the community
A Collective Power Platform based on engaged prosumers will ultimately create social benefits and make people feel more connected to their cities and communities. The platform will create a stronger more resilient local energy system with a higher degree of independence from the national grid. Also individuals are enabled to efficiently produce renewable energy themselves and trade it in their community. This allows other consumers who are not able to purchase renewable energy technology themselves to become part of the transition towards renewable energy (e.g. social housing).
Transparent and competitive prices
As concluded before the Collective Power Platform evaluates the true specific value of energy, which will eventually lead to a more efficient and transparent market. It is however important to also have competitive energy prices in order to reach mass markets. There are several reasons why the collective is able to provide that.
First of all renewable energy technologies as well as flexibility technologies are exponentially racing towards grid parity, depending on local conditions (e.g. the decreasing price of solar panels and batteries) (1). The platform enables prosumers to optimally operate these technologies and directly profit from them.
Also since local energy is distributed directly between people within the same distribution grid, there are no transaction costs related to trading on the wholesale market (e.g. load balance management), and also no transmission losses and costs. The cost of distribution are also lower, since the price signal of the system automatically reacts to congestions and peaks in the local grid.
The remaining demand or surplus of energy can be traded on the wholesale market and the advantage of the collective is that it allows for more negotiating market power. Since the platform can balance and influence the local production and consumption, it can create unique cost synergies between the power collective, other power collectives, and the centralized production through the wholesale market (e.g. load balancing the output of an off-shore wind park with domestic batteries in the Power Collective). Every market will have unique cost characteristics, so the combination of markets will always be more cost-efficient than the sum of the individual parts. The platform can automatically determine the most cost-effective combination between local energy and energy from whole-sale markets based on the personal preferences of the prosumer. Becoming independent from the national grid is therefore not an objective. Also the cooperation with other Power Collectives will make supply more reliable, by taking into account the weather variations in different locations.
Open and technology agnostic
The platform is technology agnostic. This means that any technology can offer electricity and flexibility in the Collective Power Platform. This includes demand response, vehicle 2 grid, electric batteries, solar panels, etc. The platform is also the connection between current energy management technologies and services, operating behind the electricity meter, and other prosumers in the smart grid. These services offer information and energy management within the house but have no access to either trade with other prosumers or in electricity markets, currently limiting their application.
Another great benefit of the Collective Power Platform is that it allows third party actors to offer their energy services to the Prosumer (e.g. technology providers, financial leasing contracts, crowdfunding a local wind park). More importantly the platform can actually accurately determine the personal future benefits of different ESCO offerings within the local market, by evaluating the local price incentives of flexibility and electricity. This will create a huge new market for innovative consumer centric business models. This will not only realize the full potential of customer empowerment, it will also be the driving force in disseminating the Collective Power Platform and thus creating true smart grids.
The platform is open to all different kinds of users and business models. It purely informs the user or ESCO about the value of their technology. This is also the reason that feed-in tariffs are also possible on the platform. The applied business model does not influence the value for other in the Power Collective (e.g. leasing or rent-a-space business models). This also opens up possibilities crowdfunding larger projects like neighborhood-scale energy storage technologies or wind turbines.
Data will be very important to new electricity markets. The platform can play the role of data gatekeeper. Algorithms of the platform can automatically asses the cost and benefits of different ESCO offers tailored to each individual prosumer. This is a big advantage because commercial parties don’t need direct access to consumer data. The data can be stored and analyzed locally by a single trusted entity, which offers both better security as well as improved data privacy.
The platform works by establishing a real time one-way Power Line Communication channel with the participating prosumers in the grid (high frequency to allow full range of flexibility services) (5). It then broadcasts an initial price signal into the distribution grid based on real-time aggregate measurements on the balance of supply and demand in the grid (i.e. the net-flow of energy between the local market and the national grid). Smart controllers at the prosumers homes then automatically react to that price signal by either producing or consuming electricity based on their individual cost and capacity (e.g. demand response, batteries, micro-CHP with heat storage). This changes the balance of the grid and the platform readjusts the price signal, automatically balancing supply and demand in an auction like procedure (6) (7). This will determine the real-time local value of electricity and flexibility relying on simple user agents and a one-way real-time dataflow, without having a complex and expensive centralized system. The optimal size of the local market will depend on the characteristics of the prosumers and the grid capacity. Smart meters at the prosumers homes register the consumption and production against the respective price. Afterwards the information of the smart meters is combined, essentially creating a system where people can trade local energy peer to peer. The collective power platform captures this value by asking a local energy trading fee, similar to other market platforms (e.g. Airbnb, Uber).
This concepts will work on different scales and with increasing granularity can create a true internet of energy.
The collective power platform transforms the value chain of national energy into a value constellation of national and local energy, where the prosumer plays a central role. There are multiple actors required to develop a local market platform. However, we offer a clear value proposition for potential partnerships.
An illustration of the concept:
Who will take these actions?
The Collective Power Platform needs synergetic partnerships in the value chain
The role of utilities however will be very different. Competition is currently simply non-existent. The role of policy makers is to ensure that utilities’ responsibilities are focusing on fundamental activities which can only be performed by a regulated monopoly. The commercial generation of energy and the ownership of assets need to be separated and left to a competitive market environment facilitated by the Collective power platform. Utilities should be assigned new responsibilities which arise from advances in smart grid developments and in general will need to focus more on facilitating prosumers and commercial producers, while maintaining and managing the physical grid and data infrastructure.
The utility or grid operator provides the aggregated grid measurements and allows the broadcasting of the real-time price signal through the distribution grid. In some European countries grid operators are forced to provide third party-access to these data, but regulation is still developing. In return the Platform offers flexibility in the grid and a way of actively managing electricity and flexibility production to efficiently distribute and prevent expensive grid extensions. The local evaluation of distribution allows for a direct revenue stream for smart distribution infrastructure, since the service creates a direct distinguishable value for the participating prosumer.
The Collective Power Platform opens up a huge energy service market, offering third-party access for Energy Service Companies. With consumers increasingly producing their own energy and decreasing energy consumption, the energy market is transforming from a commodity market into a consumer centric service market (8). The collective power platform can accurately evaluate the personal potential value of different technologies and service offers within the local market, creating a direct customer channel for ESCOs.
Where will these actions be taken?
Divide and Conquer strategy
Initially the collective power platform has the highest potential in locations where a relative high share of decentralized renewable energy production puts pressure on the existing electricity grid. Therefore initial developments will be mostly in developed countries. However future applications aimed to develop new electricity grids and micro-grids also offer high potential in developing countries.
One important benefit of the collective power platform is the applicability of the divide and conquer strategy. This is because the platform’s business model can deliver the full value proposition and generate revenue streams in a single distribution grid, without influencing or depending on changes in the national grid structure.
This strategy also applies within the local grid itself. Since the local market will incentivize local prosumers to provide better balance in the distribution grid, there are no negative consequences or externalities associated for non-participants. The better balanced grid is actually likely to improve power quality, and consumers can easily join the platform later on. This divide and conquer strategy on both levels guarantees a proportionally balanced cost and revenue structure and therefore allows for customer development.
Choosing a strategic niche
The most important prerequisite is the difference between the cost of local energy and national energy. By selecting a local niche market with potentially cheap local energy the chances of a successful platform will increase. Two factors are important for this: relative distribution and transmission costs, and local potential of flexible distributed energy production. The first is often associated with low capacity, and/or relatively isolated grids (e.g. rural grids). The second factor depends on the potential for locally balanced electricity and flexibility sources, for example, controllable electricity production or demand control.
How much will emissions be reduced or sequestered vs. business as usual levels?
A collective power platform allows small scale energy producers and entrepreneurs to invest into local decentralized renewable energy resources. In our estimation we provide two scenarios, one in which a community is generating 20% from their own electricity pool and a second where 50% is generated locally.
We provide an example focusing on Massachusetts in February 2016. The electricity generated comes from the following fuel mix: petroleum (1.9%), natural gas (56.9%), coal (12.1%), nuclear (17.1%), hydroelectric (4.5%) and other renewables (7.4%). With the specific fuel mix for electricity generation Massachusetts emitted 2.323 x 10E+9 lb of CO2.
If we assume that with the local platform 20% of electricity is generated from local decentralized renewable energy sources the amount of CO2 emissions would drop by 4.646 x 10E+8 lb and in a 50% local energy scenario the drop would amount 1.161 x 10E+9 lb.
What are other key benefits?
There is also a more proactive role for local government. Synergy is created in close collaboration with local governments especially when the platform is used to evaluate governmental support programs for sustainable development, such as building energy retrofit supports. Prosumers can be informed on the impact of these governmental actions. A collaboration of local governments and ESCOs where the platform provides a direct channel to prosumer to implement government policy and incentives.
Governmental institutions in return can assess policies on promoting renewable energy solutions based on the monitoring and evaluation capabilities of the platform. Nowadays many LEED certified buildings for example perform in general better than buildings without certification, however it happens often that retrofit measures do not improve the anticipated performance (9).
What are the proposal’s costs?
For an initial commercial success, the focus is put on one community i.e. a small size city with a decent share of local renewable energy sources and a high roll out of smart meters.
The requirements for a commercial start is a ICT structure for communication with the energy sources, data analysis and management and a graphical visualization interface. The first requirement is necessary to create a virtual power plant, the second is necessary for managing supply and demand, create forecasts and manage flexibility. The last point is crucial for the engagement of prosumers.
The initial cost has to cover the team costs for developing the ICT solution for the three mentioned functionalities. A minimum viable product foresees the management of energy sources, thus we estimate an initial investment of $200,000 necessary to create a team which creates the software communication with energy sources and the data analysis solutions. On top of that $500,000 to develop the required power electronics. To create hybridization between local and national supply, access to the wholesale market needs to be establish which is another cost component.
After establishing a functioning virtual power plant infrastructure, the next step is to focus on active prosumer engagement by providing visualization for the communication of cost and consumption information. To develop an app based solution another $100,000 are estimated.
Minimum viable product (1 years)
After choosing a strategic niche and agreeing on partnerships the technology can be deployed in a distribution grid. In this stage only a few local producers (i.e. prosumers) are sufficient to test the customer experience, the user interface, and the communication infrastructure. Participants should be selected based on creating a balanced synergetic combination of electricity and flexibility production, and a relative large production capacity. In this stage the real-time price range of local energy can be determined beforehand and does not necessarily have to correspond directly to grid measurements. Also, the system is completely separated from the national market, and the remaining demand is provided by the national market partner.
Minimum viable market (2 years)
The next step is to develop the minimum viable market. Gradually more and more prosumers can be added to the platform. When the market is sufficiently stable, real-time local market prices are introduced, which directly correspond to the balance of supply and demand in the distribution grid (i.e. the net-flow of energy between the local market and the national grid). This stage is crucial in developing a robust local market, and to better understand the reaction of the market (i.e. prosumers) to varying price signals.
Connecting markets (2.5 years)
When the market is sufficiently stable and relatively predictable, the local and national market can be connected to each other. This means that the price signal does not only correspond to the balance between supply and demand in the grid itself, but is also used to create back-up capacity for trading local produced electricity and flexibility in the whole-sale market (i.e. load balancing). In this stage the collective power platform can be involved directly in trading in whole-sale markets. After establishing several local market platforms, synergetic trading between platforms can be developed.
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10. European Power Exchange. Negative prices. EPEX SPOT European Power exchange. [Online] 2016.http://www.epexspot.com/en/company-info/basics_of_the_power_market/negative_prices
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