by Bob Shively, Enerdynamics President and Lead Instructor

Over the last 20 years, the electric industry has gradually transitioned how its consumers purchase electric services. Prior to the 1990s, all consumers bought bundled service from their monopoly local utility. Beginning with deregulation in the 90s, some regions unbundled supply from distribution to allow consumers to purchase electricity from third-party retail marketers; transmission and distribution remained the role of the monopoly utility.

Approximately 24% of U.S. consumer electric usage currently is acquired from retail marketers instead of the distribution utility. This figure has increased steadily and is likely to continue its growth given interest in Community Choice Aggregation in California and a successful ballot proposition in Nevada where voters supported implementation of customer choice. In other countries, this percentage ranges from 0% to 100% depending on regulatory and business models.

Both models assume that large central generators produce the bulk of supply that is then purchased by a central entity (either a utility or a retail marketer) for resale to end users. Retail electricity markets have continued transforming in some regions with the growth of distributed energy including combined heat and power (CHP), rooftop solar, and active economic demand response. But markets are still structured with the assumption that any distributed energy not used internally by a customer is sold back to a centralized entity.

Are Markets Ready for a New Paradigm of Peer-to-Peer Transactions?

From time to time, energy insiders have discussed whether an E-Bay model allowing customers with DER — sometimes called prosumers since they can both produce and consume electricity — could interact among themselves and bypass centralized market players. It’s comparable to how people sell unneeded used items on E-Bay or via Craigslist. Until now, technologies, markets, and regulatory rules have not allowed for such transactions. Even if one can figure out how to physically sell power to a neighbor (run a wire over the fence?) it’s likely they’ll receive a letter from the local utility instructing them to cease and desist from violating their monopoly franchise service territory.

But with regulators looking at new business models fostered by the growth of DER, pilot projects are now testing the possibility of enabling peer-to-peer transactions.

Imagine that you install solar on your roof, but you and your other family members typically work during the day so no one is home. Rather than selling back to your utility, you might instead sell the supply directly to another consumer so they can avoid high time-of-use or demand charges and simply use the utility as an enabling network.

Enabling Technology is Here, We Just Need to Develop Regulatory and Business Models

The enabling technology is already available to make this happen including the PowerMatcher platform developed in Europe by the Flexipower Alliance Network and the Transactive Grid platform developed by the U.S. company LO3 energy. As the State of New York explores new business models in the NYREV process, Siemens AG and LO3 have announced that the Brooklyn Microgrid project will test local energy trading based on blockchain technology that is now being used to facilitate secure financial trading, but that has yet to be applied to retail energy.  Pilot projects such as the Brooklyn Microgrid and other efforts in Europe will begin to address the desirability of moving forward with new transactive business models. It will then be up to the regulators and industry participants to modify current structures to allow a new way of doing business to grow.