Why don't we buy cheaper electricity from our street neighbours? Yet.

Posted by Gretė Bagdonaitė
2022-05-23

The new active consumer concept in Lithuania allows this type of prosumers not only to generate electricity for their self-consumption but enables an opportunity for them to sell generated electricity to other market participants. One of the rising options in other countries allowing prosumers to trade surplus electricity with other market participants is peer-to-peer (P2P) energy trading.

P2P term denotes prosumers directly engaged with each other utilising a platform tool to construct a marketplace in which the excess production could be sold. The benefits are twofold as the prosumers could make an additional margin on their sale and consumers could buy green electricity at a more advantageous price. There are many different P2P energy trading models, they can be centralized or fully decentralized, they can be set up on the community-level or virtual level, in the main grid or independent microgrid and more but the main idea looks like this:

peer-to-peer energy trading

P2P trading not only empowers prosumers and consumers but also leads to increased renewable energy deployment and flexibility in the grid.  There are already many successfully functioning P2P energy trading platforms all around the world (SunContract Marketplace; Powerpeers; Power ledger; Sonnen community; Vandebron). However, large-scale deployment of P2P energy trading requires many changes and improvements in nowadays electricity market. Every market is unique and at this moment not all the countries can be suitable for P2P energy trading implementation, including Lithuania. But why is that?

An illustration of the different elements of P2P network

When we talk about P2P energy trading, we must keep in mind that this concept touches a variety of different elements: market participants, regulation, and virtual and physical trading layers. If one of them does not exist, then probably large-scale deployment of P2P energy trading will have to wait. Hence, we need to analyze all these elements and understand what needs to be changed and improved in our market to enable P2P energy trading in Lithuania.

Prosumer market

In the last year, the number of prosumers who have solar photovoltaic panels (PV) in Lithuania has increased by 86% and is expected to further increase in the future. There are more than 20,000 prosumers in Lithuania now but none of them can trade their electricity. This is because there are two types of prosumers in Lithuania:

  1. Renewables self-consumers (definition transposed from the directive (EU) 2018/2001 “On the promotion of the use of energy from renewable sources” (REDII).
  2. Active consumers (definition transposed from directive (EU) 2019/944 “On common rules for the internal market for electricity”).

At this moment all the prosumers in Lithuania are renewable self-consumers and under Law on Energy from Renewable Sources, they are only entitled to generate electricity for their own self-consumption. If they have excess electricity, they can feed that excess into the grid and consume it later when they need to. This means that they cannot sell their surplus electricity if they want to be recognized as renewable self-consumers and participate in net metering which is highly beneficial to them. 

However, the new type of prosumer, introduced this year in the Law on Electricity - active consumer has way more rights and responsibilities, including the right to sell self-generated electricity to electricity consumers. Even though new legal norms enable the trade of electricity among active consumers and consumers without renewable generation capacities first we need a sufficient number of active consumers who would trade that green electricity. And here the second very important element plays the role. 

Economic gain for prosumers

As mentioned before, the renewables self consumers' net metering model in Lithuania is highly beneficial for them. It encourages people to become renewable self-consumers because their investment pays off quite quickly. But what about active consumers? What encourages them to become active consumers and not the renewables self-consumers?

From an active consumer perspective and under current regulation in Lithuania, P2P energy trading loses its attraction. In other words, while net metering exists there is no stimulus to trade your electricity and become an active consumer because it is less profitable. For instance, under net metering in the case of installation of 10 kW PV the investment paid off period is 7 years while under the P2P energy trading model this period is twice longer – 14 years. Therefore, if we want to create P2P energy trading in Lithuania we need a new support scheme for active consumers e.g., support mechanisms allowing active consumers to make an additional margin on their sales but also creating cheaper prices for consumers. This means that some contributions to the electricity price need to be removed or changed to create P2P value for active consumers and consumers.

Average prosumer profit under net metering and average prosumer profit in P2P energy trading with additional margin (0,03 Eur/kWh)
Average prosumer profit under net metering and average prosumer profit in P2P energy trading with additional margin (0,05 Eur/kWh)

Furthermore, it is very important to remember that the P2P concept can benefit more involved actors than just prosumers themselves. As mentioned above P2P trading gives advantages to the grid, consumers can buy cheaper electricity directly from prosumers and even new business opportunities can be created. It is worth mentioning that net metering is considered unsustainable practice and many countries are phasing out net metering and moving further with new models.

P2P energy trading regulation

Another, very important element is regulation. Can active consumers sell their surplus electricity through peer-to-peer trading arrangements? Right now, the Law on Electricity does not specify how active consumers can sell their excess electricity. However, under current regulation electricity can be sold in the electricity market, through power purchase agreements or through agreements with electricity consumers. So, there is no legal P2P energy trading concept definition allowing the sale of electricity between market participants in virtual platforms with pre-determined conditions. Consequently, participation in P2P energy trading for all electricity market participants is not legally allowed. Even though the definition can be found in REDII is still not transposed in Lithuanian laws.

Moreover, to properly enable P2P energy trading we need even more legal changes. We need to define the roles and responsibilities of stakeholders involved in P2P, define models and market operation rules for P2P schemes, determine network charges and more.

Virtual and physical layers

P2P energy trading systems are divided into two layers – the physical layer and the virtual layer. These two layers consist of a number of key elements necessary for P2P to function properly. When we talk about the virtual layer, we talk about the communication between participants through a virtual platform, in which they share all the information about their energy trading parameters, buy and sell energy and make financial transactions. Hence, the virtual layer consists of an information system, market operation, pricing mechanism and energy management system.

The physical layer, on the other hand, is essentially a physical network that facilitates the transfer of electricity from sellers to buyers once the financial settlements between both parties are completed over the virtual layer platform. In the physical layer, the main elements are grid connection, smart metering, and communication infrastructure. The virtual layer can be created only when all the previous elements (prosumer market, economical gain, regulation) and physical layer are well prepared, for instance, the installation of smart meters in consumers' households is necessary for consumers to participate in P2P energy trading.

Conclusion

Taking everything that’s been said, to enable P2P trading in Lithuania we need many improvements and changes in our market and prosumers policies. It can be agreed that the key P2P energy trading element is the economic gain for active consumers. Without it, there will be no other elements (e.g., active consumers who want to trade their electricity) or they will be unused (e.g., regulation allowing to trade in P2P schemes). Therefore, the long ride is waiting for P2P energy trading in many countries, including Lithuania.

Prepared by Ignitis Innovation Hub - Gretė Bagdonaitė and Matas Dijokas

  1. W. Tushar et al., "Peer-To-Peer Energy Systems For Connected Communities: A Review of Recent Advances and Emerging Challenges", 2021.
  2. International Renewable Energy Agency, "Peer-To-Peer Electricity Trading. Innovation Landscape Brief", 2020.
  3. Council of European Energy Regulators, "CEER consultation on Dynamic Regulation to Enable Digitalisation of the Energy System", 2019.

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