Power to the people: Power Ledger and the blockchain
A Perth-based energy trading company is set to shake up the way we buy and sell electricity. But how does it all work? Cameron Grimes looks at how it will affect the electrical sector.
Solar electricity trading within the residential sector is still a relatively new market, but an Australian company is aiming to break the mould in what could become a big win for consumers.
Power Ledger, a Perth-based energy trading firm, is set to bring an ‘energy revolution’ to the world with its peer-to-peer (P2P) solar energy marketplace. Though still in its early stages, the start-up company has gained worldwide attention for its contemporary approaches to changing the way solar energy is exchanged.
The company was named as one of three finalists in the 2018 Extreme Tech Challenge (XTC), a start-up competition headed by international business magnate Richard Branson. Power Ledger co-founder and chair Jemma Green says that Power Ledger’s business reflects the change in how the world exchanges goods and services, and that consumers deserve more from the energy they are producing.
“Just as Airbnb and Uber have up-ended the hospitality and transport markets, Power Ledger has the potential to change forever the way we buy and sell energy to power our homes,” Jemma says.
“The owners of excess energy can sell their surplus to their neighbours for less than the uniform tariff but more than they would get from selling it to a retailer.
“Effectively, we’re cutting out the middle-man to save consumers, and to maximise returns for producers.”
In summary, the Power Ledger platform will act as a marketplace for consumers and producers to buy and sell solar energy, without the need to go through an energy company to complete the transaction.
So how exactly will electricity be exchanged between the buying and selling households? Power Ledger co-founder and managing director Dave Martin explains the process.
“Consumers connected to the same embedded networks or the same sections of the regulated distribution network already share energy,” Dave says.
“Excess solar energy is spilled into the network, displacing the need for supply from more traditional sources and being consumed at the closest point of demand.
“The Power Ledger system makes the financial transaction reflect the physical energy transaction.”
Though a new concept, Dave insists that electricians already have all knowledge and resources they will need to adapt to the new platform.
“If they (electricians) can install a meter, they are equipped to support the Power Ledger system,” Dave says.
“One of the goals of the Power Ledger platform is to work with existing infrastructure where possible. While this may result in new installations of equipment, the knowledge required is already abundant in the industry.”
As part of its business model, Power Ledger will take advantage of two of the most discussed advancements in the digital marketplace: blockchain and cryptocurrency.
Blockchain-based technology is a fairly new concept, one that can excite the informed and intimidate the unfamiliar. In simple terms, a blockchain software system allows digital trusts (e.g. online funds) to be circulated through a network without requiring a ‘middle man’ (e.g. banks) to verify and approve exchange.
In its current state, blockchain technology is primarily used in the exchange of cryptocurrencies, such as the widely known bitcoin. For example, when a cryptocurrency transaction is requested, the transaction is represented as a ‘block’, which requires approval from both the sender and the receiver. Once approved, the block is added to a ‘chain’ of permanent records and the transaction is completed. In short, the lack of a middle man results in a much cheaper and faster alternative to traditional transactions.
In order to fuel its own marketplace, Power Ledger has introduced two forms of cryptocurrency, Sparkz and POWR tokens.
Sparkz are the ‘tokenised representation’ of the value of energy traded between a buyer and a seller, and are pegged to the lowest denomination of currency in each trading jurisdiction. POWR tokens are the ‘fuel’ of the Power Ledger ecosystem, and are used to allow access to the platform.
Below is an example of how the exchange of POWR and Sparkz tokens will operate. For this example, keep in mind that 1 Sparkz = 1 Australian cent.
The exchanging of POWR and Sparkz tokens involves three parties: the Application Hosts (utilities, retailers, property managers, etc.), consumers (users of the electricity) and prosumers (producers and users of the electricity).
In order to obtain Sparkz tokens, Application Hosts surrender their POWR tokens to the Power Ledger exchange for an agreed value of Sparkz. In this example, exchanging $1,000 worth of POWR nets Application Hosts $1,000 worth of Sparkz (or 100,000 Sparkz tokens).
Application Hosts now have a pool of Sparkz to sell to consumers in exchange for the local currency. So hypothetically, the Application Hosts can sell 1,000 Sparkz tokens for $10. In deregulated markets, consumers will be able to purchase POWR and Sparkz tokens directly from the Public Exchange, without having to deal with an Application Host.
These Sparkz are then on sold to prosumers, who provide the energy product to consumers. Once prosumers surrender their Sparkz tokens for cash, the Application Host’s pool of Sparkz is replenished, which in turn can be re-exchanged for POWR tokens.
The initial allocation of POWR tokens was sold during Power Ledger’s initial Token Generation Event (TGE) last year. The event raised $34m from over 15,000 buyers, with 350 million of the 1 billion generated POWR tokens available for sale.
Power outages and grid failures are inevitable, regardless of a household’s energy setup. While these events would affect the ability to exchange Power Ledger’s currency between buying and selling households, it also disrupts the energy flow, meaning there is no risk net impact to respective currencies.
“The Power Ledger system ties a financial transaction to the physical transaction that’s already occurring,” Dave says.
“If a customer experiences an outage they can neither supply nor consume energy so, in effect, they stop buying and selling for the duration of the outage.
“Our platform will only facilitate trade when both parties are able to exchange.”
As part of its development, Power Ledger has recently partnered with Origin Energy to analyse to positive and negative outcomes form Origin customers using a peer-to-peer energy trading platform.
This follows a previous partnership Power Ledger formed with Busselton National Lifestyle Village residents, which found that residents could potentially shave $600 a year off their electricity bills through this new platform.
Recently, the Federal government announced an $8m project in the City of Fremantle to further trial the use of blockchain-powered systems. Power Ledger will lead the development and maintenance of the project’s blockchain applications, with Curtin University overseeing the project management duties and research.
Power Ledger’s platform is driven by the company’s desire to provide access to energy in developing economies around the world, as traditional energy systems may be too difficult to implement.
“In parts of the world like India and Africa, South America and South East Asia… there are issues around access because those big chunky systems are expensive to build,” Dave says.
“There are plenty of consumers out there who want energy, who deserve energy, for whom electricity is an integral part of their economical future and development that we should be supplying
“If we take that historical model, the planet won’t be around long enough for them to enjoy the fruits of it all.”