The energy system of the future: Peer-to-Peer energy trading

How can renewable energy from local generation plants be used better and more efficiently to advance the energy transition? How can the increasing demand for energy be met without putting too many resources into grid expansion?

One answer to this are decentralised supply solutions such as Peer-to-Peer energy trading (P2P): Electricity from the neighbourhood's photovoltaic systems is traded on a local energy market – directly and instantaneously between producer and consumer. As simple as it may sound, the legal framework for P2P is quite a complex issue.

Clean electricity from the neighborhood

At noon, the PV system supplies so much solar power that it cannot be fully used in one's own household. A few houses away, on the other hand, the wallbox is waiting to finally be supplied with sufficient energy to charge the electric car. So, what could be more obvious than to pass on the surplus electricity to the neighbors who have a higher demand at the moment?

Photovoltaic system in a village

How peer-to-peer energy trading works

This is exactly the idea behind Peer-to-Peer energy trading. This concept is about creating a regional marketplace for renewable energy. The market players involved have direct access to each other and can buy and sell the cleanly produced electricity without intermediaries such as exchanges or energy suppliers.

In this system, everyone can be both a consumer and a producer – the classic division of roles between end customers and suppliers is thus abolished. However, for P2P energy trading to work, it is not only about the necessary infrastructure. Above all, there is a need for a legal framework that captures the complex interrelationships without complicating the P2P concept. To this end, different legal levels must be considered – and this is the great challenge for Peer-to-Peer as the energy system of the future.

Peer-to-Peer: The Legal and Regulatory Foundations

Projects such as "pebbles" (Peer-to-Peer energy trading based on blockchains) have already proven that Peer-to-Peer trading in renewable energy can work technically. However, a major hurdle for the regional electricity markets remains the legal requirements that must be met.

An appropriate legal framework must cover a number of different aspects. First and foremost are energy and regulatory laws. In Germany, for example, this means that the legal provisions of the Energy Industry Act (EnWG), the Electricity Network Fee Ordinance (StromNZV) and the Renewable Energy Sources Act (EEG) must be complied with.

Close up of smart home energy consumption overview

Legal challenges for prosumers

The regulations are always designed to be technology-neutral and thus in principle allow the use of blockchains for pure Peer-to-Peer solutions. However, this possibility is associated with a big but. Prosumers in a P2P electricity market are considered energy suppliers according to the EnWG – and therefore have to assume numerous legal obligations:

• There are notification and approval obligations to the Federal Network Agency.

• The settlement of the electricity price components must be regulated, because of the incurred electricity tax for example.

• In addition, electricity bills must be adapted to legal requirements, including electricity labelling.

This results in a significant administrative burden that is almost impossible for private providers to cope with – especially since an independent processing of a direct electricity supply is associated with considerable liability risks. And that's not all prosumers have to pay attention to in a Peer-to-Peer context.

Flexible energy trading, complex specifications

The legal framework for Peer-to-Peer energy trading is not only so complex because of energy law aspects. In the case of the direct trading of renewable electricity within one’s neighborhood, several other areas of law are relevant:

Contract law

One of the advantages of Peer-to-Peer power trading is its flexibility. In contrast to conventional supply situations with an end user and a fixed energy supplier, the P2P concept allows electricity to be purchased from another supplier at any time, depending on demand and supply.

However, reporting obligations and contract law make it difficult to change suppliers quickly and frequently, as legal certainty can hardly be guaranteed in the current legal framework.

Blockchain technology is also problematic in this respect: The immutability of data and transactions is contrary to contractual principles such as the nullity or reversal of contracts.

Privacy

When it comes to data protection, the requirements are already very high due to the European General Data Protection Regulation (GDPR). It applies primarily to the protection of personal data.

For energy trading via digital energy platforms, however, it is not only the requirements of the GDPR that must be observed. In Germany, for example, the regulations of the Metering Point Operation Act (MsbG) for the processing of data with intelligent metering systems (smart meters) and the Federal Data Protection Act (BDSG) are also relevant.

Among other things, it must be clarified when personal data is involved and what consequences result from this due to the different rules and regulations.

Data integrity

In addition to data protection, data security requirements play a major role when regional energy platforms are to be set up. Of particular importance is the question whether P2P electricity trading platforms can already be classified as critical infrastructure.

If this is the case, additional security requirements must be observed. The reliability and security of the data and the entire electricity infrastructure have to be ensured.

In principle, P2P platforms help to reduce the risks in the entire network with their decentralized power generation and supply. Nevertheless, it must of course also be ensured on site that the infrastructure does not offer any attack surfaces.

Making better use of P2P potential

Aerial view of apartment block with photovoltaic system

In recent years, there have been several pilot projects in Germany to investigate the possibilities of Peer-to-Peer energy trading. In addition to the mentioned "pebbles" in the Allgäu, these include Tal.Markt in Wuppertal, Nordgröön in Schleswig-Holstein and the Etiblogg, which is funded by the BMWi.

Similar projects that also work with the P2P concept can be found all over the globe. As early as 2016, "Brooklyn Microgrid" was launched in New York, which is still considered a pioneer for Peer-to-Peer energy trading. In Switzerland, a predecessor project in which 37 households formed their own electricity market is being continued as part of "Quartierstrom 2.0". In Perth, Australia, 62 apartments have been equipped with storage and PV systems for a microgrid as part of a cooperation, through which the residents can supply themselves completely with renewable energy.

Development of practicable solutions for the future

To turn these models into solutions for an efficient decentralised energy supply that are suitable for everyday use, adjustments to the legal framework are still necessary. Fewer legal hurdles and stronger commercial incentives for trading self-generated electricity from renewable energies are the most important starting points for making P2P more attractive.

Essential aspects for a simpler self- and direct supply of renewable energies are already laid out in EU law, for example in the Directive for the internal market for electricity (EU Directive 2019/944) and the Renewable Energy Directive RED II:

• As active customers, consumers are given the right to consume, store – or market – self-generated energy, for example.

• In doing so, they shall not be constrained by disproportionate technical or administrative requirements, procedures, levies and charges.

• The EU directive even calls for the creation of a legal framework for citizen energy communities.

Now it is a matter of translating the requirements of the Directive for the internal market for electricity and the Renewable Energy Directive into better framework conditions at national level: with more flexible grid charges, incentive regulations and the design of an energy market that optimally integrates P2P platforms. This is the only way Peer-to-Peer power trading can make a real difference in the energy transition.