Blockchain and the Prosumer — Powerledger
Introduction
Peer-to-peer (P2P) energy trading is a relatively new innovation[1] which ties in closely with Distributed Energy Resources (DER) and Prosumers.
“Peer-to-peer (P2P) electricity trading is a business model, based on an interconnected platform, that serves as an online marketplace where consumers and producers “meet” to trade electricity directly, without the need for an intermediary.” (International Renewable Energy Agency, 2020, p.6)
“Distributed energy resources (DER) is the name given to renewable energy units or systems that are commonly located at houses or businesses to provide them with power.” (Australian Renewable Energy Agency, 2023) Some examples of DER include rooftop solar panels, local battery storage units, biomass generators, wind turbines and electric motor vehicles.
Participants in these marketplace networks are called Prosumers. They are both producers and consumers of electricity within the local network or micro-grid[2]. Prosumers produce their own electricity, sell any excess to the network for a fee and purchase electricity from the network when they need it.
Company Background and Overview
Against the backdrop of global climate change, planetary de-carbonisation and the move towards renewable energy, Powerledger sprang onto the scene in 2017 when it raised USD $34 million (Castles, 2017) through an Initial Coin Offering (ICO)[3].
Powerledger is a Perth-based company with 30 key clients across 12 countries. Its primary focus is in peer-to-peer renewable energy trading and energy provenance tracing on a blockchain platform.
Powerledger has an ANZSIC Classification of 2640, On Selling Electricity and Electricity Market Operation which includes electricity market operation or the matching of supply and demand for electricity. (Australian Bureau of Statistics, 2013)
Powerledger operates multiple divisions. Our specific focus is upon the P2P energy trading marketplace based upon blockchain technology.
Unique Business Model
Powerledger operates a two (2) token digital economy that are blockchain-based.
The POWR token resides on the Ethereum blockchain and has a maximum supply of 1 billion tokens. These tokens are similar to shares in a company and represent ownership. More recently, tokens of this type have been classified as securities by the Australian Securities and Investments Commission (Australian Securities and Investments Commission, 2021) Tokens also represent a form of utility and POWR tokens are used to buy access to the Powerledger platform.
Part of the token supply (150 million tokens) has been allocated to developers and founders. POWR tokens can be sold through Digital Currency Exchanges (DCE) for fiat currency. This enables them to extract a return/profit from their efforts. In addition, Powerledger can sell tokens to pay for salaries, operating expenses and funding new innovations and development.
The Sparkz token resides on the Solana Blockchain and has no supply limit. Sparkz are a local market token used for transactions within the Powerledger peer-to-peer energy trading network.
POWR tokens are converted into Sparkz on local trading networks in order to buy or sell electricity. Sparkz represent the value of a unit of electricity denominated in kilowatt hours in local fiat currency. Sparkz are pegged to the fiat currency value of the country they are purchased and consumed in, forming a closed-loop digital economy. The Sparkz token is destroyed (burned) upon consumption of the electricity.
Sparkz enable blockchain micro-payments for very low transaction fees, (about USD $0.000125 per transaction) and at high speed, thereby avoid costly banking fees and time-based overheads.
The Powerledger P2P energy trading digital economy is outlined below in Figure 1:
Figure 1 — The Powerledger peer-to-peer energy trading, blockchain-based, digital economy. (Power Ledger, 2019, p.17) Legend: P = POWR token, Electricity Symbol = Sparkz token
POWR tokens can be bought and sold through Digital Currency Exchanges (DCEs) with fiat currency or exchanged for other cryptocurrencies/digital assets.
The product Powerledger and its competitors provide is a P2P energy trading marketplace based upon blockchain technology. This marketplace platform provides:
· access to micro-transactions (micro-quantities) for energy trading
· access to micro-payments and value transfer
· access to micro-grids and micro-energy networks
· access to an immutable ledger to support audit and regulatory reporting
Industry Comparative Benchmarks
Global Benchmark
Figure 2 below compares the Global Cryptocurrency Market (excluding Bitcoin) with P2P energy sector tokens by market capitalisation[4]. It provides insights into macro trends and movements within these markets. Bitcoin was excluded from the analysis because it is considered to be an outlier due to its dominant market capitalisation and its significant influence on marketplace movements.
The period of analysis is 12 months. Periods older than 12 months have little value for blockchain-based companies due to the rapid speed at which the market moves and evolves.
Figure 2 — Global Cryptocurrency Market Cap compared to Energy Sector Market Cap, 2022. Source: https://coinmarketcap.com/charts/
In Figure 2, the energy sector market cap appears to be highly correlated to movements in the Global Cryptocurrency Market. The gap between the two widens towards the end of the year, indicating under-performance by the energy sector tokens.
Australian Benchmark
Figure 3 below compares Australian Industry to the Australian Electricity sub-division according to Value Added between 2011 and 2021. It provides insights into macro trends and movements within the Australian electricity industry.
Figure 3 — Australian Industry compared to the Australian Electricity sub-division according to Value Added between 2011 and 2021. Source: Australian Bureau of Statistics, 2022
The electricity sector performance closely correlates with that of Australian Industry and is on an upward trend. Since Powerledger provides related services within the P2P electricity and energy sector, it is expected that Powerledger may experience similar upward momentum.
Potential for Peer-to-Peer Energy Trading in Australia
The Australian Energy Market Commission (AEMC) reports that “between 2.6 and 3 million households already have solar panels, which supply around 14GW of capacity. The AEMC expects a further 3 million households to install rooftop solar in the next decade. Consumers have installed more than 33,000 small-scale batteries since 2014.” (Australian Energy Market Commission, 2021)
Industry Analysis
Method
In order to provide a meaningful industry analysis, a combination of Blockchain Metrics and Traditional Metrics have been applied. Key performance data is aggregated and reported from CoinMarketCap.com which tracks digital assets and cryptocurrencies globally.
The industry analysis is based upon comparative measures between Powerledger and two of its key competitors: Efforce and SunContract. The competitors have been chosen on the basis that they operate and compete in P2P energy trading markets, as blockchain-based companies. In addition, their tokens are traded alongside that of Powerledger on multiple, global DCEs.
Blockchain Metrics
Market Capitalisation is determined by multiplying the number of tokens in circulation by the price of the token at a given point in time. Tokens are similar to regular company shares.
Demand for tokens is driven by two (2) key factors, investor speculation with regard to the price of the token and demand from network participants who need to purchase tokens in order to access the blockchain network. This in turn drives daily price movements.
Figure 4 — Market Capitalisation, 2022 for Powerledger, Efforce and SunContract. Source: CoinMarketCap.com
From figure 4, it is readily apparent that Powerledger is a dominant market player and is significantly larger, in terms of market cap, than its two competitors.
Digital tokens are traded on a 24/7/365 basis. The daily trading volume can be an indicator of token demand from speculative investors along with demand for token use within the P2P energy trading economy.
Figure 5 — Average Daily Trading Volume, 2022 for Powerledger, Efforce and SunContract. Source: CoinMarketCap.com
Figure 5 demonstrates that Powerledger is responsible for much larger daily trading volumes than its competitors, and represents a significant part of the energy sector trading volume. Since July 2022 however, daily trading volumes have slumped.
Figure 5 Spike — “Powerledger is pleased to announce that Sangha Capital, backed by venture partner Dr. Bill Tai, has acquired a stake in the company.” (Power Ledger, 2022) The spike behaviour provides a strong indicator that token demand is highly driven by investor speculation.
Token prices are known to swing wildly on DCEs. Many tokens remain unregulated. High levels of investor speculation are known to distort token price movements. The market is often subject to digital asset bubbles and herding effects.
Figure 6 — Token Prices, 2022 for Powerledger, Efforce and SunContract. Source: CoinMarketCap.com
It is apparent from Figure 6 that token prices are falling across the token energy sector. This also closely correlates with movements in the Global Cryptocurrency Market (refer to Figure 2).
Number of DCE Listings
The larger the number of DCEs that the token is listed on provides access to a wider global audience. This is outlined in Table 1:
DCE Listings
Powerledger — 57
Efforce — 8
SunContract — 3
Table 1 — Number of DEC Listings for Powerledger, Efforce and SunContract. Source: CoinMarketCap.com
Table 1 indicates that Powerledger has access to a significantly larger investor audience and higher potential for P2P energy trading adoption.
Holders Statistics
The Holder Statistics provides insights into how widely held or dispersed the token is. It can also be an indicator of token price stability and provides an indication of customer base size. This is outlined in Table 2:
Powerledger: Wallet Addresses — 54,627, Top 10 Holders — 78%
Efforce: Wall Addresses — 10,265, Top 10 Holders — 67%
SunContract: Wallet Addresses — 3,6128, Top 10 Holders — 57%
Table 2 — Holder Statistics for Powerledger, Efforce and SunContract. Source: CoinMarketCap.com
Table 2 indicates that Powerledger tokens are held tightly and suffer from low levels of dispersion even with a comparative larger number of wallet addresses. This can be an indicator of low demand by network users for the POWR token in the P2P energy trading marketplace.
Traditional Metrics
Capital
Powerledger has had multiple rounds of funding from global cryptocurrency markets and the Australian government:
· 2017 — USD $34 million, ICO
· 2017 — AUD $2.57 million, Australian government
· 2017 — AUD $1.3 million, Department of Prime Minister and Cabinet
Efforce has significant capital backing from Steve Wozniak. No details are available of actual capital raises.
SunContract had a capital raise of €4.659 million in 2020. (SunContract, 2020)
Each company has access to additional capital funding via sale of their tokens on DCEs for fiat currency, cryptocurrency or digital assets.
SWOT Analysis
Figure 7 outlines a SWOT analysis for Powerledger which operates in the P2P energy trading market:
Figure 7 — SWOT Analysis for Powerledger
Porter’s Five Forces
Figure 8 outlines Porter’s Five Forces for the P2P energy trading market:
Figure 8 — Porter’s Five Forces for P2P energy trading market
Demand Factors
Advertising
Establishing thought leadership could have a significant impact on raising consumer demand in this market sector. This can add to the momentum associated with macro trends such as adopting sustainable and renewable energy sources, combating climate change and global de-carbonisation. These global, macro trends could also amplify Bandwagon Effects.
Substitutes
Potential substitutes include:
· central energy grid
· local power generators (often driven by fossil fuels)
Consumer Characteristics
There are a number of key consumer drivers which could influence demand, including:
· consumers who prefer to be energy self-sufficient and/or live off-the-grid
· consumers who prefer to utilise renewable energy sources in an effort to support de-carbonisation, development of renewable energy sources and limit greenhouse gas emissions
· consumers who wish to reduce their electricity costs
· consumers who are located in remote or isolated communities
· Prosumer movements and trends (enel Green Power, 2023)
Bandwagon Effects
A 2022 report by the Australian Energy Regulator notes two important developments:
· 30% of Australian homes have rooftop solar panels (Australian Energy Regulator, 2022, p.42)
· “In 2021 small-scale battery installations increased by 33% compared with 2020, continuing the upward trend since 2016.” (Australian Energy Regulator, 2022, p.43)
These statistics provide evidence of a potential bandwagon effect developing in Australia. It is only a relatively small step to “cut out the middleman” and develop community-based P2P energy trading networks. If central energy grid prices continue to rise, this effect may accelerate.
Expectations
Consumers also see the adoption and installation of renewable energy generation and power storage technologies as a way to increase the value of their properties (Ritchie, 2022) and an effective method for combating the rising cost of electricity (Ainsworth et al, 2023).
Consumers have become accustomed to selling their excess energy to the central energy grid for financial reward. This may assist and encourage those who may cjoose to participate in a P2P energy trading market.
Supply Factors
Technology
P2P energy trading marketplaces are a new innovation that has the potential to extract electricity supply from previously unreachable sources. They have the ability to add new supply to the energy marketplace.
This is achieved with the application of a blockchain architecture which can support key functions such as:
· access to micro-transactions (micro-quantities) for energy trading
· access to micro-payments and value transfer
· access to micro-grids and micro-energy networks
· access to an immutable ledger to support audit and regulatory reporting
· dis-intermediation of centralised renewable energy marketplaces
This new technology enables the development of entirely new business and revenue models.
Government Subsidies
Subsidies have the ability to entice other companies to invest in and innovate in this new, developing market sector.
Market Competition
At present the number of direct competitors in the P2P energy trading marketplace is small (3–4 competitors globally). Companies such as Powerledger enjoy a first mover advantage.
Traditional energy companies may choose to enter the market via a hybrid model. They could offer similar services with the adoption of blockchain technologies to create their own P2P marketplaces. However, this will require specialised knowledge and time in order to understand this new market segment, including the development of new business models. In addition, they may choose to abstain from this market segment due to the barriers to entry.
Labour Costs & Capital
Prosumers are responsible for all of the capital investment required to generate and store the renewable energy. As a result, this has the effect of significantly reducing labour costs, operational costs and capital overheads for the P2P energy trading platform provider. These significant costs contribute to energy supply inelasticity.
Effects on Industry Equilibrium and Price
Overall, given the small size of the P2P energy trading market, its fledgling nature, and fragmented operation (when compared to the large central energy grid), it is anticipated that there will be little change to the equilibrium market price of energy in Australia.
It will take more time for the industry to grow, develop and mature. As yet, the potential effects on demand and supply are yet to be felt more broadly.
Industry Profitability
Industry profitability can be impacted by:
· the number of competitors that may choose to enter this marketplace
· the market sector being too small and niche’
· increased access to the central energy grid
Industry profitability can be supported by:
· a focus on communities in remote and isolated areas where few substitutes are readily available
· continued investment in innovation and new technologies
· establish thought leadership
References
Ainsworth, K., Whitson, R., & Janda, M. (2023, March, 15) Electricity prices set to surge up to 30 per cent as regulators reveal draft pricing plans. ABC News. https://www.abc.net.au/news/2023-03-15/australian-energy-regulator-default-market-offer/102094290
Australian Bureau of Statistics. (2013, June, 26). 2640 On Selling Electricity and Electricity Market Operation, Australian and New Zealand Standard Industrial Classification (ANZSIC). https://www.abs.gov.au/statistics/classifications/australian-and-new-zealand-standard-industrial-classification-anzsic/2006-revision-2-0/detailed-classification/d/26/264/2640
Australian Bureau of Statistics. (2022, May, 27). Australian Industry, reference period 20–21 financial year. https://www.abs.gov.au/statistics/industry/industry-overview/australian-industry/latest-release
Australian Energy Regulator. (2022). State of the energy market 2022. https://www.aer.gov.au/publications/state-of-the-energy-market-reports/state-of-the-energy-market-2022
Australian Renewable Energy Agency. (2023). Distributed energy resources. https://arena.gov.au/renewable-energy/distributed-energy-resources/
Australian Renewable Energy Market Commission. (2021, May). Opening Up Renewable Energy For Everyone. https://www.aemc.gov.au/sites/default/files/2021-05/Printable%20guide%20-%20Opening%20up%20renewable%20energy.pdf
Australian Securities and Investments Commission. (2021, October) Crypto-assets.https://asic.gov.au/regulatory-resources/digital-transformation/crypto-assets/
Castles, A. (2017, October, 16). Power Ledger raises $34 million in one of Australia’s first successful initial coin offerings. SmartCompany. https://www.smartcompany.com.au/startupsmart/news/power-ledger-raises-34-million-one-australias-first-successful-initial-coin-offerings/
enel Green Power. (2023, March, 8). Prosumers: when energy consumers become energy producers. https://www.enelgreenpower.com/learning-hub/gigawhat/search-articles/articles/2023/03/prosumers-energy
Frankenfield, J. (2022, August, 18). Initial Coin Offering (ICO): Coin Launch Defined, with Examples. Investopedia. https://www.investopedia.com/terms/i/initial-coin-offering-ico.asp
Infinite Energy. (2020, March, 1). What is Peer-to-Peer Energy Trading? https://www.infiniteenergy.com.au/peer-to-peer-energy-trading/
International Renewable Energy Agency. (2020). Peer-To-Peer Electricity Trading: Innovation Landscape Brief. https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2020/Jul/IRENA_Peer-to-peer_electricity_trading_2020.pdf?la=en&hash=AB7E0CFED5A51CFD75EB2CC1FB635B64329BB439
Power Ledger. (2019). Whitepaper. https://www.powerledger.io/company/power-ledger-whitepaper
Power Ledger. (2022, June, 16). Sangha Capital Invests In Powerledger. https://www.powerledger.io/media/sangha-capital-invests-in-powerledger
Ritchie, A. (2022, July, 25). Could solar panels help your property value? RateCity. https://www.ratecity.com.au/personal-loans/news/solar-panels-help-property-value
SunContract. (2020, November, 11). SunContract & Partners Approved for €4.659M Horizon 2020 EU Grant. Medium. https://medium.com/suncontract/suncontract-partners-approved-for-4-659m-horizon-2020-eu-grant-b1fbb27d87f2
Victoria State Government. (2023). Microgrids. https://www.energy.vic.gov.au/renewable-energy/microgrids
[1] “The first recorded peer-to-peer energy trade occurred in Brooklyn, New York, in 2016 when a resident with solar panels sold a few kilowatt hours to his neighbour via the Ethereum blockchain.” (Infinite Energy, 2020)
[2] “A microgrid can be thought of as a small ‘subset’ of the electricity grid that provides energy generation and storage at a local level.” (Victoria State Government, 2023)
[3] “Initial coin offerings (ICOs) are a popular way to raise funds for products and services usually related to cryptocurrency. ICOs are similar to initial public offerings (IPOs), but coins issued in an ICO also can have utility for a software service or product.” (Frankenfield, 2022)
[4] The energy sector comprises the aggregate market caps of Powerledger, Efforce and SunContract and they are direct competitors in the P2P energy trading market.
Nathan van den Bosch is a Behavioural Economist, Tokenomics Specialist and Blockchain Strategist, with more than 30 years of experience in emerging and disruptive technologies. Nathan has degrees in Economics, Commerce, Behavioural Economics, Blockchain and Applied Blockchain.
Nathan specialises in designing the reward and incentive schemas for gamified metaverses, digital ecosystems and digital economies. His focus is based upon understanding the behavioural drivers that spur adoption and sustained usage in blockchain-based network environments.
