The Market challenge aims to answer the question whether your country or region has all the necessary operating markets and price mechanisms in place for consumers and or energy consumers in order to start trading.
Can you exchange among other consumers or prosumers? Is you energy supplier willing to buy your energy?
What Markets?
For P2P energy trade, several markets are relevant to be distinguished*:
- Markets for Power Purchase Agreements (PPA). This market enables non-residential market actors - like energy communities- to conclude a contracts with other non-residential market actors. These agreements can be customized based on the desired risk the community is willing to take, for example by mixing energy trade from the futures/forward market and the SPOT market.
- Wholesale energy markets. Wholesales markets are a collective term for the combination of the long-term focused futures/forwards markets and short-term focused spot markets. On the futures/forward markets a predetermined price can be agreed for a specific volume in a specific future period. Spot markets focus on the days of actual delivery and can be distinguished in ?day-ahead markets? and ?intraday markets?.
- Futures/forward markets
- Spot markets
- Day-ahead markets
- Intraday markets
- Retail markets. Retail markets aim to unlock wholesale markets for end-consumers and SME?s. Key players are energy suppliers, end-consumers and prosumers. Retail markets are highly regulated with the objective to protect the end-customers. Energy communities might have the opportunity to take over the role of energy supplier, or might choose to delegate this role to the market. Changing regulations might enable energy communities to supply energy without a license.
- Balancing markets. Balancing markets are organized by TSO?s to fulfill their responsibility to manage the electricity grid, keeping the grid frequency stable and prevent black-outs. Three balancing submarkets can be distinguished, each with its own different objectives based on urgence. Both capacity and energy are traded on these submarkets:
- Frequency Containment Reserve (FCR),
- automated Frequency Reserve Restoration (aFRR)
- manual Frequency Reserve Restoration (mFRR)
- Congestion markets. Congestion markets aim to prevent and overcome congestion problems; traffic jams in the electricity grid that result from both the increasing demand for electricity resulting from more electric cars, heat pumps and data centers, but also the increasing peaks and throughs due to the increasing amount of produced renewable energy -such as solar and wind energy- which is not always available. Congestion markets are therefore a relatively new and emerging market.
When is a market ready for P2P?
Nowadays, it is very challenging for many energy communities to define and operate an optimal business and earning model that fits their own capabilities, values and objectives. It is difficult to operate on energy markets due to the current complex and fragmented market structure, the existing and constantly changing (local) regulatory framework and the advanced related technological and organisational requirements to operate these markets.
The importance of market readiness however is high, as investments in this immature market are relatively high and therefore the principle of ?value stacking? -which is the stacking of multiple income streams- is generally very important to create a viable business model for advanced investments**.
More specifically the following markets might be ready for energy communities:
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Markets for Power Purchase Agreements. In general, this market shows relatively low technical, administrative or financial requirements to participate. Therefore, this market is very relevant for energy communities.
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Wholesales Energy Markets. Wholesale markets require extensive knowledge and experience to trade on them, as well as substantial scale. As a result, access to these markets is generally outsourced to specialist traders, and not accessed directly by energy communities.
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Retail markets. It is not easy for energy communities to trade on the retail market, due to the required scale and professionalism. For energy communities it might be very time-consuming and intense to meet regulations and keep up with changing regulations. In many cases it is required to have a license, to prove solid financial strength and execute on many administrative activities, like billing, debt management and switching of consumers. There is a transition towards simplified regulations within the EU for energy communities, so accessibility to these markets is expected to improve.
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Balancing markets. The ability for energy communities to start trading on the balancing markets is generally good, but depends strongly per submarket. The aFRR is generally seen as the most practicable solution due to its less strict technical requirements and good financial potential. Technical restrictions can however be overcome by bundling assets, which also enables ?value stacking?. This however requires the involvement of new actors - like aggregators ? to access these markets, currently their services for energy communities are still very immature.
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Congestion markets. Congestions markets are still very much in development and therefore not very ready for energy communities to trade on. This is however expected to improve, as the importance of congestion management will increase in the near future, and the importance of residential ?flexibility? is more important the local environment, especially if large-scale or industrial flexibility is not available.
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More information on energy markets can be found (link to crash course on energy markets (source: cVPP Interreg North-West Europe Project )
** Flexibiliteit in de gebouwde omgeving: wegwijzer voor ondernemers (TKI Urban Energy, 2021)