The Market challenge aims to answer questions about which markets and price mechanisms are in place in your country that will allow you to start P2P energy trading as a community. Can you exchange among other consumers or prosumers? Is your energy supplier willing to buy your energy? Can you, as an energy community, become an energy supplier yourself?
What Markets?For P2P energy trade, several markets are relevant. Not all of these are in operation, nor are they all easily accessible for energy communities and their members. Several markets can be distinguished*:
- Markets for Power Purchase Agreements (PPA). This market enables non-residential market actors - like energy communities - to conclude a contract 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. Wholesale 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 of energy 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
- Frequency Containment Reserve (FCR),
- Automated Frequency Reserve Restoration (aFRR)
- Manual Frequency Reserve Restoration (mFRR)
When is a market ready for P2P?It can be difficult for energy communities to define and realise a viable business and business case in line with their objectives and capabilities. This has to do with the current complex and fragmented market structure, the existing and constantly changing (local) regulatory frameworks and the related technological and organisational requirements to operate these markets.
The importance of market readiness however is high, as investments in these immature markets are relatively high and therefore the principle of 'value stacking'. Value Stacking is the stacking of multiple income streams through participation in multiple markets, which is crucial in creating a viable business model**.
More specifically, market readiness for P2P energy communities can be characterised as follows for the above-mentioned markets:
- 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.
- 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.
- 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.
- 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.
- 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.
* See cVPP Interreg North-West Europe Project for more information on energy markets
** Flexibiliteit in de gebouwde omgeving: wegwijzer voor ondernemers (TKI Urban Energy, 2021)