Technology can solve the energy market crisis
Energy provision will be simplified to the point where 'grandma' can supply energy to her home with a few easy clicks, says UrbanChain's Chief Commercial Officer Dr Mo Hajhashem
Does technology offer any solutions when it comes to fixing the broken energy market?
The answer to this question is yes.
If you’ve read a reputable news title or scanned social media in the past 12 months you will know that the market is in chaos.
Brexit, Covid and the invasion of Ukraine by Russia are three highly disruptive global events that are massively affecting the energy market.
Around 39% of the EU's required gas comes from Russia. That supply is fading away, and is pushing prices higher - and higher.
And this is just gas.
Complex centralised model
Another problem facing us has been rumbling along for much longer.
It is about how we run the market. For many years we have had a centralised and bureaucratic system to guarantee the security of energy supply.
The common practice is that energy companies contract renewable power, sell them to the wholesale market and buy back their required shape to avoid the intermittency risk of renewables.
Another issue with the way the market is managed is the buying of green certificates and attaching it to non-green power, which results in greenwashing of the power.
For the past five years UrbanChain has repeatedly stated that ‘renewables should not be tied to the gas markets’.
Green energy, sadly, is ‘strapped in’ to this antiquated centralised model and is subsequently priced as brown energy.
And this is why 'energy is becoming a luxury'.
The contract price of energy passed £500/MWh at one point in recent weeks, compared to the usual £50/MWh before all these disruptions two years ago.
Considering the price cap, most of our colleagues in the supply side of energy are under immense pressure to keep the ball rolling, with 28 respectable players having left the market.
A new energy price cap looms
From April 1 there will be a new energy price cap - the maximum amount that energy suppliers are permitted to charge per kWh of gas and electricity per year - which applies to domestic energy customers paying default tariffs.
In October 2021 the cap was £1,277 a year. A 54% rise - £693 increase - is now just around the corner with the cap to be set at £1,971 from April.
The prepayment meter tariff cap is going to be £708 higher at £2,017 and it is to potentially worsen with talk of a £3,000 price cap in 2023. That would put the prepayment tariff cap up to £370 per month.
Of late it has been close to impossible to secure a fixed rate energy tariff that's cheaper than the cap.
It remains to be seen whether suppliers will undercut the new cap from April 1 with cheaper fixed rate tariffs.
Untying renewable energy from centralisation
Renewable asset owners and investors always eye for higher returns and security of income through PPAs (Power Purchase Agreements).
At present it’s difficult for asset managers to choose the right start date and contract duration due to renewables’ tie to the gas market.
Because of the price-cap energy suppliers - they currently represent most of the off-takers - have to sell this energy to their domestic consumers on-loss.
They therefore might have no choice but to procure power at a very high price at the moment.
Surely the bigger suppliers have hedged the required power for a long time and also have self-generation, however the other off-takers might not necessarily have the same trading position and PPAs with such parties cannot be secure anymore, considering the immense financial and credit pressure on off-takers.
While asset managers might secure a contract with credible off-takers, they don't know how much the off-taker can tolerate the pressure of honouring the contract when the daily loss-making trend is considered.
AI and Blockchain
To answer my original questions, yes, we believe technology offers solutions to fix the broken energy market crisis.
We created eChain as a dedicated market for renewables and to decouple renewables from the gas market.
eChain is UrbanChain’s platform and marketplace that directly connects corporate consumers of green energy with power producers.
What does eChain do? It’s a Peer-to-Peer energy exchange system that takes care of profiling, aggregating, matching, balancing, settling, billing and managing generation and consumption in the most accurate, transparent and secure way.
eChain overcomes the intermittency and fluctuation of renewables thanks to AI and blockchain technologies.
One big step forward
When considering corporate PPAs, UrbanChain’s P2P PPAs are a significantly progressive leap.
Instead of one-to-one matching with a best case scenario of 60% coverage (max), our P2P PPAs offer numerous matches with close-to 95% accuracy and coverage.
With UrbanChain P2P PPAs asset managers secure contracts with collective credits of corporate clients, rather than a single single off-taker credit in corporate PPAs.
In fact our P2P PPAs offer higher returns with lower risk.
Energy as a matter of National Security
What's happening in Ukraine is dreadful and reminds us more so than ever before that energy is a matter of national security.
If we had made more progress to lessen our dependence on exported gas from Russia, our security may not be as threatened as it is right now.
But it is never too late and we should take some actual measures and quickly fix this.
New technologies can help us to overcome this classic concern of energy provision security and offer new ways of managing the energy market.
Further steps required include an increased alignment between policies and regulations and energy resilience goals; further investments and support of new technologies such as battery storages, heat pumps, green hydrogen and other renewables in general; and to focus on decoupling renewables from gas markets through different technologies such as Peer-to-Peer energy exchange.