Encyclopedia
Please note this is a comparison between Version 1 by Sophie Adams and Version 2 by Lindsay Dong.
Emerging business models, including business models for demand side management, peer-to-peer (P2P) trading, transactive energy (TE) markets and microgrids which involve community self-consumption (CSC).
- social value
- economic value
- peer-to-peer electricity trading
- community self-consumption
- transactive energy
- energy business models
12. Background Concepts
1.1. Social Value
2.1. Social Value
The study of human values, or ‘what is important to us in life’ [1][12] (p. 3), has long been a research topic in social sciences and humanities. Researchers have explored how, while, on the one hand some human values appear to be universally held, on the other hand, they are also extremely subjective and context-sensitive. Each individual and group holds their own subjective subset of these values which vary in importance [1][12].
Thus, social values are inherently normative, and may be contested by different groups and at different points in space and time. Brown et al. [2][13] reflect on these ‘competing normativities’ in their paper on the emerging renewable energy prosumer landscape. The paper highlights how market, state and community actors may adopt very different ‘value logics’ [3][14] when evaluating the future benefits of decentralised energy systems. For example, market actors may emphasize the efficiency gains from prosumer models which enable users to maximize their utility through price signals [4][15]. Contrastingly, community actors may instead emphasize the social bonds and direct democracy enabled by energy cooperatives [5][16], while state actors may foreground their potential to deliver social policy objectives such as reduced inequality and social exclusion [6][17]. Clearly then, the purported social value created by P2P, CSC and TE models is likely to be heavily shaped by the cultural, economic and institutional context from which the model emerges, as well as the power structures, political struggles and actor relationships within these contexts [7][18]. Discussion of the social value of P2P, CSC and TE models must therefore be cognizant of these dynamics, and the divergent outcomes they might produce.
1.2. Economic Value
2.2. Economic Value
The emergence of P2P, CSC and TE business models is also driven by their potential to increase the economic value, or the amount of money, goods or services, that may be derived from decentralized energy systems. Indeed, the disruptive potential of decentralized energy systems for the prevailing utility business model is well documented in the literature [8][9][10][5,20,21]. It is argued that the characteristics of decentralized energy systems necessitate alternative ‘prosumer business models’, enabling the self-consumption of renewable electricity, the trading of surplus power and rewarding participants for the provision of flexibility to the electricity networks and system operators [11][22]. Brown et al. [12][23] argue that these business models can create economic value in four main ways: (1) increase self-consumption behind the meter; (2) achieve improved prices for exported power; (3) access wholesale, balancing and ancillary service markets; and (4) shift energy vectors to heat and transportation, sometimes referred to as ‘sector coupling’ [13][24]. In addition, other authors have highlighted how these business models may also drive local economic value in the form of community wealth, job creation and new revenue streams [14][25]. However, tensions also begin to emerge as these new P2P, CSC and TE business models require cooperation from utility stakeholders, such as retailers and distribution network owners. While this review focuses on the socio-economic values of participating consumers and prosumers, it also considers the importance of finding synergies from decentralized energy systems in order to balance the competing value streams between users and utilities.
24. The Social and Economic Value Produced by P2P, CSC and TE Models
2.1. Social Value of P2P, CSC and TE Models
4.1. Social Value of P2P, CSC and TE Models
24.1.1. Energy Independence
Energy independence is a central value ascribed to P2P, CSC and TE models by their participants. Two senses of this term are distinguished in the literature: the first being autarky (self-sufficiency or independence of energy supply) and the second autonomy. This is a distinction between the goal, i.e., energy independence, and how it is achieved, i.e., the capacity to self-determine one’s own energy provision, according to Ecker, Spada and Hahnel [15][28], who found in a choice experiment that both senses motivate purchase of household energy storage systems. Smale and Kloppenburg [16][29] argue that it is necessary to distinguish between the two given that autarky is incommensurable with grid integration, but a participant’s desire for autonomy would not preclude willingness to participate in grid balancing services for financial returns, for example—provided that they can ‘set the terms and conditions’ (p. 13). In the workshops they conducted about various ‘energy platform’ models, the participants valued both, but some recognised that ‘solely pursuing self-sufficiency… would likely introduce “inefficiencies”’ (p. 10). As Hahnel et al., point out, autarky challenges P2P trading as ‘excessive storing of electricity may reduce the market volume and associated profits’ [17][30].
Autarky was found to be highly valued in experimental survey studies testing German participants’ responses on P2P energy trading scenarios [15][17][28,30]. P2P is seen to introduce a tension between meeting households’ own needs and sharing excess energy, and some participants have expressed concerns about others draining their battery [18][31]. Indeed, in their experimental study, Ecker, Spada and Hahnel [15][28] found that a focus on autarky benefits increases the ‘endowment effect’, making people assign higher relative value to their own energy and therefore less inclined to trade it. In an experimental study, 31.6% of participants made trading decisions based more on battery state of charge and were relatively insensitive to price changes [17][30]. In the Quartierstrom trial in Switzerland, the self-sufficiency rate (SSR), or the proportion of energy demand met by the prosumers consuming their own energy, increased with P2P trading to 16.3%, compared to 15.5% in a scenario without trading [19][32]. Increased autarky was also achieved in a demonstration in Japan, a bidding strategy based on the current price of the electricity stored in the battery of each standalone system allowed those with medium or low consumption levels to be self-sufficient by making better use of their self-generated energy [20][33].
Supporting the value ascribed to autonomy, other studies have found that household interview participants view decarbonization as a way for individuals and communities to take ownership of sustainability. One UK interviewee quoted by Wilkins, Chitchyan and Levine commented that ‘wouldn’t it be better if communities were independently powered and looked after their own power sources’ [21][34] (p. 6). A desire for autonomy in the sense of independence from an energy provider [22][35] or codetermination in the energy community [23][36] can increase willingness to participate among survey participants. Focus groups conducted in the course of establishing the Quartierstrom trial revealed that participants wanted the ability to set their own prices for trades in the local market [24][37]. In a German country-wide survey, people were willing to pay a slightly higher price if they could have more frequent interaction with the local energy market, i.e., more control [25][38]. Autonomy was also identified as an ‘active’ social value in the context of a Portuguese P2P energy sharing demonstration project, and perceived by users as a social value that was reinforced by the P2P energy sharing activities [26][19].
A high level of importance ascribed by households to having detailed information about the origin and production of goods in general correlates with openness to participate in P2P trading [22][35]—which seems to imply that the sense of oversight and decision-making power afforded by such information is valued. Some participants in an Australian P2P trading trial stated that ‘they expected it would reduce the need for involvement of the existing retailer’ [27][39] (p. 9). Interestingly, a comparison of the efficiency of the trading in the Quartierstrom trial with modelling of a scenario without trading revealed that the SSR would have been higher if participants’ price bids had not been taken into account, suggesting that ‘the freedom of decision-making granted to the participants by actively including them in the pricing process thus comes at a trade-off of this decrease in SSR’ [19][32] (p. 10).
The value of autonomy is also related to the extent to which participants wish to actively engage in P2P, CSC and TE models or to rely on automated energy exchange, as is discussed in the ‘User characteristics and preferences’ section below. Against the value of both senses of energy independence, a choice experiment shows that prosumers were generally willing to accept a certain level of ‘inconvenience’ in terms of loss of control of battery and reduced self-consumption in exchange for value created through greener or cheaper tariffs [28][40].
24.1.2. Local Benefits and Provenance
The association of P2P, CSC and TE models with a local community or region is another key theme in the literature. Some studies have found that respondents perceive that these models would benefit local communities or regions, in particular demonstrating the viability of a more socially equitable as well as clean energy system [27][39]; others do not [16][29]. The expectation of community benefit can make them attractive to some prospective participants [29][41]. This may be particularly so for study respondents who have a more positive attitude to regionality [22][35] and sense of community identity [30][42], while no statistically significant influence was found for the importance of regional products for willingness to participate in local energy markets [30][42]. The majority of German respondents surveyed by Löbbe et al. [22][35] indicated a preference for energy communities that are local or regional. The importance of regionality to prospective participants is likely to differ between places, as Mengelkamp et al. [25][38] show in their comparison of survey datasets from a German national sample and from the Allgäu region, with regionality more important to the Allgäu residents. Prior to their participation in the Quartierstrom trial in Switzerland, 17 of 31 survey respondents said that they would be willing to pay a premium for local energy [19][32], while four of the nine households interviewed following their participation perceived P2P to be contributing to the community [31][43]. A sense of community or collective identity was perceived by users to have been reinforced by P2P energy sharing activities in three pilot sites in Portugal [26][19].24.1.3. Sharing and Social Relationships
The literature also shows that people interested in participating in P2P, CSC and TE models value that it involves sharing electricity, underlining that not only monetary but also ideological reasons motivated participation [26][21][22][23][32][19,34,35,36,45]. This appears to be related to the value of community above, and indeed people’s preferences for participation in energy trading are mediated by the social relations in which the trading occurs. The ethnographic study of P2P energy trials in India identified the significance of ‘mutuality’ or social relations in local energy trading and sharing [33][46]. The study identified that householders, when they get to structure P2P energy exchange, operate within two dialectically connected value contexts, social relations and self-interest, and accordingly participate either for the sake of social relationships or for the sake of making a material gain. Prosumers sharing energy with others were more likely to accept ‘intangible’ and ‘in-kind’ returns when providing energy to ‘socially intimate’ and ‘socially close’ rather than ‘socially distant’ recipients [34][1]. The intangible returns are built upon the notion of togetherness, friendship, love, solidarity and different ways of bonding with others [32][45], reflecting considerations of co-inhabitance and co-dependency between households [33][46]. In such cases, people seem to value their enduring social relationships more than making any monetary or material gain [32][45].
Australian P2P trial participants expressed in focus groups a ‘high interest in social equity’ and the initial hope that they would be able to ‘support and sell to selected individuals within the community’—which were not matched by the autonomous P2P offering that they were offered, which they ‘considered overly market driven’ as opposed to community-led [27][39] (p. 10).
24.1.4. Environmental Responsibility
P2P, CSC and TE models are widely seen to hold environmental benefits. This perception was identified as the main motivating factor in Dutch focus groups [16][29] and has been shown to increase willingness to participate among German survey respondents for whom such considerations are important [22][30][35,42]. Environmentalism was also perceived by users as an existing social value that was reinforced by P2P energy sharing in three pilot sites in Portugal [26][19]. Even when positive economic return is a consideration, some study participants express a strong preference for renewable energy [16][29]. For prospective participants, environmental benefits are often cast in ethical terms, including responsibility to future generations [16][29], and cultural terms, including subscription to a sustainable lifestyle [21][34]. The environmental rationale was also raised by eight of nine of the interviewed households that had already participated in the Quartierstrom trial [24][37].
Electricity grid balancing and stability is a related issue, and some study participants consider it important to ensure that renewable energy trading or self-consumption models do not exacerbate network management challenges. For example, Smale and Kloppenburg [16][29] report that in a context of concern that moves towards self-sufficiency and autonomy of renewable energy generation may neglect the costs of maintaining the power grid, workshop participants were keen to consider energy platforms that prevent grid problems rather than exacerbate them. In other words, they expressed the need to focus on grid resilience in designing a local electricity network dominated by renewable energy.
24.1.5. Participation and Purpose
At a more general level, a value associated with P2P, CSC and TE—and one that connects in various ways to the other values that have been outlined above—is that of new roles and relationships that the participants can have in these models. This tends to be expressed as a desire for greater agency in the energy transition. For example, ‘the trial participants view themselves as an active part of creating the niche by contributing to learning and locally implementing the new business model as innovators and legitimators’ [27][39] (p. 12).
There is some suggestion that people value active engagement with their energy generation and consumption as an end in itself [21][34]. For example, most of the Quartierstrom participants valued being able to read their load profile [31][43] and participants in a distributed ledger trial appear to have used the user interface to learn more about their energy use and to consider further DER investments, such as a battery [29][41]. UK residents interested in renewable energy, but not yet participating in a P2P, CSC or TE model, who were interviewed by Wilkins et al., spoke about it ‘as having the capacity to support changing user relationships with policy makers and energy supply companies’, and specifically to offer an ‘alternative to top-down and centralized control over the UK’s energy challenges’ [21][34] (p. 6); emphasis in original. This desire for greater agency in the energy transition has also been observed in three Portuguese P2P energy sharing pilots [26][19].
There is mixed evidence about the extent to which people value the possibility of social comparison, or comparing themselves with their peers, in P2P and TE models. Some participants of the Quartierstrom trial appreciated the element of gamification and competition [31][43]. In a P2P trading trial in Madeira, the weekly ranking comparison with other users was one of the most popular features, and some reported attempting to use a higher share of renewable energy to improve their ranking [29][41]. Counter to these findings, Dutch workshop participants were wary of ‘big neighbour’ scenarios in which neighbours would be able to monitor and compare their performance [16][29].
There is also mixed evidence about the dynamics of social relationships that are developed between peers and the extent that these are new forms or built on established relationships. The potential for structural forms of inequality such as race, class, gender or caste differences to be reproduced through these markets has been raised in the literature. For example, the trial studied by Singh et al. [33][46] showed that participation in P2P exchange can strain and damage existing social relationships.
2.2. Economic Value of P2P, CSC and TE Models
4.2. Economic Value of P2P, CSC and TE Models
One of the main forms of economic value associated with P2P, CSC and TE models referred to in the literature is the potential to make electricity less expensive than in a business as usual (BAU) scenario, including by making renewable energy more profitable and ‘supporting new and better mechanisms for return-on-investment beyond government subsidies’, as anticipated by the respondents interviewed by (Wilkins, Chitchyan and Levine [21][34] (p. 6). While there are many modelling studies that explicitly calculate expected economic impacts on participants in P2P, CSC and TE models, our review focused on (a) economic value as a motivator for participation, and (b) realised economic value in real-world examples. The literature holds mixed findings about the importance of economic considerations for willingness to participate in P2P, CSC and TE initiatives. The financial factor was identified as the most important factor for willingness to participate among German survey respondents [23][25][36,38] and the primary motivator for energy sharing among prosumers in Bangladesh [18][31]. Economic incentives had also been important for participants upon entry into the Quartierstrom trial, with ‘most’ of those interviewed stating that they had hoped to be able to sell electricity at a higher price than they were being paid to export it to the grid [31][43]. Some of the participants interviewed also valued the lower grid fees that were implemented in the project [31][43]. For the ‘vast majority’ of respondents of the German national survey about participation in ‘energy communities’, lower electricity costs are a condition of participation; only a small minority said that they would participate even if it was more expensive [23][36]. Based on their experience implementing P2P initiatives, some German experts interviewed also perceive profitability for the prosumer as a ‘necessary condition’ for their willingness to participate [35][47]. The importance of financial factors is also supported by the observation that respondents from a national German sample—although not a regional Allgäu sample—were more willing to spend time inputting monthly data in a local energy market than accept higher prices [25][38]. In an experimental study, of the 223 survey participants interested in P2P, 117 made trading choices based on prices—a larger cohort than that driven primarily by autarky referred to above [17][30]. In contrast, Scuri et al., found that economic benefits seem ‘not to be a strong motivator’ [29][41] (p. 101). Mengelkamp et al. [30][42] report that, contrary to their hypothesis, no statistically significant influence of price consciousness for willingness to participate in local energy markets was found. The authors note, however, that the survey didn’t explicitly specify whether money could be saved in local energy markets, and this could explain the lack of significance. Interestingly, the importance of financial considerations appeared to change throughout the Australian trial examined by Wilkinson et al.,: ‘during the focus group discussion, only 25% of respondents stated that they were motivated to join the trial to save money or by the expectation of being financially better off, and this was mentioned apologetically’—but the willingness to participate shifted after the introduction of a P2P tariff structure that indicated likely financial losses, and fewer than half of the participants remained in the trial [27][39] (p. 8 and 12). This seems to suggest that it may not be important to people to be better off, but it is important to them to not be worse off.35. Factors and Conditions of P2P, CSC and TE Model Uptake and Success
35.1. Participant Characteristics and Preferences
35.1.1. Willingness to Participate
The literature does not offer a clear picture about whether people are interested and willing to participate in P2P, CSC and TE models. Relatively few studies quantify general willingness to participate. Most participants in a survey of German customers were open to participating in P2P trading (74.5% of participants had a neutral or positive attitude towards P2P trading) [22][35].
Of the 301 participants in the study by Hahnel et al. [17][30], 233 participants (77.4%) indicated general willingness to participate in P2P trading, while the remaining 68 participants (22.6%) indicated that they were not willing to participate as a consumer in P2P energy trading after having received detailed information about the concept. In Fell et al., 2019, stated willingness to participate in P2P energy trading in a nationally representative sample of 2064 UK survey respondents ranged from 54–67% depending on conditions such as localness of peers and proportion of demand covered by P2P trading.
35.1.2. Engagement in Technology and Renewable Energy
Interest in renewable energy is also high among people willing to participate in P2P, reflecting the value of environmental benefits ascribed to P2P, CSC and TE modes above. The most significant demographic factor associated with interest in participating among UK survey respondents was a concern about climate change [36][44]. High levels of interest in transitioning to decarbonized energy systems and knowledge of renewable energy characterized Australian trial P2P participants [27][39]. In contrast, Hahnel et al. [17][30] did not find a systematic relationship between ‘biospheric value’ and willingness to participate in trading.35.1.3. Complexity, Transparency and Trust
The perceived general complexity of P2P trading was not discouraging for the early-adopter cohort in the Australian trial [27][39], but others have expressed that they would not want P2P to introduce more complexity [18][29][31,41]. Easy implementation also appeared as an important factor for purchase of a P2P electricity trading product in a survey of German customers [22][35] and is valued by the category of study participants who purchase energy, but do not generate and trade their own [37][52]. Preferences regarding the role of automation in facilitating participation in P2P, CSC and TE models appear varied and complex. Respondents in the study by Wilkins et al., perceive algorithms to make it difficult to understand what data is being collected and how it the system is going to operate, but ‘automation could also be seen as empowering, if participants could indicate their preference: they described how users could set up the system and then carry on with their lives without further effort of concern’ [21][34] (p. 7). While participants in the workshop ahead of the Quartierstrom trial expressed a preference to be able to set their own prices [24][37], when it came to the actual trial, 11 of the 28 households chose to actively participate and 13 opted for automated pricing [31][43]. All participants in the Madeira trial selected the automatic mode, several reported feeling reassured that they had the opportunity to manually define criteria for trading [29][41].3.2. Model Design and Implementation
5.2. Model Design and Implementation
35.2.1. Household Engagement
Crucial to the success of P2P, CSC and TE models is the engagement of the participating households. Levels of awareness about energy community concepts were found to be low among German survey respondents: only 3% of the respondents were familiar with the concept of energy communities or aware of specific offers currently available [23][36].
The literature indicates that levels of household participation in P2P, CSC and TE models have been improved by engagement strategies. Mengelkamp et al. [38][51] attribute the ‘well-developed’ public acceptance and customer participation in the Brooklyn Microgrid to public relations work as well as demographics.
Conversely, a lack of appropriate engagement can impede energy model uptake and success, as Wilkinson et al., describe of an Australian trial in which ‘the initial design of the P2P trading model was developed with little consideration of user input and the co-production process was weak, resulting in user criticism of poor system design with inappropriate pricing’ [27][39] (p. 12).
35.2.2. Community Building
‘Fostering a sense of being part of a community’ is also identified as a necessary step in establishing P2P, CSC and TE models, based on householders’ experiences using a P2P trading platform PowerShare in Madeira [29][41]. According to the authors, this could help to reduce the impact of the absence of a third-party central authority in whom participants could otherwise place their trust.
35.2.3. (Mis)-Alignment of Project Objectives and Interests
The literature indeed suggests that interactions among the actors—the household participants, coordinating entity, competing energy providers, and so on—can influence the uptake and potential success of P2P, CSC and TE models. A key theme apparent in the sources reviewed here is that of differing interests and expectations among actors.
35.2.4. Competition and Tensions between Actors
The viability of other real-world trials has been affected by competition between the business interests involved in the P2P, CSC and TE model or operating around it. For example, the minigrid run by the private utility company Purobi Green Energy on Sandwip Island in Bangladesh encountered problems when a rural electrification board built a diesel-powered electricity plant, offered subsidized rates, undercutting the minigrid’s rates and threatening its survival until the diesel-plant operators agreed to avoid competing in the same area [39][54]. A minigrid trial in Nepal encountered a tension between two bodies involved in running the minigrid, the plant functional group and the cooperative body, because the former sought to alter the Power Purchase Agreement in favour of the consumers but not in the interests of the minigrid. This tension and the dissatisfaction of staff within both bodies ‘affects the management of the existing system’ [40][55] (p. 131921).
