How to trade electricity using SolarCoin - yeah, really!

As an established digital currency the key question for SolarCoin has now become: what's it going to be used for? 

It's my belief that SolarCoin could be used to trade energy on both the wholesale and retail markets, via a route to those markets I outline below. Given the size of these markets, that would provide a significant demand for SolarCoin.

This method requires no ICO-ing, and no desperately-trying-to-convince-mr-regulator-im-not-a-security shenanigans.

No: a straight up MWH transaction passed hand to hand, producer to consumer via the wholesale market and an electricity provider. No messin'.

Really? Show me how

OK: grab a chair and a drink, and I'll take you through it step by step.

First, actual solar energy needs to be allied with a digital represenation - otherwise known as tokenisation.

Here at Brighton Energy Coop we're in the process of doing just such a thing - by uploading our solar production to the SolarCoin blockchain. See here for our test run (hat tip to @scalextrix) which comes directly from the inverters of a 120kw system in Eastbourne in the south of the UK. Note this was only a test - but you get the idea.

This blockchain entry has important characteristics. It's immutable, and cryptographically signed, That means ONLY the solar system associated with this SLR wallet can add new production readings. This is the cryptography bit of crytocurrency, and works the same way as encrypted emails etc.

Once registered with the SolarCoin foundation the SLRs generated by this production data are connected directly to these blockchain entries.

All well and good. So we have a secure representation of the energy from the Eastbourne system - in the form of SLRs issued - for the energy we've produced. This is how SolarCoin works: great!

But wait a minute - solarcoins are worth circa 50p / MWh and their price fluctuates faster than Teresa May's Brexit policy: surely trading this energy as SLRs would be worth something like 1% of the actual market value? Who's going to do that?

Enter the Intermediate Token - the PPA

Absolutely right. Which is why ANOTHER token is required to smooth the price. Let's give it an acroymn - PPA.

The PPA token would mediate between the current wholesale electricity price and the current SLR price, let's say (i.e. SLR *100). This means PPAs end up priced the same as the wholesale price, regardless of what the price of SLR does.

The PPA token would have other characteristics. It would include a legal contract, exactly the same as current power purchase agreements, to the tune of 'I promise to pay the bearer 1MWh of electricity'.

PPAs are mined at the rate of 1SLR = 1PPA. Hence when the SLR is produced, so is a PPA (albeit on a different blockchain, perhaps IOTA which has no transaction fees). Remember the price of the PPA is NOT the same as the SLR, they are equivalent only in terms of the energy they represent.

So we have a cryptographically secure representation of the MWh being produced at the Eastbourne site, now priced at the wholesale market rate. Since each PPA is allied to its parent SolarCoin (i.e. the production of the Solarcoin is the PPAs proof of work), it is just as unique, and just as impossible to duplicate.

Generating Demand for SolarCoin

To generate demand for SolarCoin (which is the point), our PPA has another element - it can only be exchanged for SLRs. This is specified in the contract.

Hence PPAs exist in a closed environment - to buy and sell them you need to buy and sell SLRs.

Once PPAs are consumed (i.e bought) they are destroyed, and the energy they represent flows into the real world.

The Route to Market

After spending some time in blockchain land, let's move back to the real world. This is where partnerships become key: without the real world players, shifting electricity about with our PPAs requires major time and investment.

For the lazier amongst us, there are various elements to consider: the wholesale market, and the end consumer. 

1/ The wholesale market

To transact PPAs, the wholesale market needs to accept this kind of MWh representation. So we can go to a wholesale market here in the UK, let's say Elexon, and bang on their door. The door will open and Elexon will hand you a list of horrible, horrible forms (and probably ask for a large bond for your temerity).

At this point you might consider what is that you are doing with your life.

Or - as WePower are doing - you could think about setting up a wholesale electricity exchange yourself.

On the other hand you might work with an existing electicity supplier who mediates between you and the wholesale market. Many solar operators already have a relationship with an energy supplier - it's how they currently sell their juice. Aside: setting up an electricity supplier is also a terrifying, tedious business. 'I think I'm at the limits of my brain capacity' said a friend who did it in the UK last year. So again a partnership is surely infinitely preferable.

Once the partership is in place transactions between energy supplier and the generator can take place, and hence into the wholesale market.

It's interesting to note that for the first time this would allow electricity buyers to know exactly WHICH MWh they are buying, not just any ol' one within the total produced.

2/ the end consumer

To go down this route (which is what blockchains like PowerLedger, Electron, Plyon and LO3 are mostly doing) you'd need the collaboration of a new partner - a grid operator, or DNOs as they're called in the UK, as well as your electricty supplier friend.

You've got to work with the grid provider to work out what the grid charges are, add them to your PPA price, add in whatever extras the regulator thinks appropriate, and then find some consumers.

This route has a certain chutzpah in that you've cracked the peer to peer energy holy grail. 

But the energy transacted is probably small compared to that of the wholesale market. It's also more complex.

In Summary

The point of all this is that the PPA token could represent electricity at its current wholesale rate. That would be of immediate interest to owners of solar farms. Since PPAs would be directly linked to SLRs the electricity transacted would radically stimulate SLR demand.

It's also to demonstrate that partnerships and trials are a fundamental part of getting PPAs to market. 

Without partnerships the route to the energy market for SLRs and (potentially) PPAs is long indeed.

Thoughts?