Technology company UrbanChain is helping customers to become carbon neutral, as well as tackling fuel poverty using peer-to-peer (P2P) trading.
The blockchain infrastructure-based P2P exchange for renewable generation can help customers cut bills by as much as 50%, as rates are at about 10-12p/kWh. This allows renewable generators to make the minimum of 20% more than current power purchase agreements in the market.
Current± chatted to UrbanChain’s CEO Somayeh Taheri (ST) and CCO Mo Hajhashem (MH) about the challenges of operating a P2P exchange within the UK's energy market, non-traditional funding and the concept of energy as a commodity.
Can you tell me a little about what you do and where UrbanChain came from?
ST: So UrbanChain is based on university research conducted at PhD level at the University of Manchester, we were all lecturers and researchers at this university involved in different subjects around climate change, fuel poverty and renewable energy. We found that there is a broken cycle in the energy market, first of all, with renewable energy and it not being viable without government subsidy, because of its intermittent behaviour which meant that it was seen as a secondary source of energy and not the baseload.
Because suppliers cannot predict the volume of that renewable energy, they just trade it in the wholesale market, and buy the demand volume back from the market. This means the baseload is always filled with the wholesale market, and when the renewable facilities start generating energy, you end up with more supply than demand. Because you have more supply than demand, the price drops in the wholesale market. Hence, renewable energy generators get punished for generating excess energy, instead of being rewarded for it.
As renewable energy is linked to the wholesale market, the offers for the export capacity to renewable generators are small, between £35-50/MWh, or £55/MWh in rare cases. And when you have that small an offering for newly built generators, they cannot be viable without government subsidies. To make it viable, the government introduced the Feed in Tariff (FiT) and other schemes, so people contribute to the uptake of renewables through taxes and levies.
However, this system results in higher bills as customers need to pay the added tax, which in turn means that people cannot afford to pay these higher energy bills. Many cannot afford energy bills and so are facing fuel poverty, while we are facing debt in the energy market and we are facing a lot of challenges to suppliers in the energy market, which are huge.
This was the broken cycle that we found. The current energy market tries to support the net zero carbon energy target, but the approach and the method is not right.
Urbanchain came to disrupt this market, and basically fix this broken cycle by delinking renewable energy from the wholesale market by developing an AI system that handles the intermittent behaviour of energy generators, along with the data challenges faced from the demand side. At the same time as delinking renewables from the wholesale market, we are linking them directly to the customer, enabling automated peer-to-peer exchange between them.
You relied on funding through competitions rather than traditional funding mechanisms while you developed the software. Do you think that changed how you operate?
ST: Studying this market over a period of time, it was interesting to see that innovative technology was prevalent in the market, but to be able to move forward and grow, we needed to think innovatively in terms of business, not just technology.
So, we put our heads together and looked around ourselves and then said, ‘ok we can cover the costs of running UrbanChain as a business by taking advantage of different kinds of available services around us’. We found innovation competitions and used them to raise funds and used them to market ourselves and get customers.
That worked very well, and in the first two years we participated in 30 competitions, programmes, and we won all 30. This meant we had offices for free, accountants for free, marketing for free and a lot of publicity. For example, in one case when we went for the competition, we weren't on the first page of Google when you searched UrbanChain, but after the event we were the first results that came up.
This public funding method worked for us, and in 2020, we stopped going to any further programs because we were fully commercialised.
Could you tell me a little about how the blockchain infrastructure P2P actually works?
ST: As soon as we started the development of the technology, we started working with Ofgem, and we worked with a few consultants who were well versed with trading in the energy markets and experts in the industry. The first time we presented our idea to Ofgem, they were very excited, but advised us that it was not possible for us to work as a peer-to-peer as the market requires a supplier to manage the relationship between customers and the other stakeholders in the market.
This made us delve deeper into the market structure and we found that market has a supplier hub structure, meaning that the customer is not linked to the physical asset or any physical asset owner. Because you are not linked to any physical asset, it’s not difficult to switch from supplier to supplier.
There is beauty in there, it means that when you are a legitimate supplier you have this freedom to appraise internally, so we allow customers to switch to UrbanChain as a supplier, and then inside our supplier hub we enable peer-to-peer exchange.
eChain is our energy exchange product, and it works as a peer-to-peer exchange. Blockchain sits between the consumer and generator enabling all the roles that the supplier has, and automating the role of the supplier in terms of selling and buying energy between end user and generator, enabling peer-to-peer exchange. In our supplier hub, eChain acts as a marketplace without the need for UrbanChain as a third party to buy or sell energy.
And what's next for UrbanChain?
ST: We often hear energy being talked about as a commodity or as a service. Whatever your approach is, we believe energy is a necessity and not a luxury, it is required for everybody, and therefore we should look at it as a necessity really. We want to see energy as a very simple tool that can be downloaded on any system and everybody can manage their own energy by themselves and with confidence. We want to make every tool available for them to manage their energy, and make sure renewables generators have all the facilities needed to exchange their energy with end users.
Do you think COVID-19 has done anything to change the general view of energy as a commodity?
MH: I think to be honest with you, what COVID-19 has done to the energy industry is that it has shown the flaws of the current system. We have seen customers being hit with unexpected charges even though they were consuming less energy, for eg due to BSUoS price hikes. We are working in a very bureaucratic system, with rigid processes, unreliable data, difficult switching process, all of which is detrimental to the customer. COVID-19 shows that the current system needs to be reformed.
COVID-19 highlighted that balance in the market is particularly important, as everything is based on the contract and the pre-judgement of the current situation and this has a big impact on the customer’s final price. We should not be in a position where we are having to turn off wind generators to balance the system, as that indicates a flaw in the whole ecosystem. But in the future, we envision it to be much more dynamic, as static systems like this do not belong in the future.
In short, yes, I think COVID-19 showed us that we need to rethink the design of the energy market and what sort of tools we need to achieve that.