Power Ledger at a glance:
The company aims to revolutionize the manner in which we generate and consume electricity. Its philosophy is in line with the existing trend that can be seen in the industry, where the dependence on a central power producing unit is diminishing and people are moving towards more decentralized sources of power such as renewables, bio-gas etc.
|Based Out Of||Australia|
|Team||See Team Below|
|No. Of Tokens||1 Billion|
|Minable/Not Mineable||Not Mineable|
|Bill Tai||Board Advisor||HBS MBA Grad|
|Serves on the World Economic Forum’s Technology Pioneer Committee|
|Involved in the foundation and operations of various companies working on cutting edge technologies in the field of blockchains|
|Dr. Jemma Green||Co-Founder & Chair||Cambridge Graduate|
|Has held the position of Deputy Mayor Perth, Australia|
|Is a Board member at the Water Corporation in Perth, Australia|
|Worked as in Investment Banker for 11 years in London, UK|
|Dave Martin||Co-Founder & MD||Has held executive positions in 2 state owned electricity utility companies|
|Has 20 years of experience in the sector|
|John Bulich||Co-Founder & Director||Has been a serial entrepreneur in the field of Blockchains|
|Founder of Ledger Assets which has deployed and developed some of the world’s first blockchain based products|
|Dr. Govert Van Ek||Co-Founder & Director||Co-Founded Ledger assets|
|Launched his first software company in 1991|
|Jenni Conroy||Co-Founder||Holds 30 years of experience in Western Australian energy industry|
|Energy industry advisor|
|Legal & Regulations Consultant|
The backgrounds of the founders are enough to extend quite a bit of comfort for the investors. The team has expertise in various fields, from management to regulations. A big thing about the team is that many members of the team appear to have known each other from before. John Bulich & Dr. Govert Van Ek had also founded Ledger Assets. Bill Tai & Dr. Jemma Green have both been at Curtin University. It is reasonable to assume that this is a team that has considerable experience working together, hence there is minimal risk of a fallout amongst the founders. Given the team’s educational and professional backgrounds, it seems as if the team is well positioned to take up any challenges that the industry might throw at them.
|Closing comments||This seems like a practical initiative, since the trend is real. This will probably be a long term play but it will yield handsome dividends in the future. But in today’s context it is difficult to determine what exactly long term is. We will have to slowly wait to see it scale up.|
|X Factor||The company has a stellar team.|
|Do I see it existing 5 years down the line?||Ofcourse, this is a company that serves a very real need and it is reasonable to expect more countries adopting it in due time.|
Power Ledger [POWR] is a cryptocurrency released by an Australian Company of the same name. But one needs to understand that each cryptocurrency out there is released for a purpose, in case of power ledger, the company is a blockchain based peer-to-peer energy trading platform.
1. What is an energy trading platform, I’ve never heard of it, and energy trades? How does one trade energy?
Nothing to be ashamed of, only very learned/curious people will already know what energy trading really is. Now let me try to portray an idea of how energy is traded. Energy is generated from a variety of different sources, thermal power, wind power, solar power etc. Each of these sources has an associated cost at which they can generate electricity. The whole process is structured in the following way:
The Power Generating Companies:
The power generating companies, be that hydel power (Damodar Valley Corporation), thermal power (Sasaan Ultra Mega Power Project), wind power (Suzlon Energy) or solar power (Renew Power) take contracts/licenses from the governments to set up the plants. Contrary to what a layman believes, these are for profit ventures. When the government decides to allow licenses for new power generation plants it holds a bid. In that bid the companies estimate that given the location offered what is the cheapest rate at which power can be generated. Based on that they bid @ the rate that they feel that they can provide power to the Power Distribution Companies and still maintain a profit. The government then selects the lowest rate that a bidder has offered and awards the license to that bidder. It is good to remember that in a country like India where there is much to be desired in electricity penetration the largest buyer of electricity units is the government. Now the government buys electricity by the state operated companies, which shall henceforth be referred to as the State Discoms (Discoms = Distribution Companies)
Quick Fact: Due to company miscalculations and over aggressive bidding, where the company bids too low a rate just to get the license, it is often seen that power generating companies go bankrupt.
Electricity is not a commodity that can be stored in a warehouse and sold off when required. Electricity needs to be generated, delivered and consumed on a real time basis. So the question arises, how does one trade it?
Power Transmission System
So there may be a number of power generators, generating electricity at different costs. Say the following situation is prevalent:
There are a few power generators, that manage to produce power expending different amounts of money and resources, say there is a difference of INR 1 between each generator, taken for the sake of argument and simplicity. Now consider this, you as a retailer, can choose to get electricity by any of these suppliers. But who decides who gets the power from the cheapest generator? And how will the generator supply just to you and not the other houses in the area? So owing to these concerns retail consumers seldom buy electricity directly from the producers. There are middlemen, who buy from all these suppliers in bulk, and then redistribute the power among even smaller substations, which in turn sends power to your homes. How do they do it?
Say the local demand is 235 units of electricity. The wholesaler will buy it from the generators, as described in the following scheme:
|Supplier||Power Generated||Cost Per Unit||Bought|
|Supplier 4||100||4||Not Bought|
The wholesaler buys power from the cheapest generators, enough power to meet the local demand (or the demand for the areas in which he is planning to sell). Buy doing that, now they have minimized their purchase cost, they sell it at a premium to the local substations. If we look at the above table their weighted average cost will be INR 1.72. So say they will sell it to the local substation for INR 2.00/unit of electricity. The local substations now charge a premium over their cost price i.e. INR 2.00/unit, and say sells it to the final consumer (you) at INR 2.50/unit. Keep in mind that transmitting energy over transmission lines is a very complex process. There are leakages and losses all along, and while arriving at the price you consider everything that can reduce your return.
Now that you have gotten the basic concept of how energy is transmitted, one needs to see the situation from the perspective of the wholeseller. He is trying to buy energy at low, and sell high. How will the price of the electricity be determined? As everything else, this too will depend on demand and supply. Imagine a scenario where suddenly there is a sudden increase in energy requirements, say a huge festival is coming! There are supply side shocks and demand side shocks. In such a situation, consumers will be ready to pay a premium for the limited energy generated. And to ensure uninterrupted supply of electricity inspite of such shocks, generators need to keep extra generating units idle, and to bring them into operation at a moment’s notice. There are other scenarios where the price of the electricity follow a cyclical pattern. For example when supplying electricity at night, because of already low electricity requirements the transmission lines are free and not congested. In such scenarios the losses during transmission are low.
If a person is trying to make a profit trading energy, he or she needs to keep in mind these shocks and cycles. Physical trading in electricity is as simple as the process of the wholeseller buying and selling energy either to consumers or to other wholesellers. A trader can make money in one of 2 ways or both:
1. One needs to anticipate the shocks, both supply and demand side and try to predict how the prices will be affected.
2. Anticipate how much the substations will pay to buy power for, and at how its competitors will behave considering the current scenario.
Till now the traders had been active in the Day Ahead Market and the Term Ahead Market. Where one can speculate what prices will be tomorrow (For the Day Ahead Market) and what the prices will be in 11 days (For the Term Ahead Market). If he agrees to a contract today to sell tomorrow at @ a price, and if tomorrow the prices are higher than what was decided upon in the contract, the trade would make a loss, since had he not entered the contract, he could have pocketed more money as the selling price was higher.
Now that we have a preliminary idea about the energy markets, let us try to understand what Power Ledger intends to do:
The preliminary assumption of Power Ledger is that the world is slowly moving away from these centrally controlled models. As renewable energy becomes more and more dominant, it is expected that each home or a small community of homes will have power generating abilities of its own. For example there are lots of houses that are fitted with solar panels, and as the efficiency and adoption of such panels increase many houses and communities may end up generating more electricity than they produce. This excess electricity can be sold off to other communities, who have an energy deficit. This way, the surplus communities will be incentivized to generate power, hopefully from renewable sources since the conventional sources are not expected to be fit for the size and budget of these small communities.
But if these small communities start to buy and sell energy, who will regulate? And they need to be connected to a grid so that sudden demands can be met instantaneously. Normally the wholeseller, that we discussed about previously, (who operate through energy exchanges) perform these duties. They ensure that the 2 parties entering into a contract are properly handled. And energy is transferred as per the terms. Why are these energy exchanges required? For the following reasons:
1. The buyers and sellers don’t know each other: Often the producers, do not know who the other party is. It does not know if it can trust the other party to honor their contract and pay. This risk is mitigated by an exchange. It is the exchange’s duty to make sure that both the parties along with their intentions are legitimate, and they are abiding by the rules. They are the ones who bring trustworthiness and credibility into the system.
2. The buyers and sellers may have trouble finding each other: If there were no exchange, then these parties would end up having bilateral arrangements with multiple parties which is not only complicated, but also lengthy. The presence of an exchange ensures that 2 parties find each other as soon as the other is needed.
So the central party is immensely important. This is exactly the player that the power ledger blockchain seeks to replace. Since Blockchain, as we have established in the earlier discussions, ensures that 2 parties transacting are protected from problems like double spending and trust, a blockchain based system to enforce trust and accountability is tipped to be a perfect solution for this use case.
How Power Ledger works:
Power ledger uses the ethereum blockchain and has smart contracts. It mainly uses 2 kinds of tokens, one is the POWR token (that we aim to buy as cryptocurrency), and the other is the Sparkz token. This is how it happens:
The community/household that generates excess electricity will set up a computer system and run an application. These are much like mobile apps, which are already developed, the communities that will be setting up the system will have to ascertain which among the below roles are they going to perform:
1. P2P Trading
2. Neo Retailer
3. Microgrid/Embedded system operator/Strata
4. Wholesale market settlement
5. Autonomous asset management
6. Distributed market management
7. Electric vehicles
8. Power port
9. Carbon trading
10. Transmission exchange
So all these roles have been traditionally played by the exchanges, the consumers or the grid managers/transmission companies. But now, many such roles will be merged under the new system. Consumers will themselves become producers. There will be no middle man/exchange, so the system has to take care of that. Some special nodes would also need to enable and ensure power transmission.
The power ledger is built atop an ethereum core, which means that the system will use the ethereum block chain. As we discussed earlier, I had said that the ethereum block chain would enable us to develop our own decentralized applications (DAPPS). And this is the perfect example of ehtereum’s capability.
Now we shall develop a framework which will lead to system works as thus:
Participants of the system:
1. Producers of power: Power generators, big or small. From rooftop solar panel guy to the massive power plant guy.
2. Consumers of power: Consumers, who uses power.
3. Application hosts: The central nodes which create or distribute power.
How the participants of the system will work with each other is described in the following diagram:
This is the official infographic that is provided in the official Power Ledger White Paper, pg: 23. Please find more here.
I will try to explain the situation (Although the explanation in the white paper is adequate):
Left hand side diagram:
After the application host has set up power ledger:
First Step: It gets assigned POWR tokens by the system, which it can feed into a Smart Contract (Similar to what we see in ethereum).
Second Step: In exchange for the POWR tokens, the Smart Contract releases Sparkz.
The application host can give them Sparkz to the consumers against money. The consumers can then exchange Sparkz for electricity.
Here, one needs to remember that here the producers and consumers can often be thought of as interchangeable. Since the producer will consume too. For neighbouring communities, who have different resources to generate and consume energy, this will be a great way to share and consume the excess power hopefully leading up to conservation of energy.
But the question that arises is, why do we need 2 tokens? Why not just use POWR?
The answer to that lies in the fact that energy is priced as per the fiat currency of the country where the producer is located. If we are going to do crossborder energy transfer, then the energy unit produced in US can be priced as USD 10.00. And the same unit produced in Canada can might by Can$ 20.00. Now if someone is buying energy from one country to another, simply converting the currencies from one form to another is not enough. I will explain it further in the following example:
Situation: US buys power from Canada
Let Canada sells 1 unit of power @ Can$ 13.00 when 1.00 USD = 1.30 Can$. Then US is slated to pay USD 10.00 for that unit of power. But if the exchange rate changes and Can$ gets stronger against USD, let the new exchange rate becomes 1.00 USD = 1.00 Can$, then suddenly the US finds that it has to pay USD 13.00 for the same unit of electricity. Such fluctuations will lead to complexities that the usage of 2 different tokens seek to avoid.
Sparkz are priced in local currency, so in the revised case:
Canada sells 1 unit of power @ 10 Sparkz. To buy Sparkz, the US needs to buy POWR, but POWR will have a fixed exchange rate with the USD. Say 1 POWR = 1.00 USD. Again 1 POWR = 10 Sparkz. So they will buy 1 POWR, and that can be exchanged for the Sparkz.
The value of Sparkz is fixed, and it is equivalent to the smallest unit of the local currency. In the US, 1 Sparkz = 1 cent, in India, 1 Sparkz = 1 paisa.
Question: But the problem is the same. Even the value of Sparkz changes with respect to POWR, and that situation is the same as the exchange rate changing. How does it help us?
It helps us because Canada might not be the only country that you are importing power from. It may so happen that a country has a number of neighboring countries from which it can obtain Sparkz. To exchange dollars into 10 different currency, using that to buy energy form the 10 respective countries is way too complicated in comparison to having POWR tokens, which acts somewhat like a bridge currency. In this regard POWR to Power Ledger is the same as what XRP is to Ripple.
Another great resource to understand POWR. Please go through it.