In the power sector, power purchase agreements (PPAs) serve as the foundational legal instruments governing transactions for sale and offtake of electricity. These contracts establish the terms of sale of electricity between a power producer who develops and owns the power project and a consumer (including state-owned distribution companies or any commercial or industrial consumer). Traditionally, a nodal authority manages and verifies such agreements for offtake of electricity, which can introduce inefficiencies and pose potential for lack of transparency. However, considering the requirement of electricity by industrial consumers, the market opened for private players and bridged the gaps under the traditional PPAs by providing transparency in electricity transactions with minimal regulatory intervention.

In the wake of sustainability and to fulfil the commitment of net-zero under the Paris Agreement, the electricity sector has undergone substantial technological advancements in the recent past, from introducing forms of alternate fuels for generation of electricity to technology for carbon capture. Of late, an effort has been made to introduce blockchain technology in renewable energy in an effort to speed up the process of decarbonizing the economy. Unlike other technologies, which have the potential to deliver new services to consumers including the stakeholders, blockchain technology has the potential to revamp the existing processes to unlock new sources of efficiency and value.

Blockchain Revolution: A Distributed Ledger Paradigm

Current headlines around the world tend to focus on role of blockchain in cryptocurrencies, but the blockchain technology has applications across a wide range of industries including the electricity sector. In the context of electricity transactions, traditional PPAs rely on centralized record-keeping systems, which can be susceptible to inefficiencies and manipulation. Blockchain technology offers a paradigm shift by introducing a distributed ledger system. This can be conceptualized as a secure, digital ledger, not unlike a traditional paper-based ledger. However, unlike its physical counterpart, the blockchain ledger is not stored in a single location but rather replicated and distributed across a network of computers. New information is recorded in chronologically linked “blocks,” creating an immutable and transparent record of transactions. The cryptographic security features of blockchain make it highly resistant to tampering, fostering trust and confidence among participants in the system. The transformative potential of blockchain technology lies in its ability to streamline processes, enhance transparency, and bolster security within various industries, including the electricity sector.

Bridging the Gap

So, how can these two concepts work together? By integrating blockchain into PPAs, a more streamlined and secure system is created. Imagine a “smart contract” – a self-executing digital agreement on the blockchain network – that encodes the terms of the PPA. This eliminates the need for intermediaries, automates payments based on electricity usage, and ensures a transparent record for all parties involved. Blockchain PPAs facilitate peer-to-peer (P2P) transactions and have the potential to revolutionise the electricity sector by enabling more efficient and secure transactions,^[1] achieve renewable energy integration, empowerment of prosumers, cost savings, grid resilience, innovation in technology and regulatory evolution in comparison to existing arrangements.^[2]

Blockchain PPAs are a shadow of smart contracts. Smart contracts enable a set of transfer of value upon verification of the prescribed business logic.^[3]  The operation would involve the buyer setting up a blockchain account connected to the energy meter providing in-time updates to the blockchain service of the amount of kilowatt hours consumed, valued at the contract price, and then the necessary monetary units to pay for the energy consumed in the previous month are automatically transferred. Blockchain technology helps by making these transactions easier as there are no intermediaries, thereby reducing administrative costs and allowing consumers to contract for energy on a digital market. Further, using smart meters within the same Blockchain PPA structure can validate both the generation and consumption of energy on the blockchain platforms.

Regulatory Advancements for facilitating Blockchain PPAs in India

In the ongoing quest for a sustainable and decentralized energy future, India has taken significant strides by introducing regulations that enable P2P renewable energy trading. In 2023, the Uttar Pradesh Electricity Regulatory Commission issued Guidelines for P2P Solar Energy Transaction through Blockchain based Platform (Uttar Pradesh P2P Guidelines), the first framework in India, for regulating P2P energy trading from solar rooftop projects within the state of Uttar Pradesh. This framework leverages blockchain technology, a distributed ledger system known for its immutability and transparency and integrates the system of P2P with the network of the distribution companies. A service provider intending to provide P2P transaction services is required to register with the distribution company (Discom) to provide a P2P platform. The prosumers (i.e., consumers who also generate solar power through rooftop power projects) and the consumers are required to register with Discom to participate in P2P trading within the area of the relevant Discom. Under the Uttar Pradesh P2P Guidelines, the renewable purchase obligation (RPO) benefits from the solar rooftop projects will remain with the Discom and will not be considered to fulfil the RPO of the prosumer or the consumer.

Following the UPERC’s lead, the Delhi Electricity Regulatory Commission (DERC) and Karnataka Electricity Regulatory Commission (KERC) and have also notified the DERC (Peer to Peer Energy Transaction) Guidelines, 2024 (Delhi P2P Guidelines) and KERC (Implementation of Peer-to-Peer Solar Energy Transaction) Regulations, 2024 (Karnataka P2P Regulations), respectively, to regulate the P2P trading of power in the state.

• DERC P2P Guidelines

The DERC introduced its Delhi P2P Guidelines in June 2024. The DERC guidelines potentially encompass P2P trading of power from all renewable energy sources, except ground mounted projects. This vision acknowledges the growing diversity of renewable energy options available to prosumers and consumers. The Delhi P2P Guidelines emphasize Time-of-Day (ToD) metering. This reflects the dynamic pricing of power based on peak and off-peak hours. By incentivizing energy consumption during off-peak periods, ToD metering has the potential to optimize grid management within Delhi, potentially reducing peak hour demand and strain on the transmission grid. The Delhi P2P Guidelines also provide that the quantum of electricity generated under these Guidelines will qualify towards the RPO compliance of relevant Discom except in cases where the prosumer is an obligated entity.

• KERC P2P Regulations

Unlike the Delhi P2P Guidelines which focuses on trading of power from all renewable sources (except ground mounted projects), the Karnataka P2P Regulations, notified in August 2024, represent a pioneering effort to establish a framework for secure P2P solar energy transactions from solar rooftop projects within the state of Karnataka. A key feature is the first-come, first-served approach for application approval, ensuring fairness and transparency in selection of the participant (i.e., prosumers and consumers) to transact energy through online platforms provided by the registered service providers. The regulations prioritize secure transactions by mandating compatibility checks between the prosumer’s solar generation system and the consumer’s electricity meter before trade can commence. This ensures accurate bilateral exchange of power.

Drawbacks and Mitigation Measures

Despite the promise, all regulations and guidelines notified for P2P energy trading face some initial drawbacks. Technical challenges remain in integrating blockchain technology and smart meter infrastructure with existing power grids. These challenges necessitate significant investments in grid modernization and technical expertise to ensure seamless operation.

A key issue with the currently notified models of P2P trading in India is the emphasis and powers provided to the intermediaries under these models. The objective to create P2P platform for transfer of goods and services using blockchain was to limit the role of government agencies and intermediaries, the influence brought by them and to create a decentralised system for transfer of goods and services. However, under the guidelines and the regulations notified in various states, the role of the intermediaries (i.e., Discoms) for purposes other than registration and overseeing regulatory compliance is against the objective of creating a P2P trading system using blockchain technology.

Additionally, the Uttar Pradesh P2P Guidelines and KERC P2P Regulations cater to the prosumers with rooftop solar installations, potentially limiting participation in the P2P market for other renewable energy projects. To broaden the participation from prosumers with other renewable energy sources, future regulatory notifications and amendments will need to cater to a larger category of renewable energy generators. The nascent nature of these regulations lead to a lack of established dispute resolution mechanisms and standardized commercial frameworks for P2P transactions could pose challenges for market participants.

Further, the regulations and guidelines do not entitle a prosumer and/or consumer, which may be obligated entities under the applicable laws, with the green attributes to fulfil their RPO and such green attributes will be used to fulfil the renewable purchase obligation of the Discoms. Currently, the KERC P2P Regulations are silent on whether the prosumer or the Discom will retain the RPO benefits from the projects.

To mitigate these drawbacks, the government can play a crucial role in fostering the growth of the P2P solar trading ecosystem. Government initiatives supporting infrastructure development aligned with the blockchain technology, such as smart grid modernization projects and pilot programs, can accelerate wider adoption of P2P transactions. Additionally, investing in skill training programs can create a workforce equipped to handle the technical aspects of P2P trading. Standardizing data formats and technical specifications for blockchain platforms and smart meters can ensure interoperability between different systems, facilitating market growth. Finally, developing clear dispute resolution pathways and standardized commercial frameworks can attract more participants and investments in this sector.

Finally, creating a regulatory sandbox environment specifically for testing and refining P2P trading models could pave the way for a robust and efficient P2P solar trading ecosystem in India.

Footnotes:

[1]https://renewablewatch.in/2023/08/19/blockchain-benefits-growing-role-in-promoting-renewable-energy-utilisation/

[2] https://kerc.karnataka.gov.in/uploads/media_to_upload1705925039.pdf

[3] https://medium.com/@madhavsharma/p2p-energy-trading-and-blockchain-a-case-study-approach-baff68735c5a