May 3, 2023

A Lawyer's Guide to Electricity and P2P: Debunking the Myth that P2P isn't Legal

There is a common misconception held by many that peer-to-peer energy trading isn't legal. Find out how peer-to-peer is actually possible to do in most markets right now.

One of the questions that frequently comes up around peer-to-peer energy sharing is: is it legal?

The short answer: yes, as long as the retailer (also known as a supplier or a utility) has approved it. But for those of you with an interest in the way the law works around this, there is a fuller answer.

It’s useful to understand the fuller answer because things are changing and regulators and lawyers are all trying to make space for renewable energy.

The law is different from the physics of energy trading.

The energy retailer (left) is not part of the physical system within the neighbourhood.

From a physics perspective, all three entities are related by electrons, wires and electromagnetic fields and waves. And electrical energy generated by neighbouring residences (and beyond) will inevitably spill onto the neighbours mains as long as there is an electrical connection, and some voltage present.

So, for example, let’s say neighbour number one had anoisy device, like a large vacuum cleaner or even a welding kit. These have the ability to make ‘spikes’ on the mains voltage which travel through the system, to neighbour number two, who might just notice a ‘noisy’ mains, because it might just interfere with his TV or washing machine etc. 

This may be unfamiliar to you but in places like Nepal it is very common that every fridge has its own stabiliser to protect it from noisy mains. And everywhere else, audio enthusiasts often add extra ‘mains cleaning’ boxes to keep the electrical supply a pure sine wave and nothing else.

However, if a neighbour starts pushing electricity from a solar panel, that can automatically spill over to neighbours too. 

But that is the view of the physicist. The law sees things differently.

From the legal point of view, the neighbours are totally unrelated entities. The only relationship they have from a legal point of view is their relationship with the retailer. So they can’t share energy with each other because they have no legal relationship in the electrical legal system. Except, of course, with the permission of the retailer who can then treat them as connected by whatever legal structure they allow.

The neighbours are totally unrelated entities.

It has to be like this because there are many licences required to generate electricity and put it on the grid. You even need a licence to generate electricity beyond a certain power level when you live as a recluse, in your own private network, in the middle of a desert, and connected to no one else.

It’s also true that the regulator would have granted the retailer the exclusive rights to generate electricity for the area they serve, in exchange for submitting to their regulations. These are typically referred to as regulated monopolies like Xcel Energy in Minnesota, U.S. That’s the way electricity governance works. But all of this is fine if your retailer is forward-thinking enough to allow, or even encourage, renewable energy from PV owners.

The final scenario is when you want to share energy with a neighbour who is with a different retailer. In that case both retailers need a joint agreement.

If two retailers partner together and recognise each other's customers, then everyone can connect. In other words, the legal world can become more like the physical world, but only with consent. The trades are effectively a series of ‘netting-offs’ on a blockchain database, so the retailer system then begins to mirror the physical system.

If retailers are on board with the concept of energy sharing, but there is a mandatory Feed-in Tariff (FiT) in place by the regulatory authorities, then the retailers may be prevented from allowing more freedom with pricing. In other words, the FiT will be the only allowable mechanism.

Of course, regulators are in the process of changing things around, so this is a hotly observed space. Indian regulators are thought to be very close to finalising some new regulations which will open up the field.

We will keep you posted.

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