Deal To Watch: Reinventing The Energy Grid

Key Stats:

Summary

To date and as of 12/10, Power2Peer has raised $55.7K

The Power2Peer team has been selected as a “Deal To Watch” by KingsCrowd. This distinction is reserved for deals selected into the top 10-20% of our deal diligence funnel. If you have questions regarding our deal diligence and selection methodology please reach out to hello@kingscrowd.com.

Summary

The United States currently uses about 4 trillion kilowatt-hours (TWh) of energy every year. While our energy consumption has stayed relatively stagnant over the past decade, in the previous decade, and decades before that, electricity demand grew tremendously, doubling from 2 trillion kilowatt hours to 4 trillion within 30 years.

Traditionally, this demand is satisfied by a centralized power grid, operated by utility companies that rely primarily on carbon-intensive electricity generation. While increasing efficiencies in energy generation and economies of scale has managed to make this method of electricity generation relatively effective so far, there are many flaws to this system.

The US suffers more power outages than any other developed nation. Even worse, we lose power 285% more today, than in 1984. Our aging infrastructure and lack of incentive to modernize the electrical grid is compounded by the marked increase in major weather incidents. While extreme weather events used to account for about 20% of outages, in the past few years about 70% of all outages were caused by weather. The effect of weather will only worsen, with the further addition of climate change.

This system, already stressed by weather and age, also has to address a projected increase in energy demand. Global warming is exacerbating the need for air conditioning, with each air conditioning unit using 3,000 to 4000 kilowatt hours.  

Transportation is increasing electricity demand, as electric cars, buses, and trains become more and more popular. On the most basic level, the US adds about 3 million people each year to its population, which further contributes to electricity consumption. These are just a few of many factors that culminate in projections that total U.S. electricity consumption will grow from 3,860 TWh to 5,260 TWh in 2050.

Extreme weather is on the uptrend and will continue to increase in the near future, and complete reliance on traditional power grids may not be dependable enough in the coming years. Each outage has opportunity costs, not only detracting from the convenience for households, but also in productivity losses for businesses.

Fortunately, solar panels have become increasingly accessible, between decreasing costs, higher efficiencies, and government incentives. However, renters, low-income households, and people living in houses with shady rooftops are unable to access the benefits that come along with these new efficiencies. They are effectively discounted from the solar energy market.

Solution

Power2Peer is an alternative to the current centralized power grid. Similar to ride-sharing companies like Uber and home-sharing companies like AirBnB, Power2Peer connects individuals who generate electricity individually via solar panels with others who can purchase their energy.

By sharing the burden of energy generation among the community, Power2Peer benefits local communities in a variety of ways.

First of all, self-generated solar power becomes i ncreasingly feasible. Currently, self-generated energy is not flexible. Individuals who sell their energy back to power companies are not able to sell for high prices given that most power companies are local monopolies.

Producers are therefore incentivized to consume their excess production, which is wasteful for communities, considering that power companies rely primarily on carbon-intensive production methods. Solar power, in general, is a much better alternative than other methods of energy generation and is a good alternative energy source.

Increasing solar power’s feasibility to individual households is not only beneficial on the micro-scale but also to communities on the macro-scale, encouraging environmentally sustainable energy practices.

By decentralizing the power grid, Power2Peer is also making communities more resilient to outages. If for example, the electrical grid is suffering from an outage, individuals may be able to buy and sell their own self-generated electricity based on need.

The market-based system by which Power2Peer operates is also an efficient way to exchange energy. High-demand households, like those with a self-run online business, can purchase energy from lower-demand households, likely with a cheaper marginal cost than energy from power companies.

Individuals who invest in solar panels and other alternative methods of energy production have no marginal costs since sunlight is free and unlimited, and therefore are able to price their energy at whatever they want.

These societal benefits are further reinforced by the positive effects of increased demand for solar panels. With more earnings, solar panel companies can re-invest more in research and development for alternative energy generation methods, and further detract from our carbon footprint.

These societal benefits are important for the company as well. Power2Peer generates revenue through transaction fees on each energy trade. This revenue is justified for it to be able to set up its infrastructure. While Power2Peer won’t have large, costly fixed costs like traditional power companies, they need to spend on setting up a blockchain based system to keep track of energy transaction ledgers, connecting microgrid systems together, and running their Electrotoken trading system.

To this end, Power2Peer relies significantly on communities accepting their systems. Power2Peer will only be able to collect its transaction fees if trades happen on their platform, and trades only happen if communities widely accept their proposal to self-generate solar power.

Business Model

Power2Peer has a uniquely complex business, with a novel business model.

Fundamentally, the company’s goal is to create a marketplace where participants in their local microgrids can buy and sell energy for their communities. The company’s partnership with SunDensity, inventors of a highly efficient Photonic Solar Conversion technology, Power2Peer’s solar panels are able to generate 20+% more electricity than average solar panels and are therefore abl e to efficiently generate their own energy.

First, the company secures funding with local governments to build and develop localized microgrids. Then, they select optimal areas to set up a solar panel power plant.

Then, they implement a blockchain based adaptive solar microgrid system. Power2Peer keeps track of energy transactions through a public blockchain, effectively creating an immutable and secure ledger on which both buyers and sellers can rely. Considering that Power2Peer’s transactions are relatively small and high in quantity, their business would otherwise require a significant amount of manpower to authenticate each and every trade.

But, by automating its transaction process through its blockchain ledgers, Power2Peer is able to save time and money, and pass along savings to its consumers, further increasing the likelihood that it achieves widespread acceptance.

Households are able to buy and sell their energy on Power2Peer’s marketplace. If there is no demand in the marketplace, households can store or sell excess energy in the central power grid.

Decentralizing solar generation of electricity has the added benefit of resilience to extreme weather events. If one solar panel array fails, other solar panels are still able to supply some electricity to local microgrids. With a few exceptions, Power2Peer plans on using existing power lines to facilitate energy exchanges, which further minimizes the initial capital requirement inherent of a power company. Ideally, local utility companies are incentivized to let Power2Peer use their power lines by tax breaks, since energy transactions from the Power2Peer marketplace are categorized as renewable energies, and therefore can help paint their companies in a more eco-friendly light.

Performance  

While the company is still very young, Power2Peer has already been successful in a few different regards. In April of 2017, Power2Peer was able to create a minimum viable product, an app with front-end mobile interface and a back-end software-defined controller platform. This application demonstrates the feasibility of its blockchain platform idea. Even more, Power2Peer holds patents for this platform, which is an essential feature of its business model.  

Power2Peer has ambitious visions for where it will be in the next few years. Once one of their systems is set up, Power2Peer estimates that they will have about 63% net profit and be cash-positive. Though this seems aggressive and overly optimistic, healthy margins can be expected if there is in fact widespread market adoption.   

At this stage, the company is also expected to reduce about 600,000 metric tonnes of carbon emissions by making solar-generation more efficient and popular. While emissions from electricity generation are expected to grow from the 1.8M metric tonnes currently emitted now, this reduction in emissions is a welcome side-benefit for streamlining the energy market.

The Recommendation

1. Revolutionary Business Model

 Power2Peer has done exceptionally well to incentivize every step of their business.

On the individual level, households are incentivized to take part in Power2Peer’s system for a few reasons. There has been a distinct consumer trend toward environmental sustainability, and consumers are often willing to pay more to support “green” initiatives. Solar installations in the United States over the past 10 years has grown with an average annual growth rate of 59%.

Power2Peer’s marketplace makes this decision for households to install solar panels even easier by expanding the flexibility of what individuals can do with their generated electricity. While in the past all households could do with self-generated energy was to deduct from their electricity bill.  

Based on utility company billing methods, this compensation is inefficient in some scenarios. Power2Peer creates a supply/demand system that assigns a price to each unit of electricity, and may make previously unreasonable solar-generation strategies more feasible. Individuals can also enjoy the benefits of an additional income stream for their household, with cash returns, which can be a very attractive investment.

Utility companies are likely to allow Power2Peer to use their established power grid, since the solar-based energy is likely to contribute well to tax breaks, which can further deduct costs from Power2Peer’s initial costs. 

Power2Peer is also hoping to leverage their environmentally friendly practices to appeal to government assistance. Both federal and state governments have shown an interest in encouraging renewable energy generation. Even more, successful implementation of Power2Peer is likely to drive innovation in renewable energy research and decentralize power grids, making communities more resilient to failures by local utility companies.

2. Market Opportunity 

So far, the company has been primarily looking towards the United States for its initial launch. But, Power2Peer’s business has the potential to significantly impact countries all around the world. In countries like South Africa or Egypt, where every month seems to have a significant amount of sunshine, a peer-to-peer trading marketplace like Power2Peer’s proposal can be a very interesting proposal.  

In fact, the global solar panel industry is expected to grow to $422B in 2022 from $86B in 2015. If Power2Peer is successful in the following years, and is able to provide a compelling pitch for developing countries, the expansion potential for Power2Peer is incredibly high.

3. Long-Term Investment Horizon 

Power2Peer’s primary downside is that their business will need a couple more years to fully have its operations established. They have a promising idea and have enjoyed success in a few ways already in their partnership with leading solar panel developers and with the development of their minimum viable product.  

But, solar energy-generation is still a relatively new concept. Every few years, solar panel installation/production costs have been decreasing, and energy output has been increasing. In just two years, between 2016 and 2017, solar cells efficiency managed to jump from 29.8% to 44.5% efficiency. While understandably, commercialized versions of these solar cells will not be available for some amount of time, this acceleration in decreasing costs and increasing output can ironically make households hesitant to install solar panels.

These breakthroughs make solar generation a more attractive alternative energy source, but at the same time, households may choose to delay their solar panel installation into the future, understanding that future solar panels will be more efficient and cheaper.

This issue is compounded with the fact that the company  needs for individuals to voluntarily adopt these technologies. Since for the most part, the company does not rely on its own solar-power generation, if adoption by consumers is slow, Power2Peer may find that its revenue may be comparably slow.  

While these advances reinforce the long term potential of Power2Peer, they may actually impede on the short term progress Power2Peer hopes to achieve. Potential investors need to be wary that their investment may sit still for a significant period of time before any returns can be realized. For these reasons, it is an intriguing investment on our Deal To Watch list. Invest HERE if interested.