Energi Mine is working on plans to launch “a global energy exchange that enables peer-to-peer trading” underpinned by blockchain.
Chief executive Omar Rahim, a former energy trader with Engie, SSE and Vattenfall, says Energi Mine is building “an AI-driven marketplace where trades can occur between two parties”.
He says the aim is to match business-to-business buyers and sellers, and while the goal is to shift the balance of power towards end users, Rahim says generators will benefit too.
“If you are asset owner, you might have an index-linked product, perhaps a three, five or 10 year power purchase agreement (PPA). But there is very limited optionality [within that], it is difficult to squeeze out extra value,” he suggests. “We want to change that and give generators access to end users.”
Weekly contracts
Rahim says both parties will benefit from a more efficient route to market.
“At the moment, end users do not have a lot of say. We call it trading in slow motion. To buy energy they have to assess 40-page supply contracts, line them up against each other, and it takes months. We are standardising these contracts so that can be done in seconds,” claims Rahim.
Via the platform businesses could “buy from a different seller every week if they wanted”, rather than sign multi-year contracts.
Transparency
Moving to an exchange-based model will create price transparency, Rahim believes, which is lacking in the current market.
“In the business-to-business sector, a broker is typically dealing with procurement for the consumer, who probably doesn’t have a good handle on true prices. They take the broker’s word, who in turn is taking the supplier’s word,” says Rahim. That creates “a huge opportunity” for margin padding, he adds. “So moving onto an exchange-based platform creates a benchmark in each of the respective markets.”
Regulatory risk
Is the UK ready for a peer-to-peer exchange? Rahim says regulatory risk is “one of the most acute” challenges to work through.
“Generally, regulators want more competitive markets. They want to see this model – Ofgem’s annual report quite deliberately mentions peer-to-peer markets and how they can be a good thing,” says Rahim. “But they want to see business models that can be successful. They need credible partners that can execute and deliver more credible markets.”
He says that is “the gap Energi Mine is looking to fill”, but that the company will move at its own pace.
“We are planning on launching something very soon and will make a very big announcement in six to eight weeks,” says Rahim. “We’re not waiting for regulation to catch up. We are pioneering and keeping regulators abreast of what we are doing.”
Big bang
Rahim thinks regulators will not stand in the way, provided platforms are sufficiently robust and demonstrably benefit consumers.
“We look at this pretty simply as sell side and buy side,” he says. “If you are a big seller of energy, you want the client to have as little flexibility as possible and sell as far out as possible.”
That is not in the buyer’s best interest, he says, and requires disruption.
“We are unapologetically on the side of the consumer and want the industry to be shaped around that. We believe strongly that the market will adapt to the needs of consumers, and that is our model going forward.”
Rahim points to “fundamental shifts” in financial markets, where ‘fintech’ has challenged the established order and forced incumbents to adopt approaches driven by start-ups. “We don’t see this market as any different,” he says. “The energy industry is due its big bang moment.”
Liquidity
If the platform is to be more than a damp squib, it will require liquidity. Rahim believes buyers and sellers will provide that due to mutual benefits, which, he reiterates, can be “significant” for generators too.
“If my asset is locked into a 10-year PPA I am not seeing any upside beyond what’s on my contract. The market price could double and I don’t see a penny of that as a generator,” says Rahim. “That cannot be right. So generators also want more reflective prices. It all boils down to liquidity, but with enough buyers and sellers, an efficient marketplace benefits all parties.”
Market-driven
On the buy side, Rahim says Energi Mine, through its brokerage business, has created a working group of large energy consumers to help shape its designs.
“We have the ear of some of the largest energy consumers in Europe. When we mention the idea of moving to a fully transparent, liquid energy exchange, it really excites them.”
Some of those industrial and commercial energy buyers will also be able to sell power via the marketplace, should Energi Mine deliver on its plans. Rahim is bullish.
“It is coming. We have seen decentralisation of generation over the last 15-20 years. What people have lacked historically is somewhere to trade that power. We are going to solve that – not create a slightly better market at the glacial pace of the energy industry – but execute this vision.”
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