Thanks to Blockchain, Change is on the Horizon for Renewable Energy & Carbon Markets
5 WAYS BLOCKCHAIN IS POISED TO “UPGRADE” EXISTING SYSTEMS AND OPEN ACCESS TO RENEWABLE ENERGY ACROSS THE GLOBE
Renewable energy and carbon market industry leaders gathered in Amsterdam on March 13–14 for the annual REC Market Meeting. At this global expert meeting focused on energy attribute tracking systems, representatives from 200+ organizations rallied around the notion of collaborative competition: the idea that all market participants, even industry competitors, stand to benefit from improvements to market fundamentals that increase investments in solar, wind, and other forms of renewably generated electricity. To advance this notion of collaborative competition, conference attendees called for greater transparency to enhance consumer choice as a means to unlock investments.
Transparency is crucial in renewable energy markets because buying green energy—both the kilowatt-hours themselves and the clean attributes associated with them—is different than buying other products. Buyers cannot control or observe the electrons from the electric grid that actually power their facilities. Those that want to power their facilities with renewables therefore depend on an accounting tool known as certificates of origin, which include renewable energy certificates (RECs) in the United States, guarantees of origin (GOs) in the European Union, and International REC (I-REC) in emerging markets. Such certificates are the proof of green purchases, thus creating a bridge from blind faith to trusted, auditable verification.
Certificates of origin provide standard details about each megawatt-hour (MWh) of renewable energy generation, including how (wind, solar, etc.), where, when, and by whom the MWh originated. Inherent in these details is the ownership of the “green attributes” for each MWh, which can be transferred, bought, sold, or held and retired.
To make credible and auditable green energy claims, an organization or individual must retire a proportionate number of certificates of origin. System operators and regulators then use a registry within their electricity system as the central database they use to track the standard details, ownership, and status of each certificate. Moreover, various stakeholders—from C-suite executives to policymakers and nonprofits—depend on these certificates to track progress toward policy-mandated or voluntary sustainability goals.
Beyond transparency: better tools that streamline renewables investments are also needed
While enhanced transparency in renewable energy and carbon markets can and must improve their functioning, greater transparency alone is insufficient to meet the growing needs of renewable energy generators and buyers of all types and mobilize the capital needed to meet global renewable energy and carbon emission reduction targets.
Talk today to any renewable energy developer or buyer—whether a multinational corporate, small business, or household—and you will hear about additional pain points in today’s markets, such as high administrative costs, brokerage fees, inconsistencies across different markets, and overall difficulty of meeting one’s needs. Developers and buyers must go through an overly costly, complicated, and opaque process that differs from market to market and rely on outdated technological platforms simply to get the proof of green energy generation and purchases. In other words, there’s room for improvement. The result? Market participation is generally limited to corporates with sophisticated renewable energy teams and energy companies with regulation-mandated renewable energy portfolio targets.
To unlock access and increase market participation, the buying and selling of the proof of renewably generated electricity needs to start looking more like something that combines ride-hailing apps (e.g., Uber and Lyft) and tailor-made online travel booking platforms (e.g., Airbnb, Hotels.com, and Skyscanner). This would provide a major improvement compared to the current situation, which resembles a mixture of the marketplace for bulk orders of annual public transit passes and the stereotype of travel agent-led vacation bookings from the era of paper ticketing.
5 ways blockchain is poised to “upgrade” existing systems and open access to renewable energy across the globe
• Offering right-sized products to boost access and transparency : When someone opens the Uber or Lyft app, they want to order one car ride—not 1,000 car rides—to get from a specific Point A to a specific Point B. Today’s renewable energy markets depend on a MWh standard, which is too large for most medium- to small-scale generators and buyers. These markets should allow for green attributes trading and claims at the kilowatt-hour (kWh) level to grow market access. This would also increase transparency by allowing for more-granular details about green products on the market.
• Expecting a consistent, straightforward user experience: Consumers and service providers have an overall consistent, familiar experience across different geographies when leveraging a particular hotel, flight, or car ride platform. Whether booking a hotel in Barcelona or Bangkok, the experience is largely uniform and predictable, and smoother as a result. These platforms are also easy to use and intuitive. However, this is not the experience of renewable energy and carbon market participants today, mainly due to regulatory differences and the history of how renewable energy and carbon markets unfolded across the globe. New tools should deliver a consistent and straightforward user experience to eliminate this investment barrier. Greater consistency would be especially relevant for multinational corporations—whether buyer or generator—with renewable energy interests across multiple country borders, whereas greater simplicity would further help open market access to smaller generators and buyers.
• Trading directly without needing a broker or a large, advanced team: Hotels, airlines, and Uber/Lyft drivers have straightforward, widely-used online and mobile tools at their ready disposal to directly engage and transact their services with consumers. These tools don’t yet exist for trading certificates of origin and, as a result, market participants depend on brokers who charge fees for their services and/or trained staff supporting them to navigate the complexity of today’s renewable energy and carbon markets. New tools should deliver trusted products to help enable direct transactions for renewables. This doesn’t by default mean that brokers or sustainability teams go away. Their expertise will still be relevant to negotiate the terms of sophisticated contracts like power purchase agreements (PPAs), just as travel agencies haven’t gone away with the advent of online travel booking. For brokers, new business models will likely emerge as the market grows and many more (often smaller) renewable energy generators and buyers enter the market. For corporate sustainability teams, greater simplicity and lower costs for renewable energy purchases means more resources can be dedicated to reduce the environmental impacts of other parts of their company supply chains beyond energy.
• Filtering options based on buyer preferences and making plans in advance: Consumers can use online and mobile tools to specify what they want when booking a hotel or flight based on numerous criteria. This not only helps consumers make plans in advance with assurance, but also helps service providers make arrangements to ensure they deliver in meeting customer needs. Basic search functionality, which isn’t readily available today in renewables markets unless a buyer works with a broker, should be included in new tools for these markets so that buyers can find a buy renewables based on, for example, location, type, and carbon pollution offsets. This would help buyers find what they want and generators better market their products to a wider set of buyers based on criteria that buyers prioritize—something that most likely leads to a price premium for projects delivering the greatest carbon pollution offsets. New tools should also help match generators and buyers whose respective renewable energy supply and demand—whether that is today or sometime in the future—overlap based on the results of buyer-driven searches for available renewables.
• Allowing for additional services: Hotel and airline booking platforms enable consumers to, for example, seamlessly add a car rental or excursion to their booking. However, it isn’t easy right now for a collection of households to pool their demand for renewables to help move a renewable energy project forward, renewable purchases to automatically match a buyer’s actual energy consumption, or automatically (and more accurately) account for renewable energy purchases and carbon offsets together. New tools should provide add-on features to capture all opportunities in renewable energy and carbon markets.
Get ready for blockchain-based renewable energy and carbon markets apps
Blockchain technology—combined with thoughtful technical design and broadbase industry and regulatory engagement—offers a remarkable opportunity to upgrade the way renewable energy and carbon markets work. A more transparent and user-friendly solution will help catalyze investments worldwide.
Luckily, given the need for immediate global climate action, new blockchain-based applications are in rapid development right now.
Stay tuned for major tech releases and announcements at Event Horizon in Berlin, Germany from April 17–19 by Energy Web Foundation (EWF) a global nonprofit organization that is developing an open-source, scalable, secure, and intelligent energy sector-specific blockchain platform in collaboration with a consortium with influential energy companies—and various industry leaders that are developing applications running on the Energy Web.
Doug Miller (firstname.lastname@example.org) is a member of the Energy Web Foundation team and spoke at the REC Market Meeting on a panel about the influence of blockchain on global renewable energy markets.
Image: courtesy of REC Market Meeting