Blockchain and the tokenization of renewable energy certificates

Share on facebook
Share on linkedin
Share on whatsapp

Global warming is one of the major global challenges to be overcome in the coming years and renewable energy generation is an important weapon in this battle to avoid the emission of the greenhouse gases common in thermoelectric generation (obtained, for example, through the burning of coal).

Several countries have internal or shared systems to seek to control the emission of gases that cause global warming. Many of these systems involve ways of encouraging the production of renewable energy and applying market strategies to control companies that continue to produce pollutants.

Renewable energy certificates and carbon credits are devices that have been created to allow companies to prove renewable energy consumption and compensate for the carbon emission of their processes.

With them, companies producing renewable energy can sell their credits to other companies that have some kind of regulatory obligation to compensate for emission of pollutants or prove use of clean energy. These credits can also be purchased on a voluntary basis, to ensure that the company, its products and processes are clean and carbon-free.

However, certificates are usually marketed in local markets, specific to each country, through complex processes and with several actors, which limits the possible results of this market. Tokenization of these assets in Blockchain systems is seen as a possible alternative to creating a market that can make it possible to market these credits on a global scale.

Renewable energy certificates

A Renewable Energy Certificate (REC) is a market instrument used to represent ownership of the environmental attributes related to the generation of renewable energy. That is, they are certificates (which can be commercialized) that attest that the energy was generated from renewable sources (such as water, solar, wind, biomass or geothermal).

Each REC emitted represents the generation of 1 MWh of renewable energy. RECs include other attributes that identify the properties of the energy generated, for example, the date the certificate was issued; the origin of the energy (water, solar, wind, etc.); the location of the generation infrastructure; etc.

The energy we consume from dealerships cannot be intrinsically classified as to its origin – all producers inject the energy produced into the power grid, so it is not possible to distinguish the energy produced by a specific location or method. Thus, RECs can be used for accounting, tracking and assigning property to the generation and use of renewable energy.

The process of using RECs follows a concept known as “book and claim”: on the one hand, the plant registers the renewable energy generated with a competent body in the form of RECs; on the other hand, energy consumers can buy RECs and, through them, declare the consumption of renewable energy.

It is worth noting that the commercialization of RECs can be done separately from the generated energy. In this case, they are called “unbundled RECs”. For example, a renewable power plant can sell its energy to one consumer (e.g. through the free market) and market the RECs related to that energy to another consumer.

In the above case, only the consumer who owns the RECs will be able to claim consumption on renewable energy. This “unbundled RECs ” mechanism allows companies to more easily invest in renewable energy to achieve their sustainability goals, reducing the environmental impacts of their products and processes. Currently, most of the world’s renewable energy certificate transactions are related to “unbundled RECs”.

Marketing of RECs

There are several certificate registration systems around the world, such as the US RPS (Renewable Portfolio Standard), or the GO (guarantee of Origin) marketed in Europe. In Brazil, the most used certificate is the I-REC, an International REC Standard adopted by other countries.

I-REC has a global platform that enables the trade of renewable energy certificates. In this system, the registration of generating plants is done by a third party company, enabled by the I-REC Standard. This entity is responsible for registering, supervising and auditing the generating plants and subsequently issuing the certificates for the energy generated. In Brazil, Instituto Totum is the local issuer authorized by I-REC standard.

Issued I-RECs are recorded in a central system, in which certificates can be tracked, also avoiding problems of duplicity in counting, issuing or redeeming certificates. For companies interested in the acquisition of certificates, the system also guarantees security and reliability in the marketing of these securities.

Currently, Brazil is the second largest issuer of I-RECs in the world, behind only China. According to data the I-REC standard, between September 2018 and October 2019, the country issued 1.7 million I-RECs, from renewable energy generated by the 107 plants accredited on the platform. These figures show the leading role of the country in the generation of renewable energy and the potential of our market for the commercialization of certificates.

The current certificate registration platforms allow the safe marketing of these securities, however, as a rule, these solutions are based on centralized systems, with intermediary entities and bureaucratic processes, which increase the costs of transactions and make it impossible for more companies and individuals interested in participating in this market to participate.

Tokenization of certificates

Blockchain are computational systems that can record transactions of digital assets (or tokens). Tokens can represent almost everything from physical assets (such as artwork, diamonds etc.) even more intangible items (such as property rights). In practice, a token is a unique numeric identifier, generated from a cryptographic hash, and the process of generating this identifier is called tokenization.

After an asset is registered on a Blockchain, all transactions with it can be tracked. Thus, it is not difficult to imagine that Blockchain could be used to register RECs as tokens and control operations on these assets.

But after all, what is the difference of Blockchain to other asset control systems, such as current RECs registration platforms? The fundamental difference is that traditional systems (such as RECs registration platforms) are centralized systems, where as Blockchain is a distributed system.

In centralized systems, all confidence about the validity of stored information depends on a central authority — for example, the I-REC Standard — that controls the platform. Already in a Blockchain, such as Bitcoin, all participants of the network Act for the validation of the information stored in it.

This decentralization of the Blockchain reduces the performance of central authorities, promoting the disintermediation of processes and, consequently, reduces the cost of operations. In addition, mechanisms known as smart contracts allow the execution of transactions automatically by the system.

Smart contracts can be understood as snippets of programs (computational codes) that are executed during the conduct of a transaction. This mechanism can be used to ensure that contract terms and business rules (such as price of an asset, available balance, transfer of financial resources for payment, etc.) are automatically verified by the system during the execution of a transaction, reducing costs and increasing the efficiency of these processes.

Thus, the tokenization of RECs in Blockchains and the use of smart contracts have been considered as an alternative to traditional platforms, in order to bring greater transparency, cost reduction and efficiency improvement to processes.

Cases and initiatives in the area

There are some blockchain use initiatives for registration and marketing of RECs. Below is a brief description of some of these cases:

SP Group

SP Group is an Asian power dealership with operations in Singapore, Australia and China. In 2018, SP Group announced the creation of a renewable energy certificate trading system using Blockchain. The initiative aims to create a marketplace for local and international organizations-regardless of size, company or location-to meet their sustainability goals through the marketing of RECs.

Blockchain for Climate Foundation

In response to the Paris Agreement, the Blockchain for Climate Foundation-a non-profit startup in Canada focused on improving global carbon markets-is working on the architecture of a blockchain tool to connect global carbon credit accounts and renewable energy certificates. The initiative seeks to allow the international marketing of these certificates, remove the need for intermediaries and allow simpler and direct channels of purchase and trading.

Clearway Energy Group and Power Ledger

Clearway is one of the largest clean energy operators in the US, with more than 4.3 GW of wind and solar power in operation. Clearway is developing a platform for the commercialization of RECs, using the Blockchain platform of Power Ledger, an American startup with various products related to the use of Blockchain in the energy sector.

PTT and EWF

PTT is an energy company from Thailand that is developing a Blockchain-based platform. The platform will be used for the commercialization of renewable energy certificates (based on I-RECs), in partnership with EWF (Energy Web Foundation), a foundation that developed the first public Blockchain for the energy sector. The platform will be developed from the Energy Web Chain, EWF’s Blockchain solution. The solution will be based on EW Origin, an open source framework for asset source certification.

Poseidon

Poseidon is a US startup that also has a tokenization solution for renewable energy certificates and carbon credits similar to previous cases. The difference here is the bet on the creation of a market of”micro transactions”. In this proposal, fractions of RECs or carbon credits are linked to the final products of companies, allowing their customers to spontaneously contribute to the environment by buying their products.

One of Poseidon’s first pilots was with ice cream giant Ben & Jerry’s. In this project, end customers could choose to offset the carbon footprint of each ice cream ball at the time of their purchase.

IDEO coLAB

Another rather innovative project comes from IDEO coLAB, which is developing a connected solar panel that generates RECs automatically while producing power, in real time, and registers these RECs on a Blockchain platform. With this solution, coLAB seeks to eliminate the need for local issuers, reducing bureaucracy and costs related to the issuance and marketing of certificates.

Future prospects

Renewable energy certificates are an important tool for companies to invest in sustainability and renewable energy generation. Current solutions, based on centralized platforms, can make the process slow and costly, making it impossible for companies and individuals who have an interest in investing in renewable energy to participate more widely.

The cases exposed above show that Blockchain can completely change this scenario, enabling the creation of new markets, such as micro transactions, as well as optimizing processes and reducing costs for those involved.

Imagine a future in which all renewable energy generation equipment automatically registers its certificates on a public Blockchain network, allowing them to be marketed directly to generators and consumers.

We are still far from such a scenario and there will certainly be technical, commercial and regulatory difficulties along the way. Blockchain technology will not solve all these problems, but it could be an important piece to leverage the certificate market, promote renewable energy generation and a more sustainable future.

Venturus is an ICT (Institute of Science and technology) that works with the development of technology projects for the utilities sector, especially for the electricity sector. Blockchain is positioned in our technological radar as a technology with disruptive potential in this sector, and can be applied not only in the marketing of renewable energy certificates as in several other use cases. To learn more, visit our website (www.venturus.org.br) or contact us.

Veja mais
Means of Payment
Evens Taian

PIX is running

Have you ever imagined making and receiving money transfers, payments and any similar inter-banking transactions instantly and at any time? Soon, this will be a
Leia mais »
Campinas / SP - Brasil

Estrada Giuseppina Vianelli di Napolli, nº 1.185
Condomínio GlobalTech Campinas
Polo II de Alta Tecnologia
CEP 13086-530 – Campinas – SP
+55 (19) 3755-8600

+55 (19) 3755-8600
contato@venturus.org.br

Bitnami