Blockchain seems finally to have found a here-and-now application in the power market — and it isn’t energy trading.
Instead, a select group of blockchain companies is finding success with a focus on certificates of origin, helping demonstrate the provenance of renewable energy supplies.
While certificates of origin are nothing new in the energy business, the recent rise of corporate power-purchase agreements is leading to increased scrutiny over the source of carbon-free kilowatts.
Blockchain offers a way of tracking energy production in a much more granular and timely way than is possible with traditional methods. These involve audits to check that the power consumed within a PPA matches the production of a given renewable plant or portfolio.
“The automotive, consumer goods, retail, IT and real estate segments are increasingly concerned with sustainability,” said Joan Collell, chief operating officer and business and strategy leader at FlexiDao, a Spanish startup backed by SET Ventures. “The more sophisticated ones are realizing that not all green energy is equally green.”
Corporations buying unbundled renewable energy certificates in the U.S. or guarantees of origin in Europe are starting to worry that the commodities might not stand up to close scrutiny, he said.
Northern European hydro generators, for example, produce abundant clean energy with guarantees of origin that can be picked up easily in European retail power markets, Collell said. The energy is categorized as "green" — but buying it does not contribute much to decarbonization.
As a result, more discerning buyers are looking to purchase energy linked to specific renewable plants and thus prove that their corporate PPAs are having a real impact in terms of additionality.
The problem is that it is difficult to prove that a kilowatt of consumption corresponds exactly to a kilowatt of production at a remote renewable energy plant. Very large energy users can afford to get around this by building their own plants.
But for most corporations that want a detailed account of the renewable energy they are buying, blockchain “is an option in the middle,” said Collell.
It essentially gives each unit of generation a smart contract linking the producer and the consumer, providing a true certificate of origin and quashing any possibility of fraud or double-counting.
“By design, you cannot allocate your green digital energy to several customers,” said Thierry Mathieu, co-founder of The Energy Origin, a blockchain company incubated within Engie in France that works with corporations including the chemicals giant Air Products.
Blockchain could make energy attribute certificates more transparent and simpler to use, he said. And being able to track energy production in real time at a kilowatt-hour level could also open the gates for person-to-person trading.
Growing interest from big corporations
For now, the technology is garnering interest among large energy suppliers and corporate offtakers.
FlexiDao, which leads the field with 3 terawatt-hours of energy tracked per year across nine countries, offers its blockchain platform on a white-label basis to companies including Acciona Energía, EDP Group and Iberdrola.
These energy providers then offer the certification platform as a differentiator or value-add to their PPA clients. Last month, for example, EDP trumpeted a “pioneering use of blockchain in Spain” to track renewable energy sold to El Corte Inglés, an iconic Spanish department store.
The Energy Origin, meanwhile, is selling its certification services through Engie and has signed up 10 corporate customers across four countries, Mathieu said.
The ease and speed with which FlexiDao and The Energy Origin are gaining customers appears to have caught the eye of other blockchain companies wrestling with more complex applications, such as energy trading.
The Australian peer-to-peer trading platform developer Power Ledger, for instance, last June announced a partnership with Clearway Energy Group to support blockchain-based trades of renewable energy certificates in the U.S.
The market for RECs in the U.S. is estimated to be worth more than $3 billion annually, the company said. For blockchain companies such as Power Ledger, the attraction of tracking energy attribute certificates is that projects are not likely to be hampered by regulation.
Apart from regulatory hurdles, there is little to separate the blockchain platforms used for certificates from those used for peer-to-peer trading.
FlexiDao and The Energy Origin, for example, both use the Energy Web Foundation’s purpose-built EW Chain to overcome shortcomings in traditional blockchain designs. The EW Chain is also designed to enable peer-to-peer energy trading.
Certificate-tracking opportunities notwithstanding, peer-to-peer trading is still the holy grail for many of the world’s leading energy blockchain companies. This month, for instance, the U.S. firm LO3 Energy announced the launch of a local solar energy trading market in Fujimi, Japan.
“Once regulators clarify conditions for commercial transactions, we believe the floodgates will open,” said LO3 Energy CEO Lawrence Orsini in a press release.