U.S. renewable energy developer Clearway Energy Group at the end of June signed an agreement with Australian technology company Power Ledger to develop a blockchain platform for trading renewable energy credits (RECs).
“This is an exclusive partnership to tailor the platform for the U.S. context,” Jemma Green, executive chairman and co-founder of Power Ledger, said via email. The intention, she said, is to attract market participants, i.e., buyers and sellers of RECs to trade on the platform.
Blockchain technology would be used to track and to trade RECs from the point of creation, sale and transfer to the buyer, through to the point of retirement. The U.S. REC platform would be jointly owned by Power Ledger and Clearway Energy.
Blockchain is a form of digital ledger that securely encrypts data such as prices and contract details. It is perhaps best known as the technology behind crypto currencies such as Bitcoin, but it is also being put to use in other industries, from manufacturing and banking to energy and retail.
“One of the biggest areas of opportunity in using this technology is that the use of blockchain will drive down transaction costs associated with the sale of RECs by making the transaction and the settlement one and the same entry,” Green said. “This greatly reduces the time and administrative costs associated with traditional trade reconciliation and settlement processes.”
The U.S. REC market is valued at about $3 billion a year but, in current market conditions, the transaction and settlement costs can make up a significant portion of the value of a REC, Green said. Because trade and settlement are one entry on blockchain, middle and back office costs can be significantly reduced, she said. Industry analysts estimate that transaction costs can comprise up to 10% of the overall cost of a REC.
In the first stage, the partners aim to tailor Power Ledger’s platform for the U.S. REC market with a proof of concept deployment that would tokenize renewable energy credits generated at two Clearway Energy renewable energy projects. Power Ledger’s POWR tokens are used to facilitate peer-to-peer energy trading.
The first Clearway project is a 1-MW to 5-MW commercial and industrial project in Massachusetts that would sell RECs into the state’s renewable portfolio standard market. The second is a Midwest project larger than 20 MW that would sell RECs into the voluntary REC market.
In the second phase, the partners plan to focus on the examination and execution of a wide scale deployment of blockchain technology in the broader REC market, including the creation of a larger “trading club or marketplace of buyers and sellers” and the integration of the technology with regional tracking systems, as well as support for additional REC markets within the U.S., Green said. “We expect the first phase to be live within a few months.” The measure of the venture’s success will be its ease of use and the usage of the platform measured by trading volume, she said.
Many companies in the energy sector are looking at blockchain technology as a way of reducing transaction costs and as a means of making smaller transactions more feasible, particularly transactions involving distributed energy resources.
In May, California public power utility Silicon Valley Power completed the first phase of a trial that uses Power Ledger’s blockchain technology to track and monetize carbon dioxide reduction credits for electric vehicle charging. Silicon Valley Power and Power Ledger are now looking at a second phase of their collaboration that would include a pilot project to test the commercial deployment of the technology.
Last October, the Energy Web Foundation partnered with a subsidiary of the PJM Interconnection to test a blockchain-based platform for trading RECs. PJM’s current REC platform tracks RECs at the megawatt-hour scale; the test platform is designed to track RECs at the kilowatt-hour scale. The goal, according to the Energy Web Foundation is to facilitate peer-to-peer participation even by small rooftop solar installations.
The Energy Web Foundation is a non-profit partnership between the Rocky Mountain Institute and Grid Singularity, a blockchain technology developer specializing in energy sector applications.
On June 19, the Energy Web Foundation launched the Energy Web Chain, which it says is the world’s first “public, open-source, enterprise-grade blockchain tailored to the energy sector.”
The Energy Web Foundation hopes to “fully decentralize the chain” by fourth-quarter 2019. “At that point, it will no longer be ‘our’ chain; it will be the energy sector’s blockchain—the first public blockchain where blocks are validated by energy sector companies,” the company said in a statement.