Blockchain’s role in the energy economy goes far beyond cryptocurrencies and peer-to-peer rooftop solar trading via social networks. The ability to “tokenize” data in a radically decentralized and transparent way amongst thousands, or even millions, of participating actors is a breakthrough technology with applications across the energy ecosystem. New examples emerge every week.
In the past seven days alone, we’ve seen at least four major blockchain projects announced, each taking on a different energy market and/or financing challenge. We’ve already covered WePower’s project with Estonia to tokenize a year’s worth of the country’s power grid data. Here are three more we’re tracking.
Blockchain for REC trading: Energy Web Foundation and PJM-EIS
Last week, the Energy Web Foundation announced a pilot project that could, by the end of next year, put blockchain at the center of the renewable energy certificates (RECs) market operated across the states served by mid-Atlantic grid operator PJM.
The project is with PJM-EIS, a subsidiary of PJM that’s responsible for managing and operating the Generation Attribute Tracking System (GATS) platform for managing REC trading across PJM’s territory. But it’s built on the Energy Web Foundation's open-source platform, dubbed EW Origin, that should be able to support RECs, guarantee of origin, and trading across the globe, according to Douglas Miller, a manager at the Swiss-based nonprofit.
Over the next year, EWF and PJM-EIS will “sit side by side where PJM provides us feedback on functional requirements, the sort of dream features they’ve wanted for a long time but haven’t been able to implement,” he said. Chief among these is the ability to aggregate small-scale rooftop solar in the tens or hundreds of thousands for REC markets, by “standardizing and automating processes such as physical asset registration, asset authentication through digital signatures, secure data logging, REC creation and validation, REC ownership registration, and REC retirement,” according to last week’s press release.
“Imagine that you have a citywide scale of household solar systems that can either pool their production or pool their demand for better pricing, but they don’t have to coordinate with each other; they just have to specify their preference in a user-friendly interface,” he said. EWF and PJM-EIS will be recruiting existing renewable generators and buyers to run its simulated blockchain alongside the GATS software, and testing various scenarios involving solar PV, electric vehicles and other resources.
Small-scale solar PV can be aggregated for REC markets today. But this requires brokers or other parties to connect these independent asset owners with the market opportunities, said Miller. “I recently tried to get my entire condo building in Washington, D.C. to switch to solar, and it took several months with phone calls and PDFs that I exchanged with brokers — it was not a modern transaction."
“The blockchain’s role is to fulfill those transactions, and verify that those transactions did happen, in a way that doesn’t require the participants to know each other directly,” said Miller. “Brokers may set the terms of the deals, but the terms will be implemented and tracked using this technology. It may, from the broker’s perspective, reduce their cut, but it also increases the amount of business they can handle.”
By the end of the pilot in late 2019, “we want a robust code base, which we call a toolkit, that we could provide to PJM and that they could adopt for trading and recording RECs in their market,” he said. “We can share this same toolkit with any other REC, registering body or IREC entity in the world."
As for the benefits, Miller noted that EWF’s rough estimate indicates that implementing blockchain could reduce REC brokerage costs in PJM by about $1 billion a year. But the more exciting goal is to open up PJM’s REC trading markets, which already account for roughly 5 percent of the world’s trade in such instruments.
Greentech Media Chairman Scott Clavenna noted that “blockchain offers one of the most straightforward means of reducing costs and complexity associated with REC generation, tracking, verification and settlement. It makes perfect sense to pursue this early — it doesn't challenge existing regulatory structures at all.”
Power Ledger's "Asset Germination Event” seeks to link retail investors to utility-scale projects
Australian startup Power Ledger is one of the fastest-growing peer-to-peer exchange platforms in the business. It is engaged in distributed energy tokenization projects in the U.S., Thailand and in its home market.
Now it’s planning the launch of its “Asset Germination Event” — a blockchain-enabled offering for everyday investors to fund large-scale energy projects via “fractionalized” ownership.
“This is about attracting new sources of capital to fund energy projects, and also making them more liquid,” Dr. Jemma Green, co-founder and chairman of Power Ledger, said in an interview last week. “As far as we can tell, there isn’t a whole bunch of choice for retail investors to invest in energy assets. We’re talking about commercial-scale energy assets, 1 megawatt of solar, or a grid-connected battery, a wind farm — these kinds of assets.”
To bootstrap its AGE concept, Power Ledger is buying the first two assets in advance, she said. The first is an operating South Australia commercial-scale solar farm, and the second is a grid-connected battery project to be commissioned in February as part of a government-funded smart city project in Perth.
Power Ledger started promoting the opportunity for retail investors to buy a share of the projects earlier this year, but the actual Asset Germination Event will take place in January or February of 2019. “There will certainly a disclosure document” laying out the risks and rewards of taking a fractionalized share in the assets seeking investment, said Green. “It will be akin to anything you’d find in terms of investment retail offerings” under Australian securities regulations — only it will be managed via blockchain, as opposed to traditional technologies.
Wood Mackenzie Research Manager Elta Kolo noted that Power Ledger’s AGE looks a lot like the crowdfunded approaches for renewable energy that have sprung up in the U.K., Belgium, the Netherlands and other European markets, at first glance. But “blockchain at the core provides settlement and verification without a central authority, so this type of project is a natural fit,” she noted. “If successful at scale, you could potentially be looking at clusters of investment across geographies.”
Power Ledger isn’t disclosing how much it’s seeking to raise for the first two projects. Green noted that the AGE event will not allow oversubscription beyond the projects' values. “You can’t raise more than you want to — that’s the point of the blockchain.” On the other hand, blockchain could allow project investors to resell their shares, creating a new form of liquidity for these types of projects.
Power Ledger isn’t planning on becoming a developer in its own right beyond its initial project. “It could well happen that the event sells out quickly,” she said — a good sign for the popularity of the concept. "In the worst case, we will buy the assets ourselves” if retail investors fail to materialize, said Green.
Green hopes that a successful test will encourage other project developers to scale its technology. “We will be allowing third parties to use our technology and platform,” she said. “A developer of an energy asset might want to fractionalize a portion of the ownership – or they might want to do all of it.”
GTM's Clavenna agreed that clean energy developers may well find this side of Power Ledger’s offering appealing. “Developers will always need access to capital pools that are lower in cost than traditional equity sources or lenders. If this kind of platform allows that, it creates another valuable tool in the toolkit for project development. The question always comes back to how to protect the investor — that's why we have securities laws, and compliance with those laws is not supposed to be easy.”
LO3 Energy’s Exergy raises money to make a market for energy data
LO3 Energy stands alongside the Energy Web Foundation as one of the most trusted and in-demand blockchain technology providers out there — in fact, the two are partners. It also has investors like Siemens, which has partnered on its hometown transactive microgrid project in Brooklyn, New York, and Centrica, which is piloting blockchain applications in the U.K. and the U.S.
On Monday, the company announced a new investment from European Power Exchange EPEX SPOT and blockchain investment firm Alphablock Investments, as well as existing investors Centrica and Braemar Energy Ventures, to fund development of its Exergy transactive energy platform.
Specifically, the new funding is aimed at expanding Exergy to manage the trading of a valuable commodity in the energy business, LO3 CEO Lawrence Orsini said in an interview — not energy, but energy data itself.
“Everyone’s building their own data platform” for energy, he said. “But in the end, all these structures are locked away in proprietary databases. There are data platforms out there —– Green Button comes to mind — that are...useful platforms that are lacking a business model.”
One of the key problems keeping data locked up in different silos is the matter of ownership and stewardship, added Orsini. “If I’m an owner of data, what incentive do I have to put that data on my platform?”
For many utilities, the answer to this question has been regulatory mandates to share data, he noted. But this has led to numerous conflicts and delays as utilities, regulators and third parties wrangle over issues of data security, privacy and fair access.
“The question is, how do you value that data?” said Orsini. “We’re using tokenization to do that. By tokenizing it [and] encrypting it, we can turn it into a valuable asset.”
Exergy can create “permission tokens” that accompany every piece of data made available on its platform — “to put information on the platform, or take data off the platform, you’d have to have a token,” he said. That token will require anyone who wants the data to get permission from the owner, who can then track it to ensure it’s being used correctly and within whatever restrictions they’ve decided to place on it.
In simple terms, “We want a global standard for that data, and a platform where you can access that data, as an industry,” he said. “Through that whole tokenization process, you can build a reputation around the data and its use.” At the same time, “the data needs to be ours — we need to be able to take it back when we need to, and we need to be able to choose who we expose it to.”
This is assuredly a huge ambition, and Orsini conceded that it “is not something that any one company can go off and do in isolation. This has to be developed in the industry. We’re aligning the incentives for the industry to build these.”
But LO3 does have its investors to work with, starting with EPEX SPOT, which has been working with the startup since December on a community microgrid concept. “We’re looking to connect local energy markets to the wholesale energy markets, and allowing aggregation, or self-aggregation, to participate in wholesale markets,” he said.
Beyond the scope of the pilots, “more than half of European energy is traded across their platform, and they’re going to bring a lot of their information and help bring value to the platform.” Similarly, LO3 will be working with Centrica to understand the physical and data management needs, as well as the business models.