How to streamline REC trading and stimulate investment in renewables

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Power Ledger’s blockchain-enabled renewable-energy trading platform has started the new decade with a game-changing application of its technology. In partnership with the US Midwest Renewable Energy Tracking System (M-RETS), and Clearway Energy Group — a giga-scale US renewable-energy developer, owner and operator — it will launch a Renewable Energy Certificate (REC) marketplace in the US.

A not-for profit organisation that validates the environmental attributes of energy, M-RETS tracks renewable resources and annually issues more than 100 million RECs across compliance markets in several North American states, and nationally in the US voluntary REC market.

“The US RECs market is the largest in the world with about US$3 billion worth of certificates traded every year,” says Power Ledger Co-founder and Executive Chairman Dr Jemma Green.

Under the current REC trading system, she says, the settlement process is fractured and lengthy, involving generators, aggregators, brokers, and buyers — which might be energy retailers complying with requirements to supply a percentage of their electricity from renewable sources, or corporates meeting their own commitments to decarbonise — and requires legal services at every step along the way.

“In addition,” Green explains, “when buyers and sellers come together, they need to reconcile the details of the trade, validate that the RECs exist and that they’re not duplicated anywhere else, and then settle those trades — a process that involves both middle and back-office functions”.

The resulting costs, she tells pv magazine, “are significant and can erode a lot of the value of the REC”, diminishing the returns to the generators, and ultimately cruelling development of more renewable assets. 

Power Ledger Co-founder and Executive Chairman, Dr Jemma Green.

Image: Power Ledger

Energising an entire renewable ecosystem

Power Ledger’s trading platform will streamline and accelerate REC trading, giving parties to any transaction confidence that they will receive payment or product in a timely manner.

“RECs are a kind of stimulus to the creation of new generation assets,” Green says. “They underpin the finances for new assets to be built. If RECs are not seen as credible, they trade at a lower price, which means that fewer projects will get up, because the value of the REC is sometimes quite material to the project being financed in the first place.”

M-RETS facilitates REC transactions by issuing a unique, traceable digital certificate for every megawatt hour of renewable energy generated by registered entities. 

“M-RETS has a very secure way of ensuring that its certificates are not duplicated, but I think that for buyers, having a way to validate that in a low-cost way is very appealing, and that’s one of the features and benefits of blockchain,” says Green.

Executive Director of M-RETS, Benjamin Gerber confirmed in announcing the partnership that “Many companies purchase RECs as a way of meeting their mandatory clean-energy standards. We believe having a third party such as Power Ledger supporting the transactional process … is another key step in modernising the world’s renewable energy marketplace.”

Developing with the user in mind

Clearway Energy Group, the third party to the venture, will provide market-participant insights, ensuring that the platform is functional and valuable. 

“Clearway are a very important aspect,” says Green. “They’re a counterparty, a significant market participant; with 6 GW of renewables in their portfolio and rolling out a gigawatt per annum, they’re very interested in driving down their costs. They’ll be able to validate the assertions we make and confirm whether the platform actually makes things more efficient.”

Green expects the partnership to be commercially launched in mid-2020, at which point it will start to scale up, onboarding more market participants, significant counterparties and buyers to the platform.

Ultimately, Power Ledger envisages expanding this platform into a global marketplace, enabling users to trade RECs between countries.

Some entities already trade across borders: multinationals with offices in Singapore, for example, who can’t locally access sufficient renewable energy certificates to meet their commitments to decarbonise, may buy certificates from renewable-energy generators in Malaysia or Thailand, but the required inter-jurisdictional contractual arrangements are even more complex than in-country trading.

Green sees an opportunity for a single marketplace with standardised procedures and a clear line of sight to the uniqueness and provenance of each REC in the system.

As blockchain’s benefits become recognised across the transactional landscape, Power Ledger continues to diversify its product portfolio, with a peer-to-peer energy-trading platform in Delhi and its first commercial deployment in Australia’s National Electricity Market tracking energy between the participants and the grid in a South Australian virtual power plant, among the 16 projects it realised across four continents in 2019.

“I think there are signs everywhere that what was an abstract concept is becoming a reality that saves ordinary people dollars,” says Green.