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How Blockchain Technology Revolutionizes Renewable Energy Certificates

Updated: Oct 18, 2023

By Jaya Bijoor

Carbon is the foremost catalyst of climate change, making reducing it imperative to combat its impact. The Global Carbon Budget 2022 states that the annual emissions from fossil fuel combustion have consistently risen since the 1960s, increasing each decade. According to the report, emissions escalated from approximately 11 billion tons of carbon dioxide annually to 36.6 billion tons in 2022. The primary culprit, fossil fuel energy production, constantly injects enormous amounts of carbon into our atmosphere. This trajectory has prompted governments, corporations, and individuals alike to embrace renewable energy solutions, ensuring a sustainable future for our planet.

But then the question is, how do we measure our transition away from carbon? How do you differentiate between electrons generated by fossil fuels and those produced by renewable energy sources once the energy is fed into the grid?

A solution to this problem is Renewable Energy Certificates (RECs). RECs, called green certificates or green tags, are tradable and marketable instruments representing renewable

energy generation’s environmental attributes. When a renewable energy facility generates electricity, it produces two distinct products: the electricity itself and the associated environmental benefits. The reduction of greenhouse gas emissions is usually separated and sold as RECs. RECs prove that a certain amount of electricity is generated from renewable sources.

Today, renewable energy certificates can be issued, held, tracked, and traded. This system is used in many parts of the world, but the certificates could be managed more efficiently

and require improvement. When a power generation plant produces one unit of renewable energy, a meter connected to the plant records that unit of energy produced on a spreadsheet. After a set period, the power plant sends the spreadsheet to a renewable energy registry, where the data is keyed onto another spreadsheet into the central registry system, generating a REC. The renewable power plant may use something other than smart

meters to record the energy production data accurately. Therefore, the registry system generates a certificate based on estimates rather than production data. Logging clean

energy production and generating certificates can take months.

Once the certificates are created, brokers negotiate deals between those parties interested in buying or selling certificates. Once a certificate is sold, another neutral party verifies the authenticity of the certificate.

This complicated system increases transaction costs and deters many from joining, especially smaller players. The inefficiency of the system also makes it susceptible to error.

Blockchain technology eliminates these complexities and makes the trading process error-free. Blockchain also offers transparency, allowing parties to access and search certificates online with the exact parameters they need, such as the amount of carbon impact. This data is available for each certificate.

With blockchain technology, each meter connected to a renewable energy plant has a unique digital identity. Instead of recording the energy produced by each meter on a spreadsheet, the meter records production on the blockchain, issuing automatic certificates. The certificates are available forthe entire market to see and eliminate the need for

independent audits to verify the authenticity and validity of the certificates. And since blockchain technology supports peer-to-peer transactions, participants can trade certificates on the blockchain.

Leveraging blockchain technology cuts the need for a manual certificate registry and eliminates the need for external auditors and brokers, significantly reducing the transaction

costs for renewable energy. With smart meters accurately recording production data, fraud or miscalculation is minimal. Blockchain also reduces the time from generating energy to the issuance of certificates. The peer-to-peer market makes energy certificates more accessible to smaller players. Smart contracts would also allow consumers to automate the purchase of credits based on their consumption needs. Transparency increases with blockchain, as all certificates would be accessible to all market participants.



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