Blockchain: the instrument for businesses going green?
Photo credit: Reuben Wu
Companies in the commercial and industrial sectors account for a massive two-thirds of the world’s end-of-use of electricity, according to IRENA.
There is a clear environmental imperative for this demand to be met by renewables, rather than fossil fuels, and there is also a compelling business case for the switch: not least in providing companies with greater control over energy costs, increased competitiveness, and delivery against emissions reduction goals.
Initiatives such as RE100 have been instrumental in creating demand at a corporate level for the switch to 100% green energy. Four years down the line, more than 140 multinationals have publicly committed to power their operations entirely with renewables, as well as to publish data showing their progress on that journey.
These commitments are a critical first step, but these leaders also need tools at their disposal to translate their ambition into tangible change.
Looking at corporate reporting, it becomes clear that many businesses have to-date met their sustainability goals by buying certificates of origin, which creates a new line of expense on their balance sheets. By concluding power purchase agreements (PPAs), businesses can benefit from these certificates while also generating new revenue, which presents a much more compelling alternative.
However, the PPA model presents its own drawbacks. To interrogate these fully, we need to first take a step back to understand the bigger picture around their formation. Our vertically integrated system with large, centralised assets owned and operated in the main by large, unagile incumbents meant the business-as-usual picture for energy buyers was challenging. Choice existed only at a retail plan level, buyers were exposed to market volatility, information was opaque, and pricing models included clashing incentives.
Standard retail offerings failed to provide appealing options for corporates to transact directly with electricity producers, resulting in a rapid growth of corporate PPAs struck between buyers and generators, enabling direct access to cheaper and cleaner electricity.
But this model has a number of inadequacies. Today PPAs can take years to be agreed. They are long-term, highly illiquid financial instruments that at present require energy buyers to lock their companies in for years. And they don’t cater for small and medium-sized companies that want to green their operations, but don’t have the footprint to take on the electricity output of an entire wind or solar farm.
The energy sector as a whole – and large-scale energy buying in particular – has until recently been largely untouched by the digitisation that has transformed so many other industries. However, innovation is bringing new opportunities to decentralise the generation of energy and redesign the energy buying process.
Things that matter the most to the corporate and commercial businesses are choice, certainty, transparency and cost. Choice about where and from whom they source their power, certainty about both price and supply, transparency in how deals are brokered and the ability to lower costs. We see blockchain as a crucial means to eliminate barriers to entry for corporates of all sizes that want to play in the power purchase market. Blockchain provides liquidity to power purchase contracts, make them tradable, whilst still maintaining the immutability of ownership.
Initiatives to deploy blockchain technology have the potential to drastically reduce the time and effort needed to strike clean-energy agreements between business consumers and renewable power producers.
Smaller companies with lower energy needs can be automatically aggregated, enabling them to sign contracts for renewable power that are traditionally reserved for large energy users, at a cheaper and more readily understandable price.
It also delivers simplicity. Today, deals are bespoke, resulting in long negotiation periods, complex contracts, and high legal and financial fees. Only a standardised approach can solve this. Blockchain provides a clear record from when energy was generated, to when it is traded, stored and consumed. With contract standardisation, the creation and provision of bespoke deals can be easier, cheaper and much more liquid.
Finally, the aggregation of multiple corporate energy buyers that comply with established creditworthiness requirements opens up the financing ecosystem for renewable energy projects, since power purchase agreements are a necessary condition for institutional debt financing. Ultimately, this means more renewable energy build out.
In the process, the things that matter most to energy buyers are addressed. First, direct access to renewable energy developers gives them greater choice. Hedged prices deliver certainty by mitigating market volatility. Finally, blockchain open ledger accounting provides transparency, and by removing intermediaries as well as information arbitrage, buyers can benefit from lower rates.
Excitingly, this power of digital aggregation could eventually also be extended to households, automatically matching them to large renewable energy generators to empower domestic consumers too.
As we look to this year’s European Utility Week, this is precisely why we see blockchain as the critical instrument for businesses to realise their ambitions and to build a fully sustainable energy future. We are excited to introduce WePower Platform and the value it brings both to the energy buyers as well as developers.
Nikolaj Martyniuk will be speaking in the Summit Energy Market session taking place in Lehar 3 & 4 on the 6 - November at 15:10 15:30 about: “Operating between prosumers and flexibility users - The aggregator role"
Interested in joining this Session or other Summit Sessions and interacting with other key speakers?
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