Using blockchain to accelerate decarbonisation

Duncan Levie, managing director of renewable asset manager WPO, discusses how distributed ledger technology – more commonly known as blockchain – can streamline complex and cumbersome processes to accelerate the decarbonisation of energy.

This was the week that saw BP recommit to renewable energy in a big way. Across no fewer than three capital market days, the oil major outlined plans to help it become ‘carbon zero’ by 2050. It called for “decisive policy measures”, including higher carbon prices, and more low carbon choices for both consumers and companies.

It is clear that while humanity deals with the immediate threat of Covid-19, business leaders and policymakers remain very much focused on the longer-term threat of global warming. And investors are endorsing that with hard cash, even during a pandemic. Data from ratings agency Fitch shows that renewables were the only energy source that boosted capacity during the multi-months of lockdown that triggered a drop in energy demand across Europe.

The green revolution in energy, however, has not been without hiccups. The UK’s major power outage in August 2019 is believed to have been caused by the world’s largest offshore wind farm going offline. That has raised important questions about the resilience of our grid which is becoming more complex as more, and more varied, renewable energy assets are plugged in. While previously reliant on traditional coal-fired power and nuclear stations that pumped out a continuous supply of electricity, today’s energy systems also encompass gas, hydro, solar, offshore and onshore wind, as well as batteries and other storage solutions. Our grid today has to manage intermittency and storage for when the sun doesn’t shine or the wind doesn’t blow.

Increasingly, data is the ‘secret sauce’ that will help to hold it all together. All parts of our energy systems are constantly throwing off data. Sensors in wind turbines, for example, generate data that can provide an instant snapshot on weather conditions in a particular region, and how it will impact on output. This data can also optimize maintenance and extend the turbine’s life.

How to harvest, analyse and manage this data is the challenging part and key to accelerating the energy transition, as WPO has learned. Our serviced portfolio includes over 2,000 wind turbines and 12 million solar cells across 600 sites in Europe – which together produces enough electricity to power a major European city like Manchester. Each year we take on ever more assets to manage and the mix of assets is becoming ever more complex. Our industrial scale data lake is growing 30 per cent a year.

If we can find a better way to curate, analyse and use this data, we can accelerate decarbonisation by making our energy management systems more resilient, and financial returns more predictable, attracting more investment. Distributed ledger technology – or blockchain – can be the solution. The characteristics behind this technology, such as decentralization, transparency, security and traceability can transform the way we procure, manage and certify renewable energy.  We have already identified some real-world uses to iron out existing frictions in the clean energy market.

Let’s start with green certificates, which help to underpin the entire clean energy revolution. Stakeholders already need to certify that the energy they are buying, selling or producing comes from a clean source: this certification process can be cumbersome, slow and costly. Doing it on blockchain can make it much more automated and efficient. In 2018/19, WPO successfully produced and marketed certificates representing 110 gigawatt hours of green electricity production from ten wind sites in France as part of a blockchain pilot. We now have the ability to issue blockchained production certificates for 3,000 gigawatt hours from nearly 270 wind and solar sites operating across six European countries.

Making it easier to accredit clean energy production in this way reduces costs for investors, and energy producers and buyers. The ultimate aim would be to use the blockchain to process green certificates real-time and on a continental scale, replacing the national registers that currently characterise Europe’s disjointed approach and offering one standardised certification tool for use across Europe.

Managing insurance claims and production guarantees is another blockchain use to explore. If the wind does not blow or the sun does not shine, producers can request insurers to cover penalties they may have to pay in turn for not generating power. Arbitrating these payments can be time-consuming and costly for asset owners, operators, and the end-customer. Smart contracts on a blockchain platform can automatically decide who is owed what. Removing this friction can reduce financial risk for renewable investors.

Negotiating PPAs – or Power Purchase Agreements – can also be costly and cumbersome. Building these electricity transactions on the blockchain through the use of smart contracts will make PPAs more transparent, faster, more efficient and secure.

And lastly, digital tokens registered on the blockchain can be used to buy and sell services within a network of like-minded organisations in order to support the energy transition. WPO’s GreenToken is a digital asset which can be used to purchase services from WPO and other companies in the GreenToken Network and directly traded by owners on digital exchange platforms.

To be sure, blockchain is no ‘silver bullet’ to global warming. It is however a ground-breaking technology that is already transforming the world of finance and investing, and we can now leverage this to accelerate the transition to a zero carbon future.