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A Minnesota nonprofit is partnering with an Australian company to build an application to manage REC sales.
A Minneapolis clean energy nonprofit recently agreed to partner with an Australian company to enhance the process of buying and selling renewable energy credits through blockchain technology.
Midwest Renewable Energy Tracking System (M-RETS) announced that the Australian technology company Power Ledger will build the blockchain application to manage the sales of renewable energy credits (RECs) and thermal energy credits created by renewable natural gas.
A third partner, San Francisco-based Clearway Energy Group, develops and operates clean energy projects, including several in Minnesota and Iowa.
The partnership seeks to offer a technology solution that helps users manage the complexity of the booming green energy marketplace. It essentially creates the equivalent of a stock market for renewable energy certificate buyers and sellers where trades can happen much more quickly than they do today.
What’s a REC marketplace and how do they usually work?
Renewable energy credits have become an annual €2.56 billion market for utilities that must reach state-mandated clean energy goals and for companies seeking to voluntarily reduce their environmental impact.
Unless governments or businesses produce onsite electricity, they do not know the origin of the power they consume. They pay their local utilities for electricity created by a combination of natural gas, wind, solar, coal and hydro.
If they want to support clean energy they can buy renewable energy certificates, which are created by clean energy producers such as wind and solar companies. The cost of the credits is in addition to their electricity bills.
A renewable energy certificate represents 1 megawatt hour of renewable energy. Brokers handle certificate sales to a marketplace with two kinds of buyers.
One segment, “compliance buyers,” are typically utilities, governments and other entities that are required to generate a portion of their power generation from renewable sources. If they do not produce the renewable energy themselves, they can often comply with state statute by buying certificates. At least 29 states require utilities to generate a portion of their electricity from renewable sources.
The second, “voluntary” market includes environmentally conscious companies and institutions that want to support clean energy and likely have carbon emission reduction goals. They include corporations such as Starbucks, Facebook, Google, Whole Foods Market and many others.
Every certificate carries an identifying number issued by a certifying agency. Each region of the country has such an agency, and in the Midwest and parts of the South M-RETS handles that function for many clean energy producers. Michigan also has a renewable energy credit system.
After issuing each certificate a number, M-RETs tracks their lifecycle to ensure against double counting. The nonprofit has no role in certificate sales, which are usually managed through brokers.
After releasing a blockchain energy trading platform in 2016, Power Ledger today works with more than 20 clients in nine countries. CEO Jemma Green believes the technology fits the needs of the renewable energy certificate marketplace.
How will blockchain change the way M-RETS’ marketplace works?
M-RETS has made no investment in Power Ledger. Clients will choose to participate in the blockchain platform or use brokers to manage sales, as many do now.
Power Ledger’s blockchain technology will be available to M-RETS subscribers but they will not be required to use it, said executive director Ben Gerber. He sees it as an option they may find attractive for managing renewable energy credit transactions because of its ability to maintain so much information using one digital platform.
Based on cryptography, blockchain gained fame as the basis for the digital currency Bitcoin. As a “distributed ledger technology” that stores data on servers around the world, blockchain applications include financial services, supply chains, and digital payments. Each transaction creates an “immutable” record that allows for more accurate verification, among other attributes.
Those should be attractive features to utilities, power producers, corporations and governments who subscribe to the M-RETS system, said Gerber. Many transactions involve banks, escrow accounts and “other unseen costs,” he said.
Buyers, often large utilities and corporations, do not disclose their identities to avoid driving up prices. Sellers sometimes back out of agreements after receiving better offers.