Despite the criticism of being the post-Bitcoin, unsustainable, digital gold rush, Non-Fungible Tokens (NFTs) represent today a $22bn market in which Hollywood, sports celebrities and big brands like Coca-Cola, Gucci, Nike and Adidas are already carving their space.
Icing on the cake, NFTs became Collins Dictionary's word of the year for 2021. Given all this hype around this topic, at FlexiDAO’s headquarters we felt the urge to provide you with the clearest answer to the question “Will NFTs also appear in the renewable energy sector?”.
Spoiler alert, they are already out here.
NFTs: a brief introduction
NFT stands for Non Fungible Token, a term used to define digital assets with unique characteristics. From digital art, fashion items, collectibles in the metaverse, and memorabilias, non-fungible is just the technical term to say “unique” and “irreplaceable” as opposed to fungible assets like dollars or Bitcoins (BTC). The main difference is pretty straight-forward: if you exchange a one dollar bill for another dollar bill with a friend, you will end up with the same exact thing. The same would apply to BTC. On the other hand, trade a real Picasso for a replica, and you will regret it for life.
Thanks to blockchain’s intrinsic ability to transfer ownership of assets without having to rely on traditional systems and/or third parties, NFTs provide a digital standard for ownership of unique physical and digital assets.
NFTs for Renewable Energy Certification
Due to the nature of the electrical grid, it is physically impossible to claim that an electron coming out of a socket is produced by carbon-free sources. To solve this issue, Energy Attribute Certificates (EACs) were introduced around two decades ago to label the physical flow of electricity with unique characteristics (attributes) and enable consumers to choose their preferred energy source.
In short, each EAC is a digital attribute that specifies and certifies for one megawatt hour of electricity the production site - which implies location and technology type - and the month when it was produced. EACs are traded on a yearly basis across market participants up to the final consumer that can use them to prove to sustainability standards (e.g. CDP, GRI) its carbon-free energy achievements within 16 months from the creation of the EAC.
During the past year though, more and more players within the energy sector have started to face the harsh truth about renewables: sometimes the wind doesn’t blow and the sun doesn’t shine. Relying on monthly EACs doesn’t do the trick anymore if the goal is running on carbon-free energy every hour of the day, every day of the year. For this reason, regulators are being asked to refine the granularity of EACs (links provided at the end of the article) to make sure that EACs have a one hour granularity in order to accurately represent the way power is produced and consumed across the electrical grid.
If monthly EACs represent a unique digital attribute - although with poor granularity and with a validity of 16 months which eventually turn them into semi-fungible - hourly EACs truly are non-fungible assets. In fact, each hourly EAC is labelled with a unique energy volume (unlike monthly EACs which have fixed 1 MWh size), time, generation unit and a different CO2 content that also depends on the production mix at that very hour.
Renewable energy certification policy and NFTs: where are we now?
Believe it or not, NFTs are already here in the energy sector and they make for one of the most solid use cases of these new digital assets. RESpring, FlexiDAO’s proprietary platform, already allows the issuance of hourly EACs in the form of renewable energy NFTs on blockchain technology, therefore creating a tradable and immutable digital attribute that can be audited and used to report 24/7 Carbon-free Electricity achievements. These attributes, also called Granular Certificates (GCs) by the EnergyTag initiative, have already been tested and used by our clients, including Microsoft.
All this sounds extremely promising, but where do policymakers stand when it comes to revamping current energy certification schemes? For the time being energy policies nor the official reporting standards - such as the GHG Protocol - are considering GCs formally. However, there is a well founded hope for 2022. As 24/7 Carbon-free Energy is gaining momentum globally, granular renewable energy NFTs are going to be an indispensable instrument for certification, trade and, last but not least, transparency.
Recently, during the last edition of RE-Source, Henrik Dam from the European Commission (Energy DG) defined GCs as a potentially important instrument in the near future.
Welcome to the new era of the energy revolution - NFTs for renewable energy certification have just become a reality and FlexiDAO, with the help of its honourable partners, is already proving it.
If you want more information on how you, as an energy buyer, can receive NFTs through certifying the origin of your renewable energy on an hourly basis, don't hesitate to get in touch and request a free demo.
For additional reference:
- Open-source NFT minting standard ERC-1888, designed and implemented by FlexiDAO
- EnergyTag white paper on granular certificates
- Google's 24/7 Carbon-Free Energy commitment