Blockchain applications for corporate PPAs

Whilst some blockchain optimists have predicted that the application of blockchain technology to PPAs will remove the need for utility companies and create a peer-to-peer energy trading revolution, there are a number of regulatory considerations to be kept in mind. 

Real-time settlement

Offtakers under a pay as produced PPA could have their meters linked to a smart contract which would allow for real-time settlement on a shared platform. Energy consumption under the PPA would be recorded and the generator could be compensated at intervals decided by the parties. This would benefit the generator as they could receive increased liquidity through weekly, daily, or even hourly payments, whilst offtakers could benefit from lower energy prices in return for providing this liquidity. 

REGOs

The traceable, transparent and secure nature of the blockchain also makes it an ideal technology for the issuing and trading of renewable energy guarantees of origin (“REGOs”) which are often a crucial aspect of PPAs for the offtaker. REGOs allow businesses to prove that their energy is sourced from renewable generators which thus meeting their carbon reduction and sustainability reporting requirements. Blockchain allows verification of REGOs as their movement across transactions can be traced back to a specific supply of renewable electricity. This increases REGO security and trust by preventing fraud. This technology is already seeing use in PPAs with Sofidel and Acciona Energia announcing a blockchain integrated PPA in 2023.  

Peer-to-peer energy trading and blockchain PPAs

The delta between the energy produced by generators and that consumed by customers can lead inefficiency in the traditional PPA market. As the selection of generators and consumers becomes decentralised, blockchain can facilitate increased efficiency in the renewable energy market by matching production and consumption via PPA aggregation and peer-to-peer trading. PPA aggregation involves several offtakers pooling together to enter into a PPA with a generator (or number of generators via a virtual power plant) and smart contracts are an ideal way to execute agreements to determine who receives how much electricity and at which times. Peer-to-peer trading sits alongside a PPA but can be used to facilitate offtake being distributed to third parties under a smart contract. The data on these transactions can then be stored centrally on the blockchain for access by all parties.

Whilst great for increasing efficiency in the energy system, peer-to-peer trading, in particular, raises regulatory concerns in terms of how electricity being supplied by one consumer to another would be licenced which is limiting its utility in many jurisdictions. Aggregation can also carry regulatory issues. Even with blockchain, the licensable activities within the electricity market still exist – generation, distribution and supply. Whilst blockchain PPAs can match renewable generation and demand, this is only done virtually, there is still a physical regulated supply between generator and consumer. Parties therefore need to be clear which party is responsible for performing each of these regulated functions and paying necessary grid charges to transport the power. As both generator and corporate contract with the blockchain provider (rather than with each other), the generator may not know who the corporate is when it enters the contract, and there may not be any guarantee or security provided by the blockchain provider for the corporate’s obligations. 

The relatively new nature of the technology, alongside these regulatory concerns, means that we are generally only seeing blockchain PPAs on a very short-term basis (around a year), but this could change as the market matures. 

Blockchain therefore presents a number of innovative solutions for the energy sector, particularly with regard to PPAs but also presents some regulatory hurdles.  

If you would like to find out more, please visit our Corporate PPA Hub or get in contact with us.