In 2017, a number of companies have been working to use blockchain technology to enable alternative markets for energy trading and models for renewable energy financing. The more prominent ones include Suncontract, PowerLedger and Wepower. This may result in increased transparency for energy transactions.
Blockchain is the technology that enables the existence of cryptocurrency. It is a shared digital decentralized ledger that records transactions across a peer-to-peer network, making direct exchanges of funds possible.
These organizations have gone on to raise significant amounts of money through initial coin offerings (ICOs). SunContract reportedly generated about $1.63 million USD in funding. PowerLedger reported it attracted about $34 million AUD.
Clean Energy Finance Forum spoke with Nikolaj Martyniuk, CEO and cofounder of Wepower, to learn more about his team’s work in using blockchain technology to build a platform that enables peer-to-peer transactions in renewable energy. His company is beginning its work in Europe and may expand to the United States later.
CEFF: Tell us about Wepower. How and when did the idea come about? How has it evolved since then?
Martyniuk: The idea has been there for a long time. The only question was how to implement it. With the advent of blockchain technology, we started thinking about how we can leverage it in the energy sector because its business and infrastructure are complicated and have been so for many years.
The question was basically, “How can we change the way energy is traded?” More and more people are coming to the grid having, let’s say, solar panels on their roofs. Now there are also options in the market where you can store some of the energy and be a producer.
Another question was, “How can we make a market for everybody to take advantage of the new product?” Our idea was to make peer-to-peer transactions possible – but for that to happen, more volume needed to be available. We saw an opportunity in the market this year with investments in renewables declining according to Bloomberg New Energy Finance.
Project developers are looking for other people to lend to the project. Wepower’s platform solves this problem by creating the opportunity for people to invest in renewable energy projects by buying energy at a discount, thus providing developers with capital needed to bring new renewable energy production online. This obviously depends on the volume of transactions because if we don't have enough volume there will never be a peer-to-peer market that will actually work.
So solving these problems and enabling peer-to-peer transactions to happen will make the market more efficient. We will know exactly where the energy is produced, where it goes, and how the grid is utilized. It will also bring transparency and accountability to the issues of energy production and CO2-emission savings.
CEFF: Could you describe how the Wepower token works; the parties involved in a typical transaction on the platform; and their entitlements, obligations and incentives?
Martyniuk: There are two types of tokens. One is the platform token such as the one for which we are doing an initial coin offering (ICO). The second is the token that goes on the platform.
The ICO tokens are access tokens which provide a right for priority in buying cheaper green energy. They also act as a key to other benefits. We sell them to raise money for the project using a donation–based model.
Basically, people are contributing to Wepower and getting a token for that. Each token represents a key to another smart contract to which energy will be donated.
The model is that each new power project connected to the platform will auction their green energy. This donates at least 0.9 percent of the energy brought onstream to a smart contract.
The community helping Wepower to create this platform, in return, gets the key to a contract in which producers and developers that come on the platform will be contributing as a reward for helping develop Wepower. They will be getting energy tokens.
For the second type of token, each new project connected to the platform releases a token which defines when the energy will be produced, what source will produce it, and how much CO2 will be saved. The CO2 savings depends on the country of production and the energy mix being replaced. Each token is a smart contract which defines when the energy will be delivered. So the person holding that token with that specific delivery time will get energy at that specific time.
We will know that energy was supposed to be delivered to this person. If that person is not using energy at that time, then the energy will be sold to the wholesale market. If the person uses the energy, the contract will be executed, the token smart contract will be fulfilled, and the person will have the proof of energy consumption and a CO2 certificate.
CEFF: Many organizations are looking to procure renewable energy to meet certain commitments such as CO2 reduction. How can a solution like the Wepower token help with that? In addition, what would be the use case for an individual user who wants to construct rooftop solar and sell some of that power?
Martyniuk: Yes, it’s definitely a solution. Organizations will be able supply 100 percent of their renewable energy needs by purchasing from producers at a discount to wholesale prices on the platform and also get a certificate as proof that they did actually purchase renewable energy. This will be really easy to check, as you can open an explorer of the blockchain and check where the individual contracts went.
This also helps solve the transparency issue. It will be easy to check how the companies that promise that they're buying 100-percent-renewable energy are actually doing on that promise. You can see where they're buying and using the energy. You can also see how much of that is actually renewable.
Individual users will know how much energy they'll be using. So they'll have a prognosis of how much energy is used by a house, for example, and how much energy is there for them to sell to the grid.
They can do two things: they can sell the energy that they wish to sell or Wepower can manage all the balance that is unmanaged. We will sell the difference for them if they are not using it, but it's a bit different from the blockchain. In Europe, the service is provided by an independent energy supplier. That's what we also do.
CEFF: What are the challenges in terms of the regulatory landscape?
Martyniuk: We worked quite a lot on the legal part because energy is highly regulated. Energy has been regulated historically because it needs to be, so I don’t see problems with that. In Europe, the great thing is that regulation is common and similar among different countries. The power code is more or less the same.
Grids were designed to have centralized production and centralized delivery. What happens now is that the production of energy has become decentralized. We have a lot of private production from solar and wind, as well as other sources of energy. But they're still being delivered in a centralized way.
From our point of view, if people can produce energy and consume it at the point of production, that's amazing.
As for the ICO space, I'm for regulation to some point because I think that it's needed. It’s much easier to be in a country where you have some kind of regulation and you know what to expect than not to have it at all and fear what might happen. WePower wants to have a “voice” in the dialogue and participate in the evolution.
It's an interesting challenge. We were thinking about it for a long time. How do we structure the project itself so that the energy token that works on the platform is not a security itself? This was not easy to structure. You can end up with something that works from a legal point of view but doesn't work from a business point of view.
We eventually did an exercise with the regulators here and concluded that this token model is not a security. You can think of the model as Kickstarter, basically – but you're getting energy in return for your contribution.