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Tokenization benefits for renewable energy companies
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Tokenization benefits for renewable energy companies

The green energy sector is actively developing, but it has some obstacles on the way. Learn how tokenization and blockchain can help renewable energy companies.

The energy sector is one of the most demanding in terms of innovation. This is especially true for renewable energy sources, the most developing industry. Investments in wind and solar energy are proceeding at a tremendous pace. In 2010 these two energy sources accounted for only 1.7% of world energy production, but in 2020, this percentage has grown to 8.7% and continues to rise. At the same time, energy companies are gradually realizing the blockchain’s relevance for alternative energy and renewable sources and are actively implementing them for their own purposes. One of the beneficial options for energy companies is tokenization. This article will cover this topic and examine renewable energy tokenization benefits. 

What do you need to know about the energy efficiency of blockchain technology?

Blockchain technology can significantly improve the efficiency of many processes in the field of alternative energy. However, many criticize this technology for its lack of energy efficiency. It is believed that blockchain and mining are among the dirtiest in terms of carbon footprint. However, these problems are exaggerated.

Yes, the Bitcoin blockchain operation requires a significant amount of electricity. According to current estimates, the energy consumption of this network is 707 kWh. However, the Bitcoin blockchain is not used for renewable energy tokenization. In this area, the Ethereum blockchain is used; alternative options are much less common. The power consumption of Ethereum is 70 TWh per year. In the future, the blockchain is expected to be transferred from the Proof-of-Work algorithm to Proof-of-Stake. This will further reduce power consumption.

For example, the reduction in power consumption can be seen in the example of Cardano (ADA). This cryptocurrency uses the Proof-of-Stake algorithm. The energy consumption of this cryptocurrency is 6 GWh per year. This is more than 10,000 times less than the current Ethereum power consumption.

What is tokenization?

Asset tokenization is the transfer of physical assets to the blockchain. It ensures reliable information protection. The blockchain securely stores all information; it cannot be deleted or changed. Thanks to this, the technology is convenient to use for a variety of areas – from real estate to music. Alternative energy is also one of the industries where tokenization is being implemented most actively.

Tokenization involves the transfer of particular assets into tokens. One type of token that can be chosen for this is a security token. This is a special type of token recognized as security in many countries. Tokenization means the transfer of a specific asset to the blockchain and releasing a certain number of security tokens. In fact, renewable energy tokenization divides the renewable energy asset into several digital shares with further sale to the interested parties.

renewable energy tokenization benefits

Benefits of renewable energy tokenization

Asset tokenization is a great solution for any industry. It provides companies with a wide range of benefits, including:

  • Increasing liquidity. Tokenization allows companies to increase liquidity by making it easier to buy and sell tokens.
  • Opportunity to attract investors with small capital. It is difficult for innovative projects to attract the attention of institutional investors due to the high risks associated with the industry. However, private investors are more risk averse and willing to spend small amounts even on risky projects. Tokenization opens up access to private investment.
  • Opportunity to raise funds without changing the form of ownership. Only open joint-stock companies can issue shares with access to the stock markets. Accordingly, an LLC or a closed joint-stock company needs to change its form of ownership. Tokenization does not require this. Even closed joint-stock companies can issue security tokens.
  • Legality. The security token is recognized as security in many jurisdictions. Accordingly, these tokens, unlike utility tokens, are legal assets. The countries’ financial regulators protect investors; however, it is essential to know that the legislation differs significantly in different countries. Therefore, it is necessary to familiarize yourself with the regulations before starting the tokenization process.
  • Next stage of the financial system. Tokenization, together with decentralized finance, brings us closer to Web 3.0. By issuing tokens, you are one step closer to a new stage in the development of the Internet. In particular, you will be able to attract financing from investors more easily since you already have experience obtaining investments innovatively.

Thus, the tokenization of assets, in general, is one of the most promising technologies of our time. It is useful for many areas of business and for the energy sector in particular.

How useful is energy transition tokenization?

In addition to the general advantages of tokenization, there are also specific ones that are directly applicable to the energy sector in general and alternative energy digitalization in particular.

First of all, blockchain improves delivery efficiency. The technology effectively controls the supply chain and solves the problem of distributed generation management. Alternative energy provides a large number of small power units, each of which must be maintained; information must be read and analyzed. Energy transition tokenization helps organize a decentralized control, monitoring, and management system. This is extremely important for the sphere of “green energy.”

Energy transition tokenization allows you to get rid of bureaucracy and outdated infrastructure. These problems make many processes inefficient. Inefficiency also affects the price (for example, using printed documents in the workflow). Tokenization solves this problem. Every barrel of oil, a thousand cubic meters of gas, and every megawatt of electricity can be tokenized. Energy digitalization allows you to manage energy in a decentralized manner.

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In the case of automation of the energy sector, the cost of electricity is reduced. The introduction of blockchain and tokenization makes it possible to reduce the cost of production and delivery. Therefore, tokenization is an excellent solution for the energy business.

Green energy investors also benefit from a range of benefits. In particular, it is possible to invest in energy resources directly. For example, one can invest in a megawatt of electricity (for green energy) or a barrel of oil (for conventional electricity). These assets’ price is constantly changing in the market, and investors can sell their asset at any time and get a profit.

It is also possible to create so-called renewable energy certificates (RECs). Such certificates already exist and represent 1 MWh of energy the enterprise produces. However, classical RECs do not guarantee this electricity’s “green” origin. This problem can be solved by the blockchain, which allows for constant monitoring of the source of energy.

Conclusion

The energy sector has a number of problems: it requires a significant upgrade of infrastructure and innovative solutions. This is especially true for alternative energy, where a relatively new, rapidly developing industry is facing old problems. One of the effective solutions in this area is tokenization and implementation of the blockchain.

Blockchain technology provides control over distributed energy sources. Renewable energy tokenization makes attracting investments easier and more convenient. With its help, you can raise funds even from private investors and, at the same time, stay 100% compliant. Thus, blockchain and tokenization have great promise in the field of renewable energy and can make this industry much more efficient. 

Our company has extensive experience in tokenization, including for projects related to green energy. If you are interested in tokenization, please contact our specialists. As part of the first free consultation, they will tell you about all the benefits of tokenization, the nuances of the process, renewable energy asset management, and possible options exactly for your business.

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