What are RECs?

Renewable Energy Certificates (RECs) play a crucial role in the green energy market. Each REC represents proof that 1 megawatt-hour (MWh) of electricity was generated from a renewable energy source (solar panels, wind turbines, water dams, etc).

RECs can be sold or traded to provide income to renewable energy projects and used as a mechanism for individuals or companies to offset their carbon emissions by purchasing them. The REC market was worth around $16.2B in 2022 and is projected to reach $186.6B by 2032, growing at a 24.7% CAGR.

There are, however, several issues facing this new market due to a lack of standardization and transparency. Off-chain centralized systems like those currently powering RECs are siloed and therefore vulnerable to double-counting and other errors in accounting. Verifying the authenticity and origin of RECs can also be challenging. About 42% of emission reductions claimed via RECs don't reflect real-world mitigation.

These are just a few of the serious problems that several blockchain companies are now building solutions for to restore credibility to the renewable energy credit sector.

What is being built?

Several recent projects have been focused on increasing the transparency and effectiveness of the REC & energy markets:

• Jasmine Energy streamlines generators, climate actors, and financial intermediaries through tokenized Energy Attribute Certificates (EACs). As ERC-1155 NFTs: Energy Attribute Tokens (EATs) can be deposited into reference pools (inspired by Toucan) in exchange for the Jasmine Liquid Token (JLT) ERC20 token.
• Reneum uses the Polygon blockchain to tokenize RECs into tradable Digital RECs (dRECs). ERC20 RENW is issued as a unit of measurement for the dREC inventory. The supply is dynamic and indicates the total MWh available in the platform. Burnt upon purchase to retire an REC offsetting claim. Buyers receive a record of the transaction as a Soulbound token when burnt. Provenance is stored in its metadata on IPFS. This SBT credential verifies ownership of the REC. Both SBTs and RENW are not tradable, hence non-speculative.
• Energy Web’s decentralized Polkadot Substrate offers tools for companies in the energy sector. Green Proofs for BTC is creating  a certification process for energy-intensive industries like BTC mining​. Along with FlexiDAO, Energy Web helped develop the ERC-1888 standard (extending the ERC-1155 multi-token structure with a claiming functionality), outlining a clear framework for issuing, trading, and retiring RECs in a transparent and immutable manner. FlexiDAO also suggested using NFTs to allow for a very granular view of RECs, each representing a specific amount of renewable energy generated within a timeframe that can be arbitrary as short as needed.
• Grid Singularity is developing decentralized energy exchange by connecting local aggregators, which connects households to distributed energy assets. Their simulation models for local energy markets show an increase in community self-sufficiency and self-consumption by 7.7% and 5.7%, respectively. Reducing energy bills by ~21%.
• Powerledger launched a Solana fork to facilitate peer-to-peer energy trading. Individuals can buy and sell excess renewable energy in a secure, traceable, and automated manner​.
• Sun Exchange enables the micro-leasing of solar cells, making solar energy more accessible and creating a source of income for its users who can get paid in BTC​.

Leveraging on-chain RECs

As RECs and other energy derivatives come on-chain, new opportunities will arise for individuals and companies to better make use of them.

A peer-to-peer energy marketplace optimized for direct trading would allow for the creation of tokenized assets backed by energy derivatives. These tokenized RECs could be collateralized within lending markets to create new opportunities for investors and drive additional demand as a result.

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Open Dollar is a decentralized lending protocol allowing users to lock assets in Collateralized Debt Positions (CDPs) via NFT Vaults to borrow overcollateralized stablecoins against. REC-backed loans could be built on top of this framework, unlocking liquidity and stabilizing REC prices​.

If you’re a developer interested in unlocking RECs with DeFi, get in touch with us!

Learn more about the protocol by reading the Litepaper. Check out the Open Dollar App and get in touch with us on Discord.

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