This article discusses the emerging design patterns for the next-gen energy market and carbon energy tokens, all of which seek to serve the goal of meeting global zero carbon emissions
The climate change act of 2008 has mandated the UK to reduce greenhouse emissions by at least 80 per cent by 2050.
Recently, a legislation has been passed in the UK making it mandatory for private heavy industries to declare carbon reporting as part of their annual fiscal reports with effect from April 2019. These are reminders to accelerate the drive towards carbon neutral economy of the new Digital future.
The traditional electricity production, transmission and distribution pattern which has been primarily unidirectional in flow of value is slowly diminishing. The new age paradigm is multi-directional, distributed grid with many application programming interface (API)-enabled integration touchpoints with customers, value-added service providers such as suppliers, and connected Internet of Things devices.
As the API economy matures with greater secured interoperability between businesses, large residential communities, IoT device manufacturers of smart meters and better ability to control and balance the digital grid, the possibilities of the next generation of Energy market is immense.
The emerging design pattern for the next gen energy market would be based on the four core principles:
· Interoperability with open an API which is secured and complied to energy data communication standards
· Decentralisation of transactions to enable more participation by customers be it at industrial scale, or by medium to large communities of distributed producers
· Motivation for digital energy market participants to monetise energy that is being sold to the distributed grid using renewables and earning carbon credits from them
· Control and transparency at the fingertips of the next generation communities who can see for themselves the power of digital data and business analytics
The new grid economy combined with new age technology catalysts such as distributed ledger technology, IoT & edge computing and machine learning will pave the way for rapid realisation of industrial scale solutions in the digital power sector.
The energy suppliers, regulators, carbon exchange traders and large to medium-scale manufacturers can all mutually gain from the participation in the new age energy ecosystem.
EU Emissions Trading System has been the EU strategy for reducing greenhouse gas emissions from industries and power sector. It contributes significantly to the EU target of cutting GHG emissions by 20 per cent 1990s to 2020s.
The strategy involves: Capping allowances on GHG put in circulation over a trading period. The cap reduces each year by 1.74 per cent year on year; Achieving emissions targets; Following a framework for common, robust accounting rules; Linking of multiple ETS across EU zones enables one system to use units from another system for compliance (EU & Switzerland are planning to link their ETS); and harmonizing carbon pricing.
The Emission Trading System sets carbon emission cap for the majority of large and medium scale manufacturing plants in the EU across 25-member nations. The current Phase 3 of the EU ETS (currently in effect from 2013 till 2020) aims to reduce the carbon emission cap across EU and extend the low carbon emission scheme to different industry segments which were previously outside its ambit such as aviation, shipping, production of metals such as aluminium and hospitals in the UK.
A novel scheme has been introduced to ensure carbon credit allowances are auctioned in the market to encourage competitiveness amongst carbon intensive industries to adopt Clean Development Mechanisms.
In the above context, it makes sense to have carbon emission regulation agencies who control and monitor carbon allowances against the specified cap as well as the broader carbon exchange traders, energy suppliers and manufacturers to be a part of a common digital platform.
This very common platform can enable various entities to buy and sell carbon tokens amongst each other. A typical value chain can be realised as follows:
Large Manufacturing Organisations can be enabled by the digital platform to buy and sell renewable energy at competitive tariffs and claim carbon credits. In case these organisations have capability to store excess energy then it can be easily monetised using crypto carbon tokens.
Carbon Exchange Traders can be enabled by the digital platform to aggregate excess units of energy to anyone who needs carbon offsetting, including manufacturers, energy suppliers and producers, and even individual homes.
There is also a great deal of carbon consumption vs generation pattern that can be analysed for predictive and prescriptive purposes. The sources of data can be provided by smart IoT devices through an IoT hub. Potential big data analytics can predetermine carbon trade cap and allowances that will be necessary to maintain carbon pricing balance and fairness in trade. It would also help in rewarding industries adopting cleaner and greener development techniques and imposing penalties on carbon offenders.
The Distributed Ledger Technology can enable each of the carbon ecosystem entities to register on a common platform and execute carbon trade on a real time basis. The issuance of digital carbon certificates to prove the authenticity of the carbon sellers can be achieved through third party digital notaries or the platform itself.
This will result in reducing the cycle time for carbon token exchange between multiple businesses where each party can instantly report to the broader ecosystem on its contribution to the low carbon economy.
The different enablers for realising a digital platform for the new age energy market essentially comprises of blockchain nodes where each node can represent the different entities and smart contracts for the different carbon trading algorithms.
The renewables energy tokens would be traded between multiple parties and settled in real time. The carbon reporting system would be tightly integrated with the platform for every buyer and seller and get updated instantly upon settlement.
The rapid democratisation of carbon token exchange between those with excess and those in need with minimal overhead and zero manual intervention will pave the way for accelerated low carbon economy that, the United Kingdom, EU and the rest of the free market economy aspires to achieve.
Sandipan Chakraborti is Associate Consulting Partner for Energy, Natural Resources and Utilities at Wipro.