Towards Energy Transition: Use of Blockchain in Renewable Certificates to Support Sustainability Commitments

Abstract

Corporations increasingly consider sustainability as an important goal and set net zero carbon emissions targets, consequently looking towards their electricity procurement to achieve them. Guarantees of Origin (GOs) are widely used as insurances for the renewability of electricity supplies and proofs of compliance to renewable standards; however, they suffer from structural problems. Their transactional history cannot distinguish between those traded among market actors and the ones that come directly from power plants, giving rise to transparency issues. Certificate trading dissuades producers from investing in an increase in renewable capacity resulting in lack of additionality while complex frameworks and administrative structures emerge to keep track of the vast network of GOs. These issues can be resolved through the introduction of blockchain networks which can provide transparency and help incentivise renewable investment while increasing automation and process simplification. This review explores the benefits and challenges of blockchain implementation for GOs and proposes a rethinking of how this scheme may fulfil the future needs of the energy sector.

1. Background

The European countries increasingly rely on renewable sources to satisfy their energy needs. Wind, solar, geothermal, hydropower, biomass and other non-fossil fuel resources have been promoted as the solution to transition the energy sector away from anthropogenic emissions of greenhouse gases [1]. The first foundations towards renewable-friendly policy within Europe’s electricity mix were laid with the European Union (EU) Directive 2001/77/CE. Being a market-based policy, it was published upon the outcome of the Kyoto convention and introduced Guarantees of Origin (GOs) of electricity produced from renewable energy sources as a tracking mechanism to certify renewable generation and ensure transparency within the market [2].

Electricity markets in the European continent are highly liberalised and this plays a vital role on the nature of the electricity grid as well as the legislation introduced to promote renewables. More specifically, liberalised markets promote the differentiation of the energy market in generation, transmission, distribution, and retail subdivisions. Additionally, modern energy systems are more complex than ever before both technically and infrastructurally. The impending transition to cleaner resources necessitates the implementation of state-of-the-art technologies with grids becoming smarter, larger, and more decentralised. They are increasingly more automated and are required to accommodate multiple and diverse ranges of actors and actions necessitating a greater need for local management and distributed control as well as advanced communication and data exchange [3]. Grid architecture is undergoing significant changes to support the shift from central network management through the introduction of intelligent sensors and data processing to control power generation, transmission, and distribution at a local level [4].

These make energy networks and therefore the issuing of GOs inherently more complicated since different energy entities establish their own procedures while network management is less reliant on central authorities which make transparency an issue to energy market participants. Additionally, the EU and the United Kingdom have highly interconnected internal electricity markets that can further complicate issues since electricity can be supplied from or to different energy systems [5,6]. In this regard, while existing schemes such as GOs provide a way for users to procure renewable-backed electricity through the grid, they are outdated and often heavily criticised for their inability to couple energy certificates with energy sources. Energy suppliers that trade certificates rather than buy from renewable producers to meet green energy supply quotas can still claim legitimate renewable GOs and charge customers accordingly, but due to the inability to verify these assertions organisations that rely on these credentials to determine their carbon footprint are increasingly losing trust on the scheme, while this practice is often termed as “greenwashing”.

Through the shifting tides, energy certification is bound to change, embracing new and emerging technologies that can offer novel solutions and pave the way for seamless integration with modern energy systems. Section 2 will explore the use of GOs by organisations and the wider market, focusing especially on Europe, and Section 3 will identify the main issues associated with the current system. Afterwards, Section 4 will introduce blockchain technology as a potential solution to these problems, and especially the inability to couple renewable electricity supplies and traded volumes. Finally, Section 5 will examine the current applications of blockchain for energy authentication and Section 6 will identify current opportunities and challenges in their implementation. The overarching rationale behind this study is to illustrate the business value of the novel technological opportunities that blockchain offers to companies in terms of energy procurement and more broadly innovation and flexibility, by centralising information to support executive decision making and inspire discussion. The topics discussed below will be based on the UK and EU energy markets (referred colloquially as Europe). Due to their co-evolution similar schemes and regulations, including GOs, have been developed therefore the discussion and any examples that are given can be applied across European countries.

2. Guarantees of Origin

Guarantees of Origin, or Renewable Energy Guarantees of Origin (REGOs) in the UK are certificates that provide proof that a given quantity of energy has been generated from renewable sources and can be issued by a participating country’s designated regulatory body (i.e., Ofgem in the UK) to the producer [7].

In the current system, the relevant issuing authority allocates GOs to produced units of electricity after voluntary request from a generator. In countries compliant to the European Energy Certificate System’s standards such as the UK, generation data is submitted through a register and GO certification is awarded within the system which allows transfer to other account holders [8], This makes GOs tradable commodities where they can be traded electronically in the voluntary electricity certificates market which is separate to the power market and therefore to the physical delivery of electricity to consumers.

In recent years, GOs have come to play a significant role in carbon accounting as corporate standards now require organisations to quantify emissions acquired from electricity consumption (Scope 2 emissions) [9]. Consequently, corporations interested in reducing their carbon footprint have turned to renewable sources. Considering that electricity is overwhelmingly purchased via power markets and is transmitted through national grids, the volume of electricity delivered to a user node cannot be traced back to a producer node because it has been mixed with the available capacity in the network upon injection to the system. Directing electricity from different sources such as renewables, gas or other fuels to specified users is therefore impossible and verifiable proofs of origin in the form of renewable certificates are necessary to demonstrate renewable purchases and compliance with carbon standards.

3. Use and Complications of Guarantees of Origin

The GO scheme has been developed to provide legitimate proof to the final customer; however, certificates are frequently traded between market actors, perplexing the concept, and making it unreliable instead.

Given that the electricity generation mix in Europe still features an overwhelming majority of non-renewable sources such as gas or coal, as well as the fact that electricity supplies from the grid cannot be differentiated by their source type, accurate measurement of carbon emissions can be challenging. As a whole, GOs are generally used to identify which supply quantities can be excluded from Scope 2; however, there has been considerable debate on the reliability of this approach.

3.1. Lack of Transparency

GOs can be sold independently to power itself which makes it almost impossible for a consumer to determine whether the certificate obtained is bundled to a specific electricity quantity or in fact purchased to match the proportion of power that is non-renewable in the supplier’s mix [10]. This transparency issue has made some standard-making organisations such as the UK Green Building Council sceptical against many renewable tariffs available in the market, while other organisations have accused many providers of “greenwashing” [10,11,12]. To balance out transparency uncertainties, Scope 2 emissions must now be reported in two ways according to the Greenhouse Gas Protocol Corporate Standard (dual reporting); one based on the GOs obtained (market-based), and the other based on the average energy intensity of the grids on which energy consumption occurs (location-based) [9]. This can create confusion among users as to the correct accounting methods to be used. As the role of energy certification is diminished corporations might also discover that their carbon emissions are increasingly not under their control because their actions might be considered irrelevant compared to their geographical location.

3.2. Lack of Additionality

Green certificate markets can be thought as mechanisms that incorporate the environmental impacts of energy in the economy acting as incentives for producers and consumers to bring the structure of the power system to an optimum point [13]. However, the ability to allocate certificates via contractual arrangements can pose a barrier to the increase in renewable capacities. This is due to the fact that the purchase of certificates to satisfy accounting purposes can reduce the demand for voluntary GOs from producers, which in turn makes revenue from renewable generation too low and uncertain for renewable capacity investment decisions to be altered [14]. Consequently, this affects the addition of green sources in the energy grid. In fact, empirical evidence from 30 European countries suggests that GOS have been unable to give a competitive advantage or further motivate Renewable Energy Sources (RES) development [15]. Similarly, findings from the Dutch electricity market indicate doubtful GO impact on additionality as it is proven to be a more valuable market instrument on behalf of retailers rather than a policy incentive for the increase in renewable capacity, while the price of GOs for renewable resources in the European Energy Exchange has been identified as unable to act as hedging mechanism for RES investment [16,17].

The inability of GOs to translate price signals into sustainable funding can become a real issue in the coming years as the gradual replacement of fossil fuels in the generation mix by renewable technologies leads to a significant lowering of the grid’s load factor [18]. Load factors represent the generated capacity as compared to the maximum potential generation. Technologies such as solar or wind are intermittent in operation and therefore generating an equivalent amount of electricity to satisfy an increasing demand will require a major increase in installed capacity.

For its part, the energy market has been attempting to increase additionality via long-term power purchase agreements (PPAs) between generators and corporate users which improve the viability of renewable investments for producers and may ensure that any issued GOs are directly transferred to end-users [19,20]. Even so, PPAs are complex contracts that require time and resources to finalise, while often the support of experts is needed. Additionally, PPAs are performed “behind-the-meter” and therefore the agreed energy prices are fixed and not dependent on market developments.

In conjunction with their long-term nature (usually >20 years), this creates significant uncertainties that must be assessed before their financial viability is determined. This might make PPAs difficult to entirely replace electricity purchasing through the market as hedging strategies such as procurement diversification are deemed necessary to reduce financial and supply risks [21]. This indicates that renewable procurement via markets will remain very relevant in the future and therefore resolving the GO scheme might be a more effective strategy than exclusively using other methods.

3.3. Administrative Complexity

A significant challenge for GOs is the adequate tracing of the origins of energy volumes to provide chain of custody. To achieve that, competent bodies who are independent of generation and distribution activities supervise the issue [22]. These are usually energy system regulators tasked with the issuance of certificates for renewable energy that is verifiable through disclosure of the energy source, date and place of production by the relevant producer [22].

Regulators need to keep track of any GO transfers and cancel them accordingly when these are purchased and consumed by end users to avoid double counting [23]. Furthermore, to ensure the interoperability of GO schemes between different countries and regulatory authorities, additional rules and frameworks are required, such as the European Energy Certificate System rules issued by the Association of Issuing Bodies, which harmonises standards within the EU [24].

Evidently, this creates significant administrative challenges for regulators and authorities and often cross-border transfers of GOs can be problematic. For example, Ofgem’s renewable register is not compatible with oversea GOs and therefore additional procedures and audits must be put in place to allow for the successful transfer of certificates [25]. As systems become more interconnected and technologically advanced equipment is increasingly used to offer real-time response to demand or supply signals, the GO mechanism will need to become faster and more flexible. Under the current situation, this might create impossible administrative complexity which might hamper rather than support the evolution of energy grids.

4. The Blockchain Revolution

Blockchain technology emerged during the 1990s from a rather peculiar paper that describes a consensus protocol (Paxon Protocol) for distributed networked computers [26]. Blockchain technology is characterised by a ledger which provides full transactional history and cannot be overridden. It is shared amongst multiple participants which provides transparency across the participating nodes in the network, and it is cryptographically secured which makes data within ledgers immutable and therefore attestable [27]. Each node records its own ledger and shares or receives information from nearby nodes. The ledgers agreed by the majority become the correct transaction history. The more this network is distributed and the number of nodes scaled, the more secured it becomes against efforts of fraud by attacking the consensus protocol [27]. This creates a trust less peer-to-peer network where no intermediaries are required to authenticate and validate transactions.

Blockchain has recently been applied in several environments in fintech and other financial services with many banks such as Barclays, Deutsche Bank or Santander interested in putting currencies on the network [28]. Perhaps most notably, the technology has made decentralised currencies such as Bitcoin possible [29]. Cryptocurrencies offer an alternative to highly centralised currencies and are devoid of current monetary policies and third-party control.

One lesser-known application of blockchain however is its use to fully automate transactions through smart contracts which are algorithms that make use of the technology to ensure transparency, verifiability and tamper-resistance [30]. Smart contracts are immutable because their code is fixed upon their creation preventing changes or modifications which makes them autonomous. Therefore, these replicable computer programs with triggers, conditions and business logic enable complicated and valid transactions without the need for mediators [30,31]. Goldman Sachs’ securities settlement system is a representative example that uses such protocols to provide instantaneous settlement of asset trading [28]. For renewable energy trading, the primary benefit of blockchain-assisted smart contracts is the ability to facilitate immutable transactions that can act as valid proof of renewable procurement [31].

4.1. Benefits of Blockchain for Guarantees of Origin

The use of blockchain in energy systems is becoming the focus of an increasing volume of research. It is widely regarded as a way to improve the security, privacy, rigidity and transparency of data as well as provide a trustworthy and easily accessible alternative to highly centralised systems which removes the need for middlemen and third-party control [32].

4.1.1. Gain in Transparency

A major design flaw in the GO market is the lack of transparency as it is highly challenging to verify how many times they have been traded and by whom before they end up in the hands of an end-consumer.

Blockchain can effectively resolve this issue as the recorded transactional history is publicly shared and can be accessed by all participants [27]. It will be able to record all required information such as time of transaction, renewable energy type and volume, as well as the location and details of the generating facility and the utility where the energy is dispatched to [33]. This means that interested parties can trace every transaction since issuance and verify whether their GO is bundled to the electricity they purchase.

4.1.2. Gain in Additionality

Additionality is largely ensured by increasing the financial incentives for producers to undertake renewable generation. It can be argued that increasing the transparency of GOs through blockchain will effectively help alleviate the issue of unbundled energy certificates.

Consumers will be able to verify supplier claims about green energy tariffs and choose products that come directly from generators to meet Scope 2 accounting criteria. This will inevitably increase demand for renewable generation and reduce the incentives for GO trading. It is therefore expected that producers will increase their participation in renewable certificate schemes to capitalise on the additional demand and in this way procurement of GO supplies will directly increase renewable generation.

4.1.3. Administrative Simplification

Blockchain can provide simplification by automating processes through smart contracts. Energy system regulators can greatly benefit since the technology can eliminate the need to hire outside parties to audit the internal accounting of renewable energy certificates such as GOs [33]. This can decrease operational costs since data recording will be made errorless and more accurate.

Tracking and cancelling GOs will be made redundant because accounting errors or fraud can be avoided by producing unique identifiers for each transaction [33]. This in effect will increase the credibility and trustworthiness of the scheme and will pave the way for easier verification and interoperability across different jurisdictions and energy markets.

5. Possibilities for Blockchain-Enabled Guarantees of Origin

While the benefits of blockchain for energy certification might seem straightforward after the technology’s characteristic have been examined, widescale implementation has not yet been made available. This may cause considerable asymmetry of information across the energy industry which still lacks technical knowledge to enforce the necessary organisational changes, and it might inhibit implementation attempts and learning-by-doing which are paramount for the growth of such niche practices. Companies that are interested in the concept may be uncertain about the means or the costs that are involved to reconfigure their systems accordingly. Below are some of the current options to secure Guarantees of Origin through blockchain networks that are available to energy retailers and buyers.

5.1. Smart Grids

Blockchain offers new opportunities for the rethinking of energy certificates. The technology is already used or explored in several aspects of energy systems, and this can allow for the integration of energy authentication within these new structures. For example, Blockchain solutions for energy trading are discussed by an increasing body of literature that deals with smart grids and microgrids. In such cases, blockchain energy trading commonly comprises nodes which can be buyers or sellers and energy aggregators, that can be metering infrastructures or computing stations which act as energy brokers and manage trading-related events between different nodes through the execution of smart contracts [34,35].

These technologies offer the necessary flexibility and decentralised functionalities to accommodate the rising demand for system integration, real-time information sharing and optimisation of energy management and energy traders can be beneficiaries of cost reductions, increased efficiency, automation, transparency and reduction of capital requirements for energy firms, allowing for smaller players to compete in the market [3,36]. Benefits can also be realised for consumers and prosumers in the form of reduced energy prices and incentivisation of investment in renewable energy sources [3].

The advance of the Internet of Things in the industry (IIoT) provides new opportunities for peer-to-peer (P2P) energy trading among nodes. Energy trading can be between connected powered devices via traditional infrastructure such as the power grid, but also between remote devices that are not physically connected [37]. Advanced wireless communication and data processing will be necessary for reliable data transfer between the “supplier” and “consumer” devices and types of blockchain networks, such as consortium blockchain a federated solution with nominated nodes driving consensus protocols, have been proposed as highly suitable to ensure fast, secure, and efficient energy trading [34]. Similarly, Tan et al., (2019) propose an energy blockchain network (EBN) which comprises two blockchain sets, where buyers and sellers are matched based on transaction and volume broadcasts sent through one set, while transactional information once the trade is formed is stored to the other, preserving the privacy and security of participants and minimising system energy costs through the use of smart contracts and the Lagrange relaxation methodology [35]. The MultiLevel and MultiChain Information Transmission Model which centralises scheduling instructions while maintaining the autonomy of agents to initiate energy transactions, has also been proposed as an blockchain-enabled process that ensures information security [38]. Applications of blockchain concepts to create autonomous localized energy markets are still at an early stage but are demonstrated to increase financial incentives for renewable capacity and benefit grid balancing [39]. Companies such as FlexyGrid, or UrbanChain create localized and decentralized peer-to-peer energy trading ecosystems enabled by blockchain, artificial intelligence and Internet of Things technologies to back renewable energy solutions [40,41] (Figure 1).

It is apparent that as IoT systems grow, distributed shared databases or devices with data storing abilities will be able to record and preserve information about the origins of energy volumes as part of P2P energy trading blockchain networks. This can greatly facilitate the establishment of GOs as information can be easily accessible and verifiable by relevant parties. Depending on the blockchain structure the involvement of third parties and intermediaries that play a role in the issuing of energy certificates might be reduced or entirely withdrawn as the market will be less reliant on central authorities and information will be accessible to a greater number of network users. Consequently, energy volumes will be reliably traceable from source to consumption successfully coupling energy production and procurement and providing buyers with adequate information for market-based Scope 2 accounting.

5.2. Energy Trading Platforms and Decentralised Applications

With the advent of the imminent digital revolution, European energy firms such as Iberdrola and Acciona Energia are among the ones to embrace digital infrastructure and blockchain to authenticate energy for corporate consumers [42,43]. The blockchain-enabled decentralised application (dApp), EW Origin that is used by these firms, provides a dedicated platform for P2P energy transactions outside the regulated market that are anonymously and securely verified by other operator nodes and accelerates renewable certification processes [44].

Open-source platforms can integrate dApps and provide transparency, security and traceability of energy transactions and origins. A notable example of this is Pylon Network, which is a neutral energy blockchain database, that stores information from energy stakeholders and allows users to trade energy, share or manage their data according to their needs, providing a secure way to obtain energy certificates and other carbon credits through its marketplace services [31,45]. Using a federated nodes architecture the network uses the Pyloncoin (PYLNC) as a digital currency for payments within the community but also to act as an advance green labelling mechanism to certify the renewable attributes of traded energy and completely integrate with the GO scheme [46]. Gains in additionality are also achieved through the distribution of part of mined PYLNC to green producers and prosumers, incentivising growth in investment in renewable generation technologies [46].

Similarly, the Energy Web Chain offers another open-source blockchain platform that hosts dApps which enable energy markets to fulfil regulatory, operational and market need, including renewable certification, supported by firms such as the French electricity utility Engie [31,47]. Other worthy mentions include EXERGY, PowerLedger or WePower, that offer alternative solutions on trading and energy certificates among other services [31,48].

Blockchain platforms offer an alternative space for energy trading and data exchange for organisations that are interested in greater transparency and efficiency to implement alongside their normal energy procurement. The open-source basis greatly reduces entry and use costs and participants have the opportunity to maximise efficiency and control by freely tailoring the software to fit their organisational processes. While a wider implementation of smart grid technologies will most likely benefit blockchain platforms in the long term, at present these solutions do not necessitate significant infrastructural investment in the forms of IoT equipment and software to realise transparency benefits therefore providing a cheaper, quicker, and more flexible option (Figure 2).

5.3. Energy Tokens

Energy can become a quantifiable asset and a tradeable commodity in the form of a cryptocurrency. Based on the decentralised and trust less principles of blockchain technology, energy units can be converted to cryptocurrency tokens (coins) and be bought or sold through smart contracts. While the price of the tokens is determined by the same laws of supply and demand that govern other commodities their value will always represent a specified unit of electricity (i.e., 1 kWh or 1 MWh) and thus is closely tied to the retail cost of energy reducing the likelihood of speculative bubbles seen in other cryptocurrencies. Tokens can be exchanged for other fiat or crypto currencies in the currency market [31]. Prominent examples of this are the NRGCoin or KWHCoin which can be used to pay for renewable electricity made available from the producers participating in the scheme.

In the case of NRGCoin, consumers use the tokens to “acquire” and withdraw energy from the system using smart contracts to pay the necessary electricity costs and fees at prices determined by the maximum supply and demand for a 15 min interval [49]. Payments are automatically converted to fiat currencies through third-party currency exchanges if the utility or system operator do not accept cryptocurrencies. The granularity and method by which the value of electricity is determined provides a fairer rewarding method and further incentives generators to participate and balance local production and consumption as compared to the conventional market mechanisms such as Feed-In-Tariffs (FiT) which pay for injected energy over a year period regardless of whether over or under production has occurred (Figure 3).

Energy tokenisation through blockchain can indeed provide another method to certify renewable energy and solves all three of the issues that limit the effectiveness of GOs, namely lack of transparency, additionality or simplicity whilst also offering a cheaper and more flexible solution than blockchain-enabled energy trading platforms or smart grid. Despite its numerous advantages this approach may face significant challenges to retain its incentives intact in the long term. While a decreasing minting rate may be able to retain financial returns on investment for generators over time as participation increases, standardisation and scalability may be hindered if further integration with energy market mechanisms and regulations proves infeasible or too slow [50]. Currently, blockchain-powered energy token solutions might be suitable for smaller electricity consumers that are willing to experiment and become familiar with the concept (

Table 1. Renewable certificate—GO challenges that can be addressed by blockchain solutions.

GO Challenges	Blockchain
	Solutions	Benefits
Lack of Transparency	Smart Grid − Consortium − Energy Blockchain Network   Peer-to-peer energy trading − Decentralised Apps − Trading platforms   Tokens − Cryptocurrencies	Publicly shared transactional history Energy transactions coupled with energy volume Decentralised and trust less Automated verification and authorisation of nodes and transactions
Lack of Additionality		Reduced incentives for certificate trading Increased demand for renewable generation
Administrative Complexity		Automated buyer/seller matching and transaction Interoperability between markets and regulatory jurisdictions

).

6. Considerations for Blockchain Implementation in Guarantees of Origin

6.1. Technical Challenges

Blockchain provides an appealing solution to the issue of renewable energy certificates, yet it is essential to consider and address some aspects that might still present challenges.

A problem that may remain unsolvable even after blockchain implementation is the delivery guarantee of the purchased commodity. Verifying whether transactions of a specific product such as a given electricity volume or a GO certificate reflect a product of equal value in the real world can be challenging, even though they are demonstrably easily and securely traced [51]. This means that the different partners in a transaction must trust each other that the agreement will be delivered as expected. Failure to deliver can have serious repercussions for the balancing of the electricity grid. While blockchain might not be able to control the honouring of an agreement, legislation and even market forces such as competition and client relationships can potentially persuade market actors to act responsibly. Even so, the unmatched transparency of the platform through the shared reading of the blockchain by all actors in the network that allows full traceability can quickly isolate incompetent or untrustworthy partners and act as a self-healing market mechanism.

The immutability of the information stored within blockchain ledgers can give rise to another issue. Contrary to traditional databases where stored information can be updated on a later date, this is not possible for blockchain unless the processing power of the user can overcome that of the collective distributed network, which has an infinitesimally small probability [27,29]. A workaround that might also prove to be an additional benefit of the network is treating later transactions as updates to earlier ones, allowing for modifications to working data while providing a full history of changes [27].

Security is another issue that might concern new users and could potentially discourage blockchain adoption. The unregulated nature of blockchain solutions might seem daunting for those unfamiliar with the concept contributing to the often-negative perceptions attributed to it or even the suspicious attitude with which public discourse approaches the technology. There are many reasons for which blockchain can be regarded as one of the safest technologies to date. Starting from the basics, blockchain is based on consensus where the majority of the network agrees upon the correct form and expansion of the global ledger preventing dishonest attempts or malicious attacks [52]. In fact, network nodes will always recognise the longest block chain as the correct one, while once a new transaction is buried under enough blocks, it becomes impossible to tamper with as dishonest nodes cannot keep up with the updating speed of the combined network CPU power unless they are able to control 51% of the network, an improbable task for well distributed networks [29]. Transactions are hashed in a Merkle Tree configuration which requires potential attackers to recalculate all hash pointers on the path from bottom to the top to tamper with data at a lead node [52]. This poses a significant obstacle to potential fraudsters since the complexity as well as the computing time required for the task can be forbidding. In addition, other security techniques included in the configuration are the Elliptic Curve Digital Signature Algorithm (ECDSA) and Public Keys as Pseudonyms are adopted to verify node identity without central management [52]. Lastly, the high-performance Edwards curve aggregate signature (HECAS) constitutes a novel approach that ensures nonrepudiation while shortening verification and processing time, which makes it highly suitable for IoT applications [53].

In terms of the transaction level several methods exist to preserve the privacy of nodes and secure transactions. A notable on-chain solution is the Segregated Witness (Segwit), also used by platforms such as Pylon Network, which separates signers’ information such as signature data from the transaction ID to prevent third-party malleability [54]. Similarly, another way that strengthen privacy in blockchain is through Self-Sovereign Identity (SSI) approaches which enables users to fully control and manage personal identity data without third-party involvement [55]. This not only minimises data protection concerns that are evident in other aspects of online activity such as social media or online transactions but also eliminates the possibility of online tracking.

Blockchain may be a robust and stable system but building it into a company’s systems or processes remains a challenge, especially if proper Integrated Development Environments and computer science expertise are scarce [56]. Although blockchain provides an opportunity for companies to be at the cutting-edge of technological solutions, these systems can be significantly power intensive and may cause performance issues such as throughput bottlenecks, latency and storage constraints, that might constrain the execution of smart contracts [30,33]. Latency is also expected to increase in blockchain systems such as energy trading platforms as user participation grows over time which brings about the issue of scalability [50]. The adoption of software-defined networking (SDN) which can provide a re-configurable network topology that distributes flows relieving congestion and optimising throughput [57], have been proposed as a solution to improve latency issues for blockchain-enabled energy trading platforms [36,58].

Other methods include conflict-resolution and avoidance strategies such as parallel replication of chains of blocks, or blockchain sub trees, or the elimination of communication and resource overheads through the implementation of remote direct memory access (RDMA) and asynchronous communication in the blockchain’s fault identification and correction protocols (Byzantine fault-tolerance- BFT) [59,60]. Even so, while some platforms such as the Pylon Network are already faster than equivalent financial services such as PayPal (1000 tx/s compared to 193 tx/s) they still need to compete with mainstream transaction services such as Visa in terms of transaction speed (1667 tx/s) [46,61]. Others such as the PowerLedger (50,000+ tx/s), handle tens of thousands of transactions which already make them some of the fastest systems available [62]. While blockchain systems can already support widescale use the future will only make it more appealing as the technology matures and many of the current latency or scalability issues are resolved.

Another potential challenge is the mathematical complexity of several of the above considerations. Blockchain architecture is based on several advanced algebraic equations for protocols such as hash functions, elliptic curves, or other common encryption techniques which increase the complexity of the solution as the necessary calculations are not trivial. For example, the elliptic curve digital signature algorithm (ECDSA) uses a version of the binary modular exponentiation function to calculate the private key and verify a transaction [63]. Evidently, implementing a blockchain solution requires necessary expertise and extensive testing to identify and rectify weaknesses which can be resource-intensive tasks.

Scepticism against blockchain replacement of GOs focuses on the ability or substantial benefit of the former to replace Issuing Bodies such as the AIB and ensure that the data that is put on the system is reliable [64]. This might not sound farfetched as the possibility of meter faults or incorrect readings that translate into wrong energy volume inputs can decrease the system’s trustworthiness compared to a system where intermediary parties are present to verify the process. Energy monitoring is an integral part of energy trading and attempts to increase automation in the process via software-controlled measuring devices such as smart meters can add serious challenges for the maintenance of integrity, protection of sensitive information and avoidance of measurements frauds. Conventional applications of advanced metering infrastructure already integrate automatic fault detection and self-healing, but require two-way communication between the device and other parties such as data collectors and meter data management systems, all of which is done via public channels which can be subjected to unauthorised access, meter compromise, false data injection or even energy theft [65].

The argument against the elimination of intermediaries due to fraud or data unreliability concerns however may fail to consider the immense possibilities blockchain integration brings to existing systems. The technology has been proposed as a promising platform to support Legal Metrology, the mechanisms by which physical quality measurements including power quantities ensure integrity and reliability, through the implementation of smart contracts and digital signatures which can fully automate measurement processes [66]. This highlights the ability of blockchain to offer secure and verifiable services. As discussed in an earlier section, consortium blockchain architectures can identify smart meters within the network, verify readings, timestamp, and ensure secure data exchanges before they automatically authorise transactions for a fraction of the cost and time [65]. Under this light, a blockchain solution can effectively eliminate the requirements for on-site meter readings and the presence of trusted authorities across the system chain to safeguard and enable the issuing of GOs.

6.2. Economic Challenges

The digital revolution is undoubtedly affecting the electricity sector globally. Smart equipment and infrastructure are combined with software solutions such as Artificial Intelligence and blockchain to form smart grids that work more efficiently and can support newer forms of energy such as renewable resources. Even so, the introduction of new technologies often requires changes in more fundamental parts of a system which can amplify capital but also operational expenditures.

The widescale roll out of smart metering systems in the EU presents an appropriate example, highlighting the various costs necessary to implement one of the vital equipment for the effectuation of smart grids. In a 2015 review, total costs of broad smart metering installation were estimated at EUR 9.2 billion for the UK and EUR 19 billion for Germany while similarly costs for other countries were at the billions figure and varied according to the different system parameters and requirements [67]. Indeed, across EU member states metering equipment made up less than two thirds of the costs, while IT and communications investment added up to over a third with the remaining five per cent attributed to other costs such as customer engagement, training or security. Similarly, while smart grid investments require large infrastructure investment to automate and control the generation transmission and distribution functions of the energy network other technical and economic effects related to equipment obsolescence, network management, existing automation or supply and demand profiles can play a role in the longer-term opportunity cost of investment [68]. By 2015 and after almost ten years of efforts, European smart grid investment projects have cost over EUR 5 billion across 800 sites, mostly financed by the private sector but accounted to a limited EUR 1.5/MWh of electricity consumption per country on average [69]. In later years, the number of projects has skyrocketed across 1243 sites due to maturity reached for technologies and solutions, adding EUR 1.6 billion in total investment while mostly focusing on demand-side and smart network management, smart city and distributed generation and storage [70].

Even so, Europe lags other global players such as the US or Eastern Asia in transversal technologies such as Artificial Intelligence, and the Information and Communication Technologies that play a significant role on the development of smart grids [71]. This devalues European technology firms and undermines investment and innovation in the energy sector that may limit the income streams required to pay for the expensive transition to smart and sustainable grids. Additionally, the mounting pressures currently faced by Europe in the form of restricted energy supplies and the aggravating economic conditions can further reduce available funds [72]. In fact, European energy and utility companies face significant financial challenges due to the cost of oil and gas prices in the continent, with the overall debt to grow to a historic high of above EUR 1.7 trillion, a 50% increase within two years [73]. Significant debt may limit available resources for innovation and replacement of infrastructure in the longer term. For blockchain solutions to energy procurement and certification these could mean that smart grid implementation might be delayed as the infrastructure is not yet widely available and economic pressures might delay necessary investment flows and actions that are directed towards the development and scaling of decentralised systems. In this sense, organisations that are interested in trialling such technologies may find more reliable solutions through participation in blockchain energy trading platforms already supported by energy utilities, as these have the most chances to scale and expand their operations under current circumstances.

7. Discussion

Renewable certificates are currently under the public spotlight, and they are the subject of intense debate in Europe as several deficiencies have attracted significant scrutiny. Clearly, they have been introduced in order to support a wider policy framework towards renewable energy transition, but evidence suggests that they have so far been relatively unsuccessful in creating an impetus towards greener power generation. While demand for demonstrably sustainable energy procurement in the corporate world increases, they are also found inadequate to provide a clear link between generation and distribution. Even so, blockchain solutions may be in a unique position to rectify the scheme’s errors.

Albeit challenging, a long-term view that involves smart grid implementation will likely provide the optimal solution as energy trading will become autonomous and electricity volumes will be traceable at any moment, fully integrating renewable guarantees of origin. However, for the foreseeable future and given the unprecedented financial circumstances, open source blockchain energy platforms may offer a significantly cheaper method that can instigate economic benefits by automating and improving energy trading without the need for expensive intermediary services.

In this sense, organisations will be able to use it non-exclusively to diversify their energy procurement and obtain reliable GO certificates. This solution is more likely to facilitate experimentation and will provide a necessary bridge to a large-scale blockchain-enabled energy trading for corporations or other end users.

8. Conclusions

European countries attempt to increase the share of renewable sources in their electricity mix as part of their commitments to reduce greenhouse gas emissions. Concurrently, industry standards are dictating the use of verifiably renewable electricity supplies for corporations to be able to claim zero electricity procurement emissions. The problem of demonstrating renewable electricity procurement through the use of GOs is intensely debated because they lack transparency and association with specific electricity volumes, as they are often traded between market actors. This disincentivises producers from participating in the GO scheme as it also requires complex infrastructure and regulatory frameworks to track them. Section 4 demonstrates that blockchain as a decentralised and trust less network technology can solve many of these issues through transparent and automated mechanisms that can simplify the process and improve the credibility of the scheme. As discussed in Section 5, blockchain solutions can be integrated to smart grids, open-source energy trading platforms or decentralised currencies to provide renewable authentication along with other co-benefits, therefore allowing organisations to verifiably reduce their Scope 2 emissions and contribute to growth in renewable generation capacity.

A study of the financial and macroeconomic opportunities for these technologies in Section 6, draws a complex picture where despite concentrated efforts full integration of smart grid on current energy systems will likely be a longer-term and costly enterprise, involving multiple stakeholders. Blockchain solutions that depend on smart grid infrastructure might therefore be limited for the near term and users that choose to implement them as primary energy trading and certification processes might be constrained by the limited options offered by a yet small market size or unable to realise the full potential of such technologies. Additionally, the notable costs of implementation might be restrictive for European firms that might attempt to reduce investment in high risk-to-reward innovative solutions.

Overall, as blockchain technology continues to prove itself in finance and other technology-driven sectors, its wider implementation to the energy industry can revolutionise and facilitate the ongoing energy transition in productive and forward-looking ways.