AREC

On-Chain Self-Certified Digital Renewable Energy Certificates in Arkreen Network: Developing and Enhancing Liquidity in Long-Tail DERs Market through the DePIN Model

Arkreen

27 Nov 2024 • 7 min read

As the global demand for renewable energy increases, Renewable Energy Certificates (RECs) play an essential role in offsetting carbon emissions. However, traditional mechanisms for developing and trading RECs face significant challenges, particularly when dealing with small-scale distributed solar assets. This article explores how the Arkreen Network’s on-chain self-certified digital REC protocol — AREC — can effectively develop and circulate these massive but fragmented long-tail environmental assets through the Decentralized Physical Infrastructure Networks (DePIN) model.

Introduction

RECs have become widely accepted and utilized as a derivative of environmental rights, crucial for renewable energy certification and carbon emission offsetting. However, the traditional development of RECs (on the supply side) involves substantial resource investment, including consultant and on-site audits, leading to high development costs. This is particularly problematic for small-scale distributed renewable energy resources like residential solar PV systems, where the development costs often outweigh potential returns.

On the demand side, offsetting large energy consumption by redeeming many trivial RECs from diverse sources also costs highly. Enterprises prefer achieving ESG targets by offsetting energy consumption with large RECs from a few qualified sources. This results in most RECs coming from large-scale centralized stations while the long-tail market of residential solar panels remains largely untapped.

AREC (Arkreen Renewable Energy Certificate) introduces an on-chain REC protocol as well as tokenized green assets to address the underutilized small-scale REC retail market.

Problem on Supply Side: Development Costs and ROI Challenges for Small-Scale Distributed Solar

To issue RECs in a traditional certification way, the owner of the renewable energy resource should prepare a dozen documents to address the detailed information of the power station, such as the site location, picture of the facility, energy type, the contract, and bills that show how much energy is sold to the grid. The certification institution audits the documents and sends staff to examine the facility on-site if necessary. Once qualified, the renewable energy facility project can apply the REC issuance by manually submitting the energy sale bills that cover the period to the institution.

This procedure is strict and appropriate for large-scale renewable energy resources. For example, a 10MW solar station can generate 14600MWh of energy per year at an average daily 4-hour daylight hours. As 1MWh of green energy can issue 1 REC, 14600 RECs can be issued for its annual energy generation. Considering the REC price, it’s enough to cover the REC development cost.

Meanwhile, the story is very different for small-scale renewable energy resources such as residential solar PV panels. On average, a solar PV module with a 1 m² area can generate around 200W power at peak. Imaging a usual home roof of 50 m² area, if solar panels are installed on the roof, they can generate 10kW power at peak. Under the same daylight conditions as above, a 10kW solar PV system can only generate 40kWh per day or 14.6MWh per year and issue 14.6REC. It’s not likely to cover the REC development cost and makes traditional REC developers reluctant to enter this market.

Despite the small scale of residential solar PV, the total amount of global residential distributed solar assets is significant. The challenge lies in effectively developing these fragmented, long-tail assets. The DePIN model offers a potential solution to this problem. By involving community users who install IoT devices to accurately measure real-time solar generation data and issuing self-certified digital RECs on-chain, development costs can be significantly reduced, making on-chain certification and issuance of small-scale assets feasible.

Problem on Demand Side: Liquidity and Market Matching Issues for Small REC Assets

Currently, the major buyers in the REC market are large enterprises and corporations with bulk purchasing needs, often requiring tens of thousands of RECs per month. Even though numerous small-scale renewable energy resources could issue RECs whose total amount is large enough, such aggregated small RECs are less attractive to those corporate buyers, who prefer RECs issued from single large-scale assets due to the complexities involved in auditing and verifying multiple smaller assets. This further suppresses the value and price of small RECs.

For small-scale REC assets, the ideal market match is a long-tail retail buyer market comprised of individuals or small to medium-sized enterprises. Tokenized RECs issued on-chain can be fragmented, and decentralized exchanges (DEX) can enable permissionless trading, lowering the entry barriers for retail buyers and enhancing the liquidity of REC assets. It’s essential to foster the long-tail retail buyer market to close the “Supply-Side ”— “Demand-Side” loop for the liquidity of small-scale environmental assets.

Solution and Application of the DePIN Model

In the DePIN model, integrating public welfare with commercial goals becomes possible. DePIN, standing for Decentralized Physical Infrastructure Networks, is a new way to utilize scattered resources to construct infrastructures.

Arkreen Network is a Web3-enabled data network for distributed renewable energy resources connection and monetization towards a carbon-neutral Earth. Arkreen Network aims to establish DePIN (Decentralized Physical Infrastructure Networks) for ReFi (Regenerative Finance) infrastructure and a global inclusive network for climate action. It’s built upon a massive number of individual participants and establishes a green asset issuance and offset network grounded in renewable energy data, facilitating the consolidation of individual efforts into a substantial contribution toward carbon neutrality.

AREC (Arkreen Renewable Energy Certificate) and its derived ERC-20 token ART are self-certified on-chain digital REC protocols and fundamental on-chain green assets issued based on renewable energy generation or energy conservation proof sourcing from the Arkreen Network. In other words, 1 AREC is issued for 1 MWh renewable energy generation registered on the Arkreen Network.

The Supply Side of Arkreen Network primarily consists of data representing individual environmentally-friendly actions, e.g., household solar power generation. These green actions and their impact are quantified to generate data reflecting the contributions of these actions in the physical world. This data is transmitted to the Arkreen network through the IoT (Internet of Things) for validation and is globally recorded on the public DePIN blockchain. As per the appropriate methodology, AREC can be issued on the basis of verifiable data. Thanks to IoT and blockchain technologies, the data can be credibly collected and verified at a much lower cost than traditional methods whose business-oriented centralized IT infra are too expensive for individuals’ trivial green energy issuance/transaction/offsetting. Hence, the self-certified AREC can easily cover the substantial long-tail small-scale renewable energy generation scenarios.

Arkreen Network’s Demand Side primarily targets a diverse and fragmented community of voluntary carbon neutrality individual participants to offset the carbon emissions with AREC. This long-tail retail buyer market is not well served by traditional REC institutions because large enterprises and corporates prefer bulk purchasing RECs issued from single large-scale assets due to the complexities involved in auditing and verifying the assets. Instead, AREC allows trivial REC offsetting at low cost and hence lowers the barriers of small volume energy offseting and facilitates the long-tail personal carbon neutrality market. Arkreen developed the GreenBTC.Club to drive the demand for offsetting Bitcoin’s historical energy consumption, as well as the Plug for Green Program to offset personal daily energy consumption.

Let’s assume one home's daily electricity consumption is 20 kWh on average:

For example,

a 3kW water heater working 3 hours per day
a 2kW electric oven x 2 hours
lamps total 500W x 6 hours
a 100W laptop x 12 hours
a 400W washing machine x 1 hour
a 100W refrigerator x 4 hours
a 150W TV set x 2 hours
some other minor consumption

To offset home daily electricity from the grid, the house owner can purchase and offset 0.02 ART from Arkreen.

Let’s also assume he/she donates 0.02 ART in GreenBTC.Club to green 20kWh of Bitcoin historical energy consumption.

Remember the supply-side example: The usual 50 m² solar PV panels can generate 40kWh per day and issue 0.04 ART. That is, the ART issued by a residential solar PV system can exactly meet the same order of magnitude as a home user’s greening needs. Thus, personal carbon neutrality actions perfectly match the small-scale ARECs from distributed residential solar systems.

Arkreen incentivizes the participants on both supply and demand sides with its utility token AKRE. Though both sides are blooming, it will take quite a long time and a big effort to ignite and accelerate the AREC issuance — offsetting fly-wheel. Before the wheel can fly and drive itself, it’s crucial for the AKRE incentive at the bootstrap stage. Once the wheel flies, the voluntary carbon market becomes mature, and Arkreen Network acquires continuous income from on-chain service fees for AREC issuance, transaction and offsetting.

Imaging the broad future of the voluntary carbon market, Arkreen will help keep the Web3 communities growing with a positive impact on climate change. As the system evolves, more users in developed countries can directly support carbon offsetting by purchasing green assets that are issued from green behavior by the people in developing countries (e.g., those who install and use Solar PV in Africa), thus achieving voluntary on-chain offsets for carbon neutrality.

Conclusion

The Arkreen Network’s on-chain self-certified digital REC protocol offers an innovative solution for developing and circulating small-scale residential solar systems’ environmental assets. By employing the DePIN model, it enables the development and liquidity enhancement of long-tail markets, maximizing the utilization of globally distributed renewable energy resources. As more individuals and small to medium-sized enterprises enter the carbon neutrality market, the on-chain self-certified digital REC protocol is poised to become a mainstream solution, further promoting the adoption of renewable energy and the reduction of carbon emissions.

About Arkreen Network

Arkreen Network is a Web3-enabled data network for globally distributed renewable energy resources connection and monetization driven by a vision of a carbon-neutral Earth. Enabled by Web3 (economics) and IoT plus Blockchain (tech), Arkreen Network aims to build up this infrastructure in a DePIN way from bottom-up by incentivizing climate actors in ReFi applications. You can learn more at www.arkreen.com

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