What is a Distributed Renewable Energy Certificate (D-REC)?
It's a distributed certificate that's created from a kilowatt hour of electricity produced by a renewable asset that's often behind the meter or in an off-grid setting.
RECs already exist. Why do we need D-RECs?
It is an important way to catalyze new capacity. A lot of the frameworks, particularly for existing environmental markets, don't really extend to the off-grid space. The D-REC was created and targeted specifically at developers who were building smaller scale projects. For example: 100 kilowatt systems that power schools or hospitals have traditionally not been able to monetize those credits - that's what the D-REC is meant to solve.
Why should project developers monetize with D-RECs instead of going through carbon markets?
There can be a lot of upfront investment that’s required with carbon markets, because you have to prove a counterfactual of emissions. It's not unexpected to see an upfront cost of $25,000-$30,000 for an assessment.
However, within the REC market, there are a variety of options. D-RECs can enable the other REC frameworks; it's not again an “either or” it's really an “and” situation.
Is there a higher value to D-RECs for buyers & sellers due to the social co-benefit?
Yes. D-RECs aren’t only about measuring clean electricity, the projects that generate distributed renewable energy are also often providing power to a hospital or to a school. And often, those projects are much more financially marginal. Buyers of D-RECs should realize that they're not just paying for electricity, they're also paying to support the additional co benefits. That’s why having an offtake agreement can be that much more impactful for D-REC.
Energy Peace Partners has done a great job in establishing an additional label around quality to say that this particular, renewable asset is addressing humanitarian need, or is in a very fragile conflict ridden area. Therefore it is possible to have a D-REC that comes from a project in those regions, and then Energy Peace Partners can also validate it and confirm some additional humanitarian co-benefits to this particular REC. This is an example of enhancing the value of a D-REC.
How does a developer get started with D-RECs and when can they expect to earn money?
The process mirrors the way corporate buyers are used to purchasing renewable energy certificates in more developed markets. Buyers enter into a multiyear agreement where they pay upon delivery per megawatt hour of certificate delivered.
For developers, this is how you can get started, step-by-step:
1. Sign up your organization at developer.powertrust.com
2. Following the process to submit data about your existing and planned pipeline
3. Someone from powertrust will connect with you
4. When the time is right, powertrust will help you connect your projects to the D-REC Platform to begin issuing D-RECs
5. When powertrust identifies a buyer for the D-RECs, you will enter into a purchase agreement to sell the D-RECs
6. Receive money for every D-REC you sell
What does signing a contract with the D-REC Initiative mean for the developers?
When you sign a contract, you are saying that you are selling the attributes from a particular project or set of projects to the intermediary (for example, Powertrust). This means that you cannot turn around and sell those same attributes to someone else because of the risk of double counting. You will receive payment in a hard currency, like US dollars.
Developers the D-REC Initiative has talked to see this as a way to source some additional financing to provide a foreign exchange hedges and myriad other ways that a hard currency offtake can provide.
How is the open source D-REC platform structured?
Ensuring that there was transparency and trust in the process was key, so the D-REC platform was created through an open source approach.
The platform has a public API that allows a developer to register their projects on the platform, and then to send in data in real time at any frequency. There's flexibility of sending in data as frequently as necessary and in real time.The platform will create the certificates based on the data.
The off-chain component of the platform is what keeps the metadata for the projects and the organizations and the users. It’s a database that really anyone can replicate. The on-chain piece is really where the certificate life cycle is tracked: when a certificate is created, when it's traded, and when it's retired. This ensures an audit trail from where the D-REC was generated to when it retires.
Having a public ledger built on the Energy Web chain allows it to manage the risk of double counting thanks to it being publicly accessible and queryable. Even if someone replicates the registry, copies it, and runs their own registry - it's still connecting to the smart contracts that connect to the public ledger for that single source of truth.
Can you name some of the corporate buyers involved?
Salesforce and Prosus have made commitments to purchase D-RECs, with many more in the pipeline.
Can you name some of the project developers involved?
Okra Solar, BBox, Engie, Candi Solar.
What assurance can I have that D-RECs will still be around in a few years?
The D-REC Initiative decided to not introduce a new state standard with the D-REC, but to work closely with existing established environmental standards: International REC Standard, the Gold Standard, and Verra. This decision was made to ensure that the D-REC instrument is fungible in that it can be transposed into an I-REC or into a Gold Standard REC.
In the very unlikely event that all the D-REC infrastructure goes away, there's a tie to the existing standards that corporations have supported and acknowledged and have been around for many years and that they recognize today.