Demystifying the D-REC: a new global standard for Distributed Renewable Energy
EnAccess dives deep into the development of an open source tool that connects corporate climate finance with small-scale energy producers.
At its core, energy access is about getting money to projects that lift millions of people out of energy poverty, connecting them to modern electricity. Huge leaps in technology have helped progress energy access goals, but financing remains one of the sector’s biggest challenges.
In many developed markets, large corporations with big climate ambitions buy renewable energy as part of their commitment to reduce their greenhouse gas emissions.
But what if this climate investment could do more than reduce a company’s carbon footprint? What if smaller-scale, distributed renewable energy (DRE) providers could tap into this corporate demand for renewables? It could bring solar power or wind to homes in energy poor countries without electricity access, and replace the emissions of dirty energy sources they rely on, like kerosene and coal
This is the promise of a new, non-profit open source initiative from Positive Capital Partners and South Pole. It’s called the D-REC: the Distributed Renewable Energy Certificate.
The concept of a D-REC sounds simple. It’s a certificate verifying one megawatt-hour (MWh) of electricity generated from a small-scale (distributed) renewable source. It has the potential to transform the market for distributed renewables and create new opportunities for high-impact corporate climate investment.
What is a D-REC?
The D-REC allows developers like mini-grid operators and SHS companies to track every MWh of electricity their products generate. Not only is this energy tracked, it’s also verified and monetised. There are already a number of renewable energy certificates that work like this. One of the most dominant is the International Renewable Energy Certificate, or the I-REC.
However, I-RECs are exclusively for large renewable projects, and the I-REC simply doesn’t lend itself well to the DRE space, or for smaller-scale projects. The D-REC initiative solves this by building on top of the I-REC, and devising a way to issue renewable energy certificates from small-scale developers for the first time.
Why are D-RECs the right tool for the energy transition?
Corporate demand for renewable energy attributes is surging. Companies are increasingly looking to reduce their emissions across scope 2 and 3 with renewable energy investments. But D-RECs are bigger than the climate ambitions of a single business or company. In order for them to harness the demand for renewables and apply it to a different scale and geography, an entirely new market needs to be created.
The beauty and the brilliance of the D-REC initiative lies in this global market framework.
Like every market it will be driven by supply and demand. In this case, the supply of renewable energy from DREs, and the demand for renewable energy and environmental attributes from corporate climate investors. The flow of this supply and demand will be regulated by new open source technology currently in development that will effectively function like a central bank for D-RECs. Instead of money, this bank prints and tracks the microgeneration of MWhs from small-scale renewable energy.
In this new market, the transaction goes like this: a DRE developer builds a small, renewable energy installation, like a mini-grid. The mini-grid produces electricity. One MWh of this electricity is equal to one D-REC. This D-REC is then purchased by a corporation thousands of miles away from where the electricity is generated. Each D-REC is unique and can only be sold once, and then cancelled.
The market framework is not dissimilar from the carbon market, which monetises the value of emissions reductions and tracks them with unique carbon credits against various global market standards. The key difference is that D-RECs monetise the environmental attributes of the renewable energy produced rather than emissions avoided.
But what does ‘monetising the environmental attributes’ actually look like? Think of it as putting a price tag on all the good that comes from producing renewable energy in an off-grid or rural village (think: carbon emission reductions, health benefits from less air pollution, and the economic boost for low-income communities and households). D-RECs put a hard currency value on that environmental good which, unlike other currencies, is unaffected by global market fluctuations. This mechanism is already serving the I-REC market in the US, the D-REC simply broadens the scope of this existing mechanism.At a moment when companies are signing climate pledges in droves, D-RECs provide a tool to connect them to distributed renewables around the world. This opens the floodgates for a rush of previously untapped climate investment to flow from Fortune 500 companies to solar home system developers and mini-grid operators, with massive implicit environmental and social impacts. This is truly game-changing for both energy access and climate finance.
Innovation built on open source technology
EnAccess was an early and enthusiastic supporter of the D-REC initiative. Not only because of its potential impact on the energy access sector, but also because its open source development reflects EnAccess’ mission of supporting big ideas driven by collaboration and openness.
The scale of the D-REC Initiative is immense and involves a mind-boggling amount of data capture and processing. The D-REC platform will collect energy generation data from DRE sources, and process it in near real-time to automate the issue of certificates. This data could come from thousands, or potentially hundreds of thousands of sources. Data could be fed to the platform from sources like a mini-grid in Uganda or PV panels in India, and thousands of other small scale installations around the globe. Unlike I-RECs, which have a third-party issuer to assess and issue certificates, D-REC data is too difficult to be handled and verified manually, and will rely on automated data processing.
The technological foundation of the initiative, which is operating pilots for proof of concept, is open source. The D-REC initiative builds on data analysis origin module code for environmental attribute tracking, developed by the Energy Web Foundation. It’s open source code and publicly available. This gives Positive Capital Partners and South Pole an advantage, with the opportunity to build on and streamline the process in a truly collaborative, transparent way.
Not only is the platform being built on existing, proven technology for measuring and verifying energy generation data, but the entire concept and governance of D-RECs will be built with open source principles too.
This kind of transparency is a key element of the success of D-RECs. Trust in the system that verifies the data and issues the certificates is absolutely vital. Greater trust means more engagement, and a market standard that is as widely accepted as possible. Building on open source code from a mechanism that is already globally used is a pathway to fostering this trust throughout its development.
The D-REC offers a credible pathway for corporates to directly contribute to Sustainable Development Goal 7, and support the rollout of small-scale systems. They give DRE companies greater ability to tap into climate finance for new distributed renewables, decarbonise homes reliant on fossil fuels, and bring us closer to universal clean energy access.
It’s a win-win. Corporates get the assurance of a global market standard for climate investment, and developers have new access to funding that will help bring the next billion people clean, affordable light and power.
Hear from the creators in the driving seat of the D-REC initiative, in the latest EnAccess podcast.
Prefer to watch while you listen? Here’s the full video.
