Democratizing renewable energy sharing

*2Tokens has recently produced a research paper that analysis the pros and cons of energy communities and hubs

The concept of fractional ownership of solar parks fosters an ecosystem where multiple investors hold ownership of tokenized solar panels within a park. Initially, these tokens are offered by the asset manager, creating opportunities for widespread community participation in renewable energy generation and, thus, laying the foundations for a more decentralized energy system that transforms citizens into prosumers - both producers and consumers - within energy communities. Democratizing energy sharing within a community not only accelerates solar adoption but also helps lower consumer energy bills, reduce energy poverty and improve energy security and independence. By empowering citizens to take greater control of electricity generation, it transforms them into active participants in the energy transition. This citizen-driven approach to energy transition, supported by fractional ownership of solar parks, presents a pathway to mitigating global warming. By adopting and implementing programmable energy, we can lead the way to a more inclusive and climate-resilient future.

The energy sector is rapidly evolving towards distributed and sustainable energy production, driven by advances in solar panel technology, battery storage and the emergence of decentralized autonomous organizations (DAOs). It’s an exciting time as these innovations are putting the power of energy management back into the hands of households, businesses and communities to take greater control of their energy resources.

Key highlights:

We are witnessing a shift towards a decentralized energy future shaped by multiple energy sources, peer-to-peer (P2P) energy trading and energy cooperatives. Here is a list of 57 P2P firms. These changes promise cost savings, environmental benefits and increased energy independence, reshaping the energy landscape to be more sustainable and resilient.

At the heart of this transformation are local communities, such as Renewable Energy Communities (RECs) and Citizen Energy Communities (CECs) - which are typically established as not for profit organisations, which play a critical role in local energy production and governance. These communities, characterized by decentralized decision-making and dynamic adaptability, contribute to local energy resilience and sustainability.

Energy sharing is no longer a distant dream - it’s happening and is already enabled by energy-sharing solutions using blockchain-powered platforms to enable fractional ownership, digital platforms for community engagement and smart contracts for transparent governance. These systems empower stakeholders to manage shared energy resources effectively, ensuring inclusivity and accountability.

This evolving ecosystem includes a diverse range of players - cooperatives, energy hubs and others - who come together to manage resources, facilitate P2P trading and provide critical services. It’s a collaborative network that supports community-driven energy solutions, making the entire system more resilient and efficient.

Transitioning to decentralized models isn’t a simple task; it’s a journey. It requires engaging communities from the start, understanding the baseline blueprint up to the deployment of digitalized infrastructure and actively managing decentralized energy production. What is required is a framework that helps communities achieve sustainable energy goals and overcome challenges such as regulatory compliance and effective governance. However, in order to fully realize this potential, regulatory uncertainty, technological barriers and governance challenges must be addressed through collaboration among policymakers, industry stakeholders and communities.

Democratizing energy sharing is not just about technology; it’s about how digitalization, particularly tokenization, can reshape how we think about collaborating to generate and use energy. As solar panel costs decline, efficiency improves and battery storage technology advances, we are moving toward a future of energy abundance. This helps to explain why in Holland, as reported by Dutch News: “Production capacity rose 22% in 2023 when compared with 2022 and is almost 40 times higher than in 2013, the CBS said. Some 42% of capacity is on the roof of private or rental homes, with the rest in the hands of companies.” Decentralized autonomous organizations (DAOs) could provide a new framework for energy governance, enabling households, businesses and communities to manage their energy resources in a decentralized, transparent and efficient manner. This shift promises the democratization of energy production and a new era of efficient and transparent energy distribution and sharing.

The energy sector is undergoing a profound transformation to reduce CO2 emissions and mitigate climate impact. Renewable energy is becoming the primary electricity generation method, primarily from smaller and more distributed sources. This shift is driven by the need for sustainable operations, such as replacing internal combustion engines with electric vehicles and adopting renewable heating solutions such as heat pumps. These changes necessitate a modern infrastructure for faster clearing, settlement and device-level granularity using IoT devices. This new landscape gives consumers a more significant role, with the chance to engage directly in P2P energy sharing through decentralized technologies, effectively becoming prosumers. Energy sharing using renewable sources, storage systems and smart grids among households, businesses and institutions, help to lower costs and improve energy security. It’s about community ownership, distributed generation, dynamic consumption, P2P energy sharing, energy storage and conversion and smart grids. However, it is also about distributed governance, which will become crucial for managing shared energy resources and ensuring local decision-making, stakeholder participation, transparency, flexibility and member empowerment. Energy sharing is pivotal for transitioning to a decentralized green energy market, reflecting trends such as local energy production, the proliferation of energy communities and hubs, technological advancements, policy support, community engagement, sustainability and economic opportunities. These trends indicate a significant shift towards a more decentralized, sustainable and community-oriented energy future.

Energy-sharing systems offer direct cost savings, collective buying power, energy optimization, local economic growth, value distribution, member empowerment, social solidarity and energy supply resilience. These aspects support sustainable development, community resilience and inclusive growth. There are many hurdles to overcome, such as regulatory challenges, a need for more sophisticated tools for fractional ownership of energy assets, decision-making complexities, inefficient value distribution and sustaining community engagement. This transformation aligns with broader trends in the energy sector, such as decentralized regulatory reform, community engagement and investment in infrastructure and tools. But with a shared vision, these are challenges we can address together. Energy communities (ECs) and hubs (EHs) are the key players in the transition to sustainable energy. These local initiatives empower stakeholders to collectively generate, share and manage energy. ECs and EHs function as living systems characterized by dynamic interactions, adaptation, feedback loops, resilience, evolution and symbiosis. Energy communities are defined by common goals, collective action, democratic governance, social and economic benefits, inclusivity, regulatory frameworks and empowerment. They are supported by EU legislation, including the Clean Energy for All Europeans package, and include renewable energy communities (RECs), citizen energy communities (CECs) and municipality-led renewable energy communities. Energy hubs (EHs) integrate various energy resources and technologies to support efficient energy management within specific areas. Types of EHs include ownership associations, commercial energy hubs and industrial renewable energy hubs. It’s important to understand how EHs and ECs differ in ownership structures, scope and scale, infrastructure ownership and levels of community engagement. Our paper proposes that a comprehensive energy-sharing solution integrates several vital components to ensure effective and sustainable operation. These components include:

· virtual power plant - optimizes energy-sharing practices based on local needs and goals.

· community engagement - a user-friendly digital platform that facilitates participation and collaboration among community members.

· fractional ownership - allows broader participation and financial empowerment through shared investment in energy assets.

· distributed governance - digital tools for transparent and inclusive decision-making, including membership management, proposal submission and agreement on investment options.

· treasury management - automates member rewards and value distribution using smart contracts and blockchain technology.

Implementing energy token solutions can encompass fractional ownership, localized energy production, governance and community participation through an intuitive interface, with rewards in the form of kWh Energy Tokens. These tokens, created on a blockchain, are tied to tokenized power agreements, with rewards according to ownership stakes. Effective governance involves transparent decision-making processes, democratic participation, clear governance structures, inclusive membership criteria, transparent communication, accountability mechanisms, flexibility and adaptability, sustainability focus and legal and regulatory compliance. The emerging landscape within the energy-sharing ecosystem includes cooperatives, energy hubs and service providers. Each component has distinct roles and responsibilities that collectively drive the system’s efficiency and effectiveness:· cooperatives - provide overarching governance and coordination, ensuring alignment among various stakeholders and establishing principles for sustainable energy management.

· energy hubs - operate locally, empowering community members to manage their energy resources collectively.

· service providers - offer specialized services such as technical expertise, project management, financial advisory, regulatory compliance and community engagement.

The synergy between ecosystems and markets creates a robust network of value and trust flows. Ecosystems provide the regulatory and cultural framework, governance mechanisms ensure self-regulation and community engagement, and markets facilitate economic exchanges. The transition to a decentralized, regenerative economic framework involves leveraging energy protocols and smart contracts on blockchain ledgers to integrate renewable energy sources. Essential building blocks for a successful regenerative energy DAO include effective governance, reward systems, financial transparency, communication, talent management, tokenization, coalition hubs, blockchain layers, innovative technologies and ecological benefits frameworks. This transformation aligns with broader trends in the energy sector, such as decentralized compliance, choosing the right blockchain platform, verifying membership, designing tokenomics, establishing governance mechanisms, deploying smart contracts, ensuring security, engaging and educating members, iterating and adapting, and collaborating with partners. It’s about building something autonomous, flexible and fair.

Digitalization, particularly tokenization, empowers individuals and communities to participate in energy management decisions, promoting transparency, inclusivity and accountability. Tokenization will enable peer-to-peer energy trading, creating economic opportunities and incentivizing renewable energy adoption. Challenges such as regulatory uncertainty, technological barriers and governance issues must be addressed to unlock the full potential of decentralized autonomous organizations in renewable energy sharing. Collaborative efforts from policymakers, industry stakeholders and community members are essential to overcome these obstacles. The democratization of renewable energy sharing through tokenization holds promise for a sustainable, equitable and decentralized energy future. By leveraging the collective power of individuals and communities, we can accelerate the transition to renewable energy and build a resilient and inclusive energy ecosystem. This transformation aligns with broader trends in the energy sector, such as decentralized energy production, energy communities and hubs and smart grid technologies.

This article first appeared in Digital Bytes (17th of September, 2024), a weekly newsletter by Jonny Fry of Team Blockchain.