Why Commoditizing Renewable Energy Could Be Key for Long-Term Growth
- Mar 3, 2021 11:23 am GMT
Unlike other commodities such as oil and gas, renewable energy sources like wind and solar are not treated as scarce commodities. The fact is, they are not. They are abundant in nature and are considered non-depletable. As such, consuming a portion of wind or solar energy does not result in the reduction of the available sunlight or wind.
Advances in technology have made it easier to come up with more innovative ways of tapping into the wind and solar energy. For instance, Change With Solar recently published reports discussing floating energy hybrid platforms could be used to generate energy using waves while there is also a report that suggests that companies are now creating solar panels that do not require sunlight to generate energy.
This further widens the scope of available resources for clean power production. This is potentially the largest industry in the global financial markets if only companies could find a way to create more avenues for investing in it.
Is abundance a bottleneck?
In the case of oil and gas, or even other naturally occurring commodities, every day we mine these commodities reduces the commodity deposits available for the future. This is part of the reason why oil and gas are historically scarce commodities. As such, they are often traded in the mainstream financial markets and the derivatives markets.
For commodities such as precious metals, they are priced per ounce, kilogram, etc while the likes of oil and gas are priced per barrel, gallon, etc. This makes it possible for such commodities to be traded on common derivatives trading platforms thereby increasing exposure to investors across the globe.
Currently, the renewable energy market is only accessible to a few investors because of the high initial costs involved. Even looking at the stock market, just a few stocks are pure-play renewable energy companies. While the potential for the industry continues to be highly promising, some of these stocks are thinly traded, which makes them relatively speculative when compared to mega-cap energy stocks.
The commoditization of the renewable energy market will increase the number of ways that investors can participate thereby increasing liquidity in the small pure-play clean energy stocks. And now, it looks like we are getting closer due to advances in technology.
Could blockchain technology help to commoditize renewable energy?
Blockchain technology has become one of the most disruptive forces in the technology sector. Its application in various markets continues to grow. However, one aspect of the technology that most investors are looking to adapt to various industries is tokenization. The ability to tokenize markets has enabled industries like real estate to become more accessible.
If companies can tap into this concept and offer tradable renewable energy tokens like in the case of real estate, this could have a huge impact on the industry as a whole. There is a framework for this to come to fruition.
Already companies can invest in the renewable energy market by purchasing renewable energy certificates from generation companies. RECs, as they are often abbreviated, offer big tech players like Apple and Google an opportunity to improve their clean energy scores by simply purchasing the registers from green energy production companies.
According to a New Energy Finance report published by Bloomberg, investment in Power Purchase Agreements (PPAs) has skyrocketed over the last five years. In 2016, these agreements totaled 4.3GW of power. In 2019, they had surpassed 19.5GW. The report indicates that Amazon, Facebook, Google, and Microsoft, outpaced large oil companies to dominate the list of companies involved in PPAs.
Ideally, the investors in PPAs or renewable energy certificates can sell them once the power is fed to the grid. This form of investing could be tokenized to help to commoditize renewable energy, which would then increase accessibility. The more accessible the opportunity to profit from renewable energy is, the more investors will look to invest, thereby boosting long-term growth.
In summary, the renewable energy market is one of the most exciting places to invest in. However, the options have been limited for several years. Technological advances can help create more avenues for retail investors to play a part. The RECs and PPAs have demonstrated that this can be done.
As such, all that remains now is for companies to try to fuse this concept with technologies like blockchain to help tokenize the market. With tokenization, renewable energy from solar and wind could easily become some kind of a tradable commodity. This will boost the long-term growth of the industry.