Why renewable asset-backed cryptocurrencies can support the green transition

As the fight against climate change intensifies, innovative financial instruments are emerging to support sustainability.

Among such tools are renewable asset-backed cryptocurrencies, used to finance green energy projects.

By melding the strengths of blockchain technology with tangible value propositions in renewable energy, these cryptocurrencies are beneficial to the renewable energy sector as well as investors.

Renewable asset-backed cryptocurrencies represent a unique category of digital tokens underpinned by tangible renewable energy projects, such as solar and wind farms.

A token backed by a solar farm gains intrinsic value from the consistent production and sale of electricity. Long-term contracts play a crucial role in ensuring the stability and predictability of income streams

Unlike traditional cryptocurrencies, which often involve energy-intensive mining processes, these tokens derive their value from renewable energy assets. The value of these tokens is closely tied to the performance and success of the associated renewable energy projects.

For instance, a token backed by a solar farm gains intrinsic value from the consistent production and sale of electricity.

Long-term contracts and feed-in tariffs play a crucial role in ensuring the stability and predictability of these income streams, making the tokens a reliable investment.

The primary distinction between renewable asset-backed cryptocurrencies and mined cryptocurrencies lies in their environmental impact and operational mechanisms.

Non-asset-backed crypto mining requires significant computational power, consuming vast amounts of energy, often sourced from non-renewable resources.

In contrast, renewable asset-backed tokens do not involve mining. The mechanism behind renewable energy tokens involves issuing a fixed number of tokens, each corresponding to a specific portion of the renewable asset.

This arrangement leads to both clarity and security, as every token is linked directly to a discernible asset.

Blockchain technology is essential to this process, providing decentralised and immutable records of ownership and transactions that build trust between investors and stakeholders.

This method aligns with the sustainability goals by leveraging green energy sources, thus minimising the ecological footprint.

Implications for investors

Investing in renewable asset-backed cryptocurrencies offers a range of financial benefits.

These digital tokens, supported by functional renewable energy assets, are a more stable and secure long-term investment option compared to traditional digital currencies.

Holders of these tokens also enjoy fixed income streams from the products generated by the underlying assets.

For instance, a token backed by a solar farm might entitle holders to a share of the proceeds from electricity sales.

Moreover, renewable asset-based cryptocurrencies are consistent with the trend towards environmental, social and governance (ESG) criteria in investment decisions that has been gaining ground in recent years.

As awareness of the climate crisis rises, more investors are seeking opportunities that contribute positively to the planet.

The introduction of renewable asset-backed tokens could further accelerate this trend by unlocking additional sources of capital and reducing reliance on conventional financing mechanisms.

Boost to renewable energy projects

The integration of these investment instruments has transformative potential for the renewable energy sector.

By providing a future-orientated financing method, they can significantly facilitate the implementation of renewable energy projects.

Such increased availability of capital is crucial for achieving global climate goals as well as aiding the switch to a low-carbon economy.

Also, the decentralisation and transparency inherent in blockchain technology enhances the efficiency and accountability of green energy investments. Smart contracts can execute various procedural tasks automatically, like revenue distribution and property management, cutting administrative costs and improving accountability.

This level of efficiency, in turn, makes renewable energy projects more viable in nature as well as more attractive to investors.

Renewable energy investment will reach $11 trillion by 2050, BloombergNEF said.

But traditional financing methods for renewable energy projects, while offering benefits over the long-term, often face significant hurdles, including lengthy approval processes, high entry barriers for smaller investors, and limited access to capital markets.

Renewable asset-backed cryptocurrencies address these challenges by streamlining the fund-raising process through token sales.

Project developers can raise capital more efficiently and inclusively by issuing renewable asset-backed cryptocurrencies.

This amplifies access and allows individual investors to participate in funding renewable energy projects, broadening the base of financial support.

The funds generated from token sales are directly invested in developing or expanding renewable energy infrastructure.

This highlights how digital finance can change the game by opening up to broad new groups of investors the way forward in green energy markets.

The green currency movement is on track to speed more dramatically than ever before and change the whole landscape of renewable power generation.

The rise of renewable asset-backed cryptocurrencies marks a revolutionary step towards a sustainable future.

By channelling investments into tangible green assets, these digital tokens empower individuals to contribute directly to the fight against climate change.

The time to invest in our planet’s future is now.

Peter Bahorecz is partner and chief networking officer at SunMoney Solar Group

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

The burning issue

The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.

Part three: an affection for classic cars lives on

Read part two: how climate change drove the race for an alternative

Read part one: how cars came to the UAE

What is blockchain?

Blockchain is a form of distributed ledger technology, a digital system in which data is recorded across multiple places at the same time. Unlike traditional databases, DLTs have no central administrator or centralised data storage. They are transparent because the data is visible and, because they are automatically replicated and impossible to be tampered with, they are secure.

The main difference between blockchain and other forms of DLT is the way data is stored as ‘blocks’ – new transactions are added to the existing ‘chain’ of past transactions, hence the name ‘blockchain’. It is impossible to delete or modify information on the chain due to the replication of blocks across various locations.

Blockchain is mostly associated with cryptocurrency Bitcoin. Due to the inability to tamper with transactions, advocates say this makes the currency more secure and safer than traditional systems. It is maintained by a network of people referred to as ‘miners’, who receive rewards for solving complex mathematical equations that enable transactions to go through.

However, one of the major problems that has come to light has been the presence of illicit material buried in the Bitcoin blockchain, linking it to the dark web.

Other blockchain platforms can offer things like smart contracts, which are automatically implemented when specific conditions from all interested parties are reached, cutting the time involved and the risk of mistakes. Another use could be storing medical records, as patients can be confident their information cannot be changed. The technology can also be used in supply chains, voting and has the potential to used for storing property records.

The specs

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