Distributed solar used to be the most under-banked area, especially for residential solar. For banks, the cost of performing due diligence is high, and the risks associated with the projects could not be properly measured nor managed. It takes almost the same amount of effort to evaluate a 50kW project and an 1MW project as in-person inspection is usually required. Risks include not only power generation from the solar panel, but also the individual debtor’s complicated risk profile. That is why banks have hesitated to finance distributed solar projects and charged higher interests for them than utility scale projects. Thanks to climate fintech, especially blockchain technology, these pain points can be adequately resolved. Electricity-generation data can be collected by sensors connected to the solar panel then stored on the blockchain, a decentralized network that ensures the authenticity and immutability of data. Banks can access this data on a regular basis to measure the performance of such projects, preventing the risk of fraud and saving inspection costs. Such data can also be used when one bank should decide to sell its residential solar loan to another financial institution, thus improving the efficiency of such financial transactions.
With the merits of blockchain technologies for distributed climate finance, its adoption is very likely to accelerate in 2022, given the booming distributed solar market in China – and probably the rest of the world as well. Before 2021, distributed solar PV accounted for only about 40% of total solar PV installation in China; in 2021 however, it represented 53.4% of total installation – a significant increase which made it the largest segment of solar market in China for the first time. Meanwhile, within the distributed solar PV segment, residential solar demonstrated the fastest growth: 21.5 GW of residential solar was installed, an 115% increase from previous year. This trend is likely to continue in 2022 given the following: 1) the overall solar demand is expected to be enormous this year as prices of materials along the solar supply chain are expected to drop due to the increase of capacities, in particular polysilicon; 2) the unit cost of installing a residential solar PV project is lower than that of a utility scale project as less construction is required and higher electricity price from end users can offset installation costs; 3) residential solar is still entitled to subsidies in some provinces while utility- scale solar no longer enjoy subsidies; 4) the market has been accelerated by the National Energy Administration (NEA)’s notice regarding county-level trials of distributed solar power generation designed to boost rooftop solar capacity.
Besides the spurt of distributed renewable energy, supply chain carbon data tracking is another driving factor of the adoption of blockchain technology. Scope 1 and Scope 2 emissions are low-hanging fruits for carbon emission calculation, but Scope 3 emission, which includes complex upstream and downstream emission data that require calculation by more advanced technologies. The European Union will impose carbon tariffs on imported goods from 2026 – the urgency of carbon emission tracking along the supply chain is therefore increasing for many exporters. Blockchain technology applied in this context helps enhance the traceability, transparency, and accountability of carbon emission data along the supply chain, just as it has for distributed renewable energies. For multinational corporations such as Apple and L’Oréal who have pledged to fight against climate change, blockchain technology will help them achieve their goals of monitoring carbon emissions of their suppliers, which can run up to the thousands. An additional benefit: emission data stored on the blockchain is immutable and transparent, which helps prevent green washing in climate finance. Banks can thus easily identify climate-friendly projects and clearly estimate the impacts of their green loans.
“Blockchain can significantly reduce the friction cost of transaction and enhance the efficiency of sustainable finance network,”said by Shawn Wang, CEO of Rivtower, a climate fintech startup which helps financial institutions establish climate financing systems based on blockchain technology. Rivtower is currently providing services for China Merchants Bank (CMB).
Blockchain product illustration by Rivtower
In 2022, expect to witness faster adoption of blockchain technology in climate finance and more climate fintech startups like Rivtower blooming in this wave of decarbonization.
For more climate fintech stories and applications, please download the Climate Fintech Report.
Link of Webinar with Shawn Wang
Jasper Shen, Marketing Manager (China), New Energy Nexus