How can tokenisation help to finance the world's energy transition?​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​

The nascent global tokenisation market is expected to grow by 19.5 per cent a year, from $1.9 billion to $4.8bn by 2025

A technician removes a cryptocurrency mining rig from a rack at a Bitfarms facility in Saint-Hyacinthe, Quebec, Canada. Tokenisation can play a big role in improving the energy efficiency of big oil producers, such as the US, which wastes more than 50% of the energy it produces. Bloomberg

Technicians inspect bitcoin mining machines at Bitmain Technologies in Inner Mongolia, China. The digital currency has stirred a lot of controversy over its energy impact, with Iran banning crypto-mining last week, blaming it for causing four months of continuous blackouts in the country. Bloomberg

A bitcoin mining data centre is seen on an oil field in North Texas. As the value of bitcoin soars and concerns rise about the energy-intensive process needed to obtain it, cryptocurrency entrepreneurs in the United States believe they have found a solution in flared natural gas. AFP

A natural gas-powered bitcoin mining farm occupied by PermianChain and operated by Brox Equity’s group of companies in rural Alberta. Courtesy: Brox Energy, Brox Power, Brox Data Centres.

A natural gas generator is seen powering a bitcoin mining data center on an oil field in North Texas. Tokenisation can help investors pitch in to fund stranded assets such as an isolated patch of the North American shale basin, which is economically unviable to develop. AFP

A worker places a solar panel into position on a roof during a Shift Energy Group solar installation on a home in Victoria, British Columbia, Canada. Tokenisation of energy assets is also gaining ground in the solar photovoltaic sector, where companies are encouraging consumers to buy into panels and take ownership of assets. Bloomberg

Solar panels and wind turbines on the outskirts of the new city area of Yumen, Gansu province, China. Tokenisation is also being increasing used in developing energy projects, notably renewables and sustainable infrastructure in Asia. Bloomberg

A coal-fired heating complex in China. The International Energy Agency called on countries not to invest in new fossil fuel developments to attain their carbon-reduction goals by 2050. Reuters

A view of the 100-megawatt molten salt solar thermal power plant in Dunhuang in China's northwestern Gansu province. Global spending on the energy transition hit a record of more than $500bn in 2020, as countries continue to prioritise offsetting emissions. AFP

The sunsets behind the Burbo Bank Offshore Wind Farm in Liverpool Bay in the Irish Sea in north west England. Flows of finance into the energy transition reached an all-time high of $501bn last year, up from $458bn in 2019, according to the WEF's Energy Transition Index 2021. AFP

Chief executive Hardik Bhatia says SolarGridX is using the blockchain technology of tokenisation to raise funds for solar projects Source: Solar GridX

Tesla electric vehicles are charged at a Tesla Supercharger charging station in Hanam, South Korea. Bahrain-based Fasset, which calls itself a platform for ethical financing of sustainable infrastructure, piloted the tokenisation of a Tesla Supercharger in the kingdom earlier this month. Reuters

Tesla chief executive Elon Musk gestures as he arrives to visit the construction site of the future US electric car giant Tesla, in Gruenheide near Berlin. This week, Tesla boss Elon Musk criticized bitcoin's power consumption, particularly of energy produced from coal, and said he would no longer accept the cryptocurrency as payment for his electric cars. AFP

As the world attempts to hit its emissions targets by 2050 and reduce energy poverty, a unique intersection of blockchain and economic development is looking to solve many developmental challenges.

About 940 million people, or 13 per cent of the world’s population, have no access to electricity while about 3 billion people, or 40 per cent of the population, do not have access to clean cooking fuel.

A holistic overhaul of the world’s energy system is expected to disproportionately affect the world’s poor.

Companies such as the Libra Project, which is based at the Abu Dhabi Global Markets, are looking to divert capital away from developed economies and democratise ownership of sustainable assets for those in the developing world.

They are using tokenisation, where a company issues a blockchain token, that provides tradeable partial ownership of a real tangible asset. These tokens also promise sufficient liquidity and can be traded on the secondary market.

“We wanted to make a system where people got paid, not on the amount of profit but on the amount of impact that has been delivered,” says James Spence, co-founder and director of the Libra Project.

“So, back in 2017, that is when everyone was doing their ICO [initial coin offering], blockchain was just coming in, and we did not want to go down that road because we looked at ICOs and thought they were illegal.”

The company, which started in 2016, intends to tokenise small projects in the developing world, with total valuations of $10 million to $15 million.

The token gives owners shareholder rights and leads to transparent and highly democratised decision making, says Mr Spence.

The nascent global tokenisation market is expected to grow at a compound annual growth rate of 19.5 per cent from the current $1.9 billion to $4.8bn by 2025, according to research company Markets and Markets.

North America is poised to have the highest proportion of issued tokens.

Tokenisation can help investors to pitch in and fund stranded assets such as an isolated patch of the North American shale basin, which is economically unviable to develop.

Gas from these assets can then be used to power Bitcoin data centres, which are high energy consumers. These data centres offset flared natural gas by channelling it into mining for digital currencies instead.

Tokenisation can play a big role in improving the energy efficiency of big oil producers such as the US, which loses more than half of the energy it produces to inefficiencies.

Iraq, Opec’s second-largest producer, could also reap the benefits of using technology to develop assets. The country faces a massive gas-flaring problem that costs the economy billions of dollars in lost revenue.

Tokenisation could also mobilise investment in energy efficiency, especially as funding for the sector is projected to have fallen by 9 per cent last year.

While tokenisation is being embraced widely by the art world, allowing for the efficient transfer and ownership of assets, it is also being increasingly used in developing energy projects, notably renewables and sustainable infrastructure.

The Libra Project scours the developing world for projects where they can make the biggest social impact. The company uses the UN's Sustainable Development Goals as the yardstick to base their investment decisions.

The UN's SDGs aim to rid the world of poverty, hunger, gender inequality, lack of access to water and sanitation and polluting fuels, among others, by 2030.

“Now energy is just the first scope. Because it is all based on blockchain, we can then consider [several] votes, as we start to build out,” says Mr Spence.

“We look at building renewable energy projects. And then off the back of that and once that is built, 10 per cent of the profits flow into the next vertical, so that is water.”

The company then mobilises the tokenised funds to build water projects focused on sanitation, which also seek to reduce the use of bottled water and the incidence of waterborne diseases. It also funds food, health care and education projects.

The yields for investors holding these tokens can be as high as 14.75 per cent, says Mr Spence.

The Libra Project is currently in the process of trying to lower the threshold for investment to $100, allowing all kinds of investors, particularly those living in the communities, to invest.

Mr Spence says the typical timetable of a power plant project is 12 years.

“What we are doing now is adding liquidity into this,” he says.

Currently, the company is looking to raise funds from accredited and institutional investors who have a minimum buy-in of $100,000.

“We call this the private equity stage of tokenisation,” says Mr Spence.

“Now, as we take this from where we are now to what we want to the call public space, it is going to take about 12 months to get to that regulatory process and we want to be dropping this down to an entry level of $100.”

A Bitcoin mining centre in Texas. Flared natural gas from economically unviable assets is being used to power Bitcoin mining AFP

Tokenisation is also becoming popular in the conventional energy space, which is under mounting pressure to adopt a more sustainable path.

PermianChain, a natural resources tokenisation platform, allows investors to invest in stranded assets and use them as an energy source to mine cryptocurrency.

The company specialises in communities that are switching away from fossil fuels but may have an asset or two that remain stranded, making them unviable for commercial extraction.

It is also looking to limit the flaring of gas across North American shale basins and channel that into crypto-mining.

“Maybe, [there is] a lack of infrastructure to take that gas to the sales market, or a lack of capital or market incentive to even [use] the gas,” says Mohammed El Masri, founder and chief executive at PermianChain.

“So, in that case tokenising stranded gas is a perfect opportunity because you know it is gas that is not being used at the moment, and it can be put to better use in some other forms or ways on-site without even transporting it anywhere.”

The company channels the gas to power the cryptocurrency mining sector, which is cheaper and more sustainable energy to generate Bitcoin.

The digital currency has stirred a lot of controversy over its energy consumption, with Iran banning crypto-mining last week and blaming it for causing four months of continuous power cuts in the country.

Technicians inspect Bitcoin mining machines at Bitmain Technologies in Inner Mongolia, China. Bloomberg

PermianChain operates by bringing data centres for mining Bitcoin, which are in the form of shipping containers, on to the sites. The centres then use the gas to produce power through generators that provide electricity for mining. The operation requires no pipeline or infrastructure as it is adjacent to the well-site.

Tokenisation of energy assets is also gaining ground in the solar photovoltaic sector in the Middle East, where companies are encouraging consumers to buy into panels and take ownership of assets.

However, tech-savvy investors are also taking advantage of blockchain's potential to create value and opportunities in trendier assets such as Tesla superchargers.

Fasset, which calls itself a platform for ethical financing of sustainable infrastructure, piloted the tokenisation of a Tesla supercharger in Bahrain earlier this month. The company has offices in London, Bahrain, the UAE, Malaysia and Singapore.

The company partnered with NEC Payments to issue 10 tokens, which allow the users to own part of the supercharger, while also allowing them to use the tokens to charge their Teslas.

“Once you buy into this network, you get discounted rates for using it, so that is why all of our initial users are Tesla drivers,” says Mohammed Raafi Hossain, chief executive at Fasset.

“The token itself is, you can say, a key card or an access point to leveraging the supercharger itself,” he says.

“A typical share on Nasdaq does not give you all of these rights but a tokenised effort combines all of these things. It becomes an asset, becomes a utility, it becomes a key card, all in one.”