DeFi is acting as a disruptive influence on the energy market by offering solutions to issues normally faced in funding and accessibility. DeFi allows democratized access to renewal tech with crowdfunding and blockchain-powered trading platforms for energy. This potential silver bullet is not without its own inherent challenges and is still very much in its nascency, but DeFi could prove to be the lynchpin in a more renewably brighter future for us all.

While renewable energy hasn't taken off in quite the way that some people have envisioned, that just means that it remains a market with plenty of room for growth. By using decentralized finance (DeFi), access to clean renewable energy can be democratized and supported without the need for government subsidy or traditional financing structures. This article will explore ways that DeFi can provide solutions for those interested in getting renewable energy projects online and allowing widespread adoption of the technology to flourish.

Why do we need the silver bullet of DeFi?

Unfortunately, renewable energy projects are still very expensive and often see little return until well after their construction. This means that financing of some kind is usually necessary for any sort of large-scale renewable energy project. When it comes to acquiring that financing, traditional methods typically come with many constraints that can hinder or entirely halt the process. 

This is where DeFi comes in, allowing for the creation of blockchain-based systems, such as you might have seen on a crypto news platform like cryptotoday.org, that can operate without red-tape and the constraints associated with traditional financing options. With smart contracts, DeFi platforms can provide decentralized access to all of the necessities of financing large projects, while also being far more inclusive than traditional financing methods.

Turning renewable energy infrastructure into digital assets

One way that DeFi is used to fund renewable energy infrastructure across the world is by using the infrastructure as digital tokens. These tokens are then sold in small segments, allowing multiple investors to purchase a small piece of the infrastructure and together fund the entire project by fractions. This democratization of the funding process is made possible through the blockchain technology that DeFi platforms are usually based on. 

While this might sound outlandish, one DeFi platform has already been successfully using this method to fund renewable energy projects. WePower was responsible for a number of different wind and solar renewable energy projects across Europe in 2021 by using a similar method to the one described above. Rather than allowing investors to buy tokenized parts of the physical assets, WePower sold tokens related to the eventual energy production that the projects would produce. 

DeFi allows for renewable energy projects to be backed in otherwise unlikely areas

Because DeFi allows investors to get involved with projects anywhere across the world, the regions that are best served by DeFi solutions for financing are those that lack the traditional financing routes of banks and government grants. DeFi could allow for micro-loans that would allow for smaller-scale renewables projects to be undertaken across areas of developing countries that might otherwise be lacking in even basic electricity.

You might say that such a system sounds farfetched, well one already exists. Sun Exchange has allowed for solar installations to be built in many remote communities across Africa. The platform lets investors worldwide buy solar cells, these cells are then leased to the communities with the solar infrastructure and the investors earn cryptocurrency in return for the lease. 

What challenges does DeFi face in the renewables game?

The main concern that faces proponents of using DeFi platforms to help build and fund renewables, is that blockchain networks themselves are incredibly power-hungry. The carbon footprint of blockchain itself must be lowered before DeFi can truly be considered a source of clean renewable energy. 

One important thing of note is that there are many DeFi platforms that are no longer using proof-of-work (PoW) mechanisms, but have instead switched to proof-of-stake (PoS). PoS consensus mechanisms use far less energy than the older PoW mechanisms. When Ethereum transitioned to PoS it reduced its energy consumption by over 99%. Further technological advancement could mean further reductions in energy usage, heightening the usability of DeFi platforms for renewable energy financing.

One other challenge that DeFi faces when it comes to funding renewable energy solutions is scalability. While DeFi platforms have proven that they can be of great use in funding small projects, using them to fund a larger renewable energy infrastructure project does not seem currently viable. This challenge is likely to be overcome in the near future, but it bears mentioning all the same.

Conclusion

By democratizing the process of funding renewable energy projects, DeFi platforms allow investors to bypass red-tape and other constraints that traditional financing systems place on projects of this nature. As renewable energy is often co-opted as a political bi-partisan issue, the ability to bypass governmental grants or other financing systems could be seen as crucial by many interested in advancing renewable energy projects. While DeFi might not yet be the silver bullet that fully breaks open the renewable energy market, DeFi platforms and financing solutions should, as they mature, allow for interested parties to successfully fund large-scale renewable energy projects.

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