Revenue stream tokenization with tranching of claim seniority in electricity markets

Abstract

This paper proposes tokenising generators' revenue streams as a novel financial instrument for electricity market risk management. The core idea is that tokenised revenue streams (RevToks) holders can directly claim a portion of a generator's energy market revenues. The novelty lies in exploring a tranched structure, creating a tiered hierarchy of RevTok claims. This approach addresses the financial challenges of non-dispatchable renewable energy generation and volatile electricity spot markets, which expose generation firms to volumetric and price risks, potentially deterring project financiers. The manuscript introduces tranching, a scheme for fractionalising energy market revenues based on RevTok seniority. Project financiers might hold senior RevToks, ensuring first claim on generator revenues, while bulk offtakers could purchase junior RevToks as a hedge against high wholesale prices. Case study market simulations indicate that these tranched revenue sharing arrangements can, in principle, help generators, financiers, and offtakers to better manage their risk exposure. The proposed system would allow RevTok holders to directly claim shares of specific generators' revenue streams, offering a new risk management tool for various electricity market participants.